Service Sector ISM//NFP

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Karim writes:

Similar to manufacturing, service sector ISM stabilizing at high levels; Large increase in backlogs also bodes well for future activity.

With employment index now also crossing the 50 level, adds to upside potential in NFP tomorrow; look for headline NFP up ~600k; with ex-census up ~225k.



May April
PMI 55.4 55.4
Activity 61.1 60.3
Prices Paid 60.6 64.7
New Orders 57.1 58.2
Backlogs 56.0 49.5
Employment 50.4 49.5
Export Orders 53.5 57.0
Imports 56.5 56.5

Anecdotes below seem to bode well for corporate profits: demand improving and costs controlled.

  • “Our business continues to grow. We are significantly above last year’s pace.” (Information)
  • “Business is steady right now — not the normal spring for construction, but improving.” (Construction)
  • “Outlook is still generally flat for the remainder of this year, with signs that orders and activity will be picking up.” (Professional, Scientific & Technical Services)
  • “Continuing our pattern of cautious optimism. Consumers appear to be coming out of hibernation and willing to spend. We expect that if this trend can remain solid, we’ll in turn spend additional dollars to support and drive sales activities.” (Retail Trade)
  • “Customers’ activity is improving in some parts of the country.” (Wholesale Trade)
  • “We continue to ‘staff to volume’ in order to control labor and supply costs.”(Health Care & Social Assistance)

Yes, looking like we’re modestly improving domestically with the risks mainly external including spillover weakness form China and the euro zone.

Export growth down a touch but not serious to this point.

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latest Senatorial release

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The JOBS candidate Warren Mosler announces his
Million Dollar Challenge to Senate CANDIDATES

Middletown, Conn. (June 2, 2010) – Warren Mosler, Independent candidate for US Senate, knows for a fact that, operationally, there is no such thing as the US government running out of dollars, being dependent on foreign borrowing, or potentially facing a solvency crisis like Greece, and he has pledged $1 million of his own money to any of his Senate opponents on the ballot who can prove him wrong.

“Those concerns are due to pure fear mongering from supposed experts. They have no factual basis, and they have become the true obstacles to the return of full employment and prosperity” said Mosler, who added “and there is absolutely no financial reason to cut Social Security or Medicare benefits.”

Many have also argued that the nation’s growing debt rules out further tax reductions, but Mosler says those assertions are blatantly untrue, proposing a full payroll tax (FICA) holiday for employees and employers that will add over $300/mo to the take home pay of someone earning $50,000 a year. This plan and similar initiatives will reintroduce the capital the economy needs to prosper and grow.

“We lost over 8 million private sector jobs primarily for one reason- sales collapsed,” said Mosler. “My full payroll tax (FICA) holiday for employees and employers boosts take home pay and helps lower prices to quickly restore those lost sales which brings back the lost jobs, fixing the economy the right way, the American way, from the bottom up.”

In the midst of our social and economic calamity, with the Republican and Democratic candidates offering no viable plans to restore full employment, Mosler, an expert in monetary operations, is uniquely qualified to quickly move America back to full employment and prosperity. He knows the American economy works best when people working for a living have enough take home pay to buy the goods and services they produce, with business competing for those consumer dollars.

Mosler congratulated candidates McMahon and Blumenthal on their convention victories, and looks forward to public debate on the urgent economic issues facing our nation and the world.

“We have seen Republicans and Democrats overseeing the devastatingly tragic loss of over 8 million jobs. And while lower income people working for a living struggle to survive, elites who contributed to our problems rake in billions from bailouts,” said Mosler. “It’s time the government focuses on getting its hand out of the pocket of the hard working Americans who make this country great.”

See www.moslerforsenate.com for details of Mosler’s ‘Right on the Money’ proposals and his $1 Million Challenge.

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Taylor

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This means we can have far lower taxes for any given amount of govt spending.

Hope they all see it that way!

Friday, May 21, 2010

The Administration and the IMF on the Multiplier
In a soon to be published paper, several economists at the International Monetary Fund report estimates of government spending multipliers which are much smaller than those previously reported by the U.S.

Administration. In order to obtain the estimates the IMF economists use a very large complex model called the Global Integrated Monetary and Fiscal (GIMF) Model developed by Douglas Laxton and his colleagues at the IMF . The paper is quite technical, but the bottom line summary is that a one percent increase in government purchases (as a share of GDP) increases GDP by a maximum of 0.7 percent and then fades out rapidly. This means that government spending crowds out other components of GDP (investment, consumption, net exports) immediately and by a large amount.

The IMF estimate is much less than the multiplier reported in a paper released last year by Christina Romer of the President’s Council of Economic Advisers and Jared Bernstein of the Vice President’s Office. The attached graph shows how huge the difference is. It shows the impact on GDP of a one percentage point permanent increase in government purchases as a share of GDP reported in the IMF paper (labeled GIMF) and in the Administration paper (labeled Romer-Bernstein).

John Cogan, Volker Wieland, Tobias Cwik and I raised questions about Romer-Bernstein paper soon after it was released last year because the estimates seemed to be much different from comparable estimates based on more modern new Keynesian models. We classified the Romer-Bernstein estimates as old Keynesian. Since then many technical papers have been written on this subject, of which a recent paper by Michael Woodford is the most comprehensive in my view. The IMF model is of the new Keynesian variety and adds more evidence of the huge policy differences between new Keynesian and old Keynesian models.

Posted by John B. Taylor at 12:48 AM

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Mtg Purchase Applications

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Obvious that the end of the $8,000 first time home buyer credit caused a spike that has been more than reversed, much like November.

The question is how much that pull back, along with the euro and China issues, will slow what has been a moderately growing US economy.

With demand leakages like pension fund contributions and income compounding in pension funds and other corporate reserves, aggregate demand can only be sustained by the private sector or the public sector spending more than its income.

And right now the drivers of private sector debt- housing and cars- don’t show signs of the increases necessary to close our output gap.

That leaves the public sector.

For the current size of govt, we remain grossly over taxed by a govt that thinks its run out of money and is now dependent on the confidence of investors to fund itself.

Note, for example, the expired unemployment benefits mean a reduction in aggregate demand which in fact works against employment.

And this is with a Democratic majority.

As long as the ‘deadly innocent fraud’ that to be able to spend dollars the US Govt needs to tax or borrow is taken as a given, it seems unlikely that pro growth policy will be implemented and unlikely growth will be sufficient to materially close the output gap any time soon.

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EU News

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Pretty much all bad:

European Unemployment Unexpectedly Increases to 12-Year High

Trichet Says Fiscal Sustainability Fosters Confidence, Growth

By that he means the austerity measures/deficit cutting which only makes things worse.

Trichet Says ECB ‘Fiercely Independent,’ Stable Prices Mandate

Just doing his job.

Trichet sees need for ‘budgetary federation’

He’s sees this as a watchdog to keep deficits down.

Trichet Says ECB Won’t Tolerate Budget Indiscipline Any Longer

He’s concerned about the secondary mkt purchases of greek debt meaning even this very modest support is in question.

ECB’s Noyer Says Rating Firms Aggravating Crisis

Weber Says ECB Bond Purchases Musn’t Exceed ‘Tight Limits’

More talk on limiting ECB purchases.

ECB’s Stark Says Bank May Start Withdrawing Liquidity in July

Doesn’t matter but indicates their attitude.

Nowotny Sees No Risk of Double-Dip Recession due to Austerity

That’s the entire source of the risk of a double dip recession.

Bank of Italy: EU euro defense package can’t last

And calls for a return to the 3% deficit limits.

ECB: Banks Will Suffer Considerable Loan Losses In 2010, 2011

Bank deposits are insured only by the national govts that are already seeing their funding threatened.

ECB warns of ‘hazardous contagion’

True, but they have their channels totally confused.

Trichet Says Second-Quarter Growth May Be Better Than Expected

European Manufacturing Growth Slowed More Than Estimated in May

Germans, ECB Spar Over Bond Plan

After Debt Crisis, New Tension Between ECB, Germany

Survey suggests Germans are unhappy with Merkel

Merkel Says Budget Deficit Looks ‘Moderate’ Versus Spain, U.K.

Still doesn’t get how the UK comp isn’t applicable.

Hypo Real Estate gets more loan guarantees

Spain presses for labor market reform deal

Fitch downgrades Spain’s credit rating

European Loans Post First Annual Increase in Eight Months

German Unemployment Falls Twice as Much as Forecast

German Retail Sales Rose in April on Declining Unemployment

French New Car Sales Fall 12% in May, After 12 Monthly Gains

Italian Unemployment Climbs as Recovery Fails to Create Jobs

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China News

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Not looking good here.
China is known to front load lending into the first half of the year.
So this year could see an exceptionally slow second half.

The two external threats to US well being cited earlier in the year, China and Europe, are looking very problematic.


· China manufacturing slows in May as demand weakens

· China told property risk is worse than in US

· Economist sees bubble in housing market

· China to reform resource and property taxes

· Home sales plummet, frosty year predicted

· Banks running out of lending quota

· Banks suspend trust loans to local govt finances

· Shenzhen to Raise Minimum Wage on July 1 by 10%

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CH News | Euro Swings Won’t Stop China Reserves Shift, Yu Says

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Euro Swings Won’t Stop China Reserves Shift, Yu Says

Right, they want to stay ‘competitive’ in the euro zone

China Property Stocks to Rebound End-Year, Xia Says
China’s Inflation Target of 3% This year ‘Difficult’ to Meet

Even with the yen rising with the dollar.
Not a good sign.
Inflation per se isn’t ‘bad’ for an economy, it’s that people don’t like inflation and fighting inflation can be very bad for an economy.

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just when you thought it couldn’t get any more inane

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Getting worse by the minute.

>   
>   (email exchange)
>   
>   On Thu, May 27, 2010 at 7:51 PM, wrote:
>   
>   Does anyone know of some way to talk to her?
>   This is embarrassing.
>   

Clinton spotlights US debt as diplomatic threat

Clinton says debt, deficit threaten U.S int’l position

U.S. committed to tough political steps on budget

Clinton urges new “national security” budget (Adds quotes, updates throughout)

By Andrew Quinn

May 27 (Reuters) — The United States’ huge national debt — now topping $13 trillion — is becoming a major threat to U.S. security and leadership in the world, Secretary of State Hillary Clinton said on Thursday.

“The United States must be strong at home in order to be strong abroad,” Clinton said in remarks on the Obama administration’s new national security doctrine, which was made public on Thursday.

“We cannot sustain this level of deficit financing and debt without losing our influence, without being constrained in the tough decisions we have to make,” Clinton said, adding that it was time to “make the national security case about reducing the deficit and getting the debt under control.”

The new Obama security strategy joins diplomatic engagement with economic discipline and military power to boost America’s standing, and pledges expanded partnerships with rising powers like India and China to share the global burden.

Clinton emphasized controlling the budget deficit, saying it was “personally painful” for her to see the yawning U.S. spending gap after her husband, former President Bill Clinton, ended his second term in 2001 with budget surpluses.

“That was not just an exercise in budgeteering. It was linked to a very clear understanding of what the United States needed to do to get positioned to lead for the foreseeable future, far into the 21st century,” she said.

Clinton said that as a Democratic U.S. senator from New York during the administration of former President George W. Bush, she had voted against “tax cuts that were never sustainable, wars that were never paid for” — but without success.

“Now we’re paying the piper,” she said.

Clinton in February blamed “outrageous” advice from Former Federal Reserve Chairman Alan Greenspan in part for the grim U.S. deficit picture.

POLITICALLY TOUGH

President Barack Obama, who pushed through his own huge stimulus spending plan last year amid the global financial crisis, was committed to taking the politically difficult steps needed to put government finances back in order, Clinton said.

“We are in a much stronger economic position than we were. And that matters. That matters when we go to China. That matters when we try to influence Russia. That matters when we talk to our allies in Europe,” Clinton said.

Obama has formed an 18-member bipartisan commission to study ways to reduce the U.S. deficit projected at about $1.5 trillion this year and bring long-term debt to manageable levels. It aims to find $229 billion in savings in 2015 to bring the deficit down to 3 percent of the overall economy from about 10 percent now.

The U.S. debt this week topped $13 trillion, according to USDebtClock.org, a website that tracks real-time growth in U.S. debt. That amounts to about 90 percent of annual gross domestic product, a level that could start impacting the economy.

Big budget deficits and rising U.S. debt are becoming major issues in the run-up to November’s congressional elections, and the European debt crisis that has unnerved financial markets has fueled these voter concerns.

While arguing for tighter overall economic discipline, Clinton said it was no time for the United States to roll back spending on international diplomatic and development programs, particularly as civilian agencies take up more of the work in Iraq and Afghanistan formerly done by the military.

“In order for us to meet the obligations that are now being asked of our civilian personnel, it costs money,” Clinton said, adding that it was time to look at an overall “national security budget” that would encompass funding for diplomatic, development and military operations.

“You cannot look at a defense budget, a State Department budget and a USAID (U.S. Agency for International Development) budget without defense overwhelming the combined efforts of the other two and without us falling back into the old stovepipes that I think are no longer relevant for the challenges of today,” Clinton said.

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Madness continues

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>   
>   (email exchange)
>   
>   On Thu, May 27, 2010 at 6:48 PM, Marshall wrote:
>   


UNEMPLOYMENT EXTENSION HUNG UP – Even after Democratic leadership scaled back its bill to reauthorize several domestic aid programs, reducing its impact on the federal budget deficit by $50 billion, conservative rank-and-file Democrats remain in their perpetual state of unhappiness. House leadership met shortly before press time to find a way forward, but all paths have major obstacles. Primarily, this one: Senate Finance Committee Chair Max Baucus tells HuffPost that he’s working out an agreement on what amendments could be offered by Republicans. But it comes at a high cost. The House had been planning to pass its bill and head out of town for the Memorial Day break. If any changes are made to the bill, it could languish over the break as programs and benefits expire. “We’re ready. Soon as the House sends it over. We will pass it,” Baucus said. “Gotta work out an agreement with the Republicans on votes. We’re going to have to work out some accommodation on amendments.”

Asked if the House would vote tonight, a brusque Steny Hoyer, leaving the leadership meeting for a floor vote, said: “We are STILL talking!” Chris Van Hollen said they were discussing possible changes with their members and could finish up before the break — but he didn’t say they’d vote tonight. Sandy Levin’s been working on Blue Dogs. Pelosi worked on Jared Polis, who’s been unhappy with the hedge fund loophole fix. The House is antsy to leave town. “Let’s go!” two separate members of Congress shouted on the floor, at least one of them a Democrat. “People are really tired,” one Dem told HuffPost. “What you’re seeing is the success of stubbornness.”

>   
>   CHANGE YOU CAN BELIEVE IN!!!
>   

And, of course, ironically cutting the benefits only adds to unemployment as it removes demand.

Instead, they should be suspending fica taxes to restore sales and paid work.

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