James Pethokoukis

Politics and policy from inside Washington

Unemployment rate in July slips to 9.4 percent; another 247,000 jobs lost. Yuck

Aug 7, 2009 12:40 UTC

The bad news arrives. Here is the latest from the Labor Department on the July unemployment rate and the number of jobs lost (bold is mine):

1. Nonfarm payroll employment continued to decline in July (-247,000), and the unemployment rate was little changed at 9.4 percent, the U.S. Bureau of Labor Statistics reported today. The average monthly job loss for May through July (-331,000) was about half the average decline for November through April (-645,000).

2. The number of long-term unemployed (those jobless for 27 weeks or more) rose by 584,000 over the month to 5.0 million. In July, 1 in 3 unemployed persons were jobless for 27 weeks or more.

3. The civilian labor force participation rate declined by 0.2 percentage point in July to 65.5 percent.

4. Among the marginally attached, there were 796,000 discouraged workers in July, up by 335,000 over the past 12 months. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them.

5. Manufacturing employment fell by 52,000 in July and has declined by 2.0 million since the recession began.

6. In July, retail trade employment declined by 44,000. Job losses in the industry had averaged 27,000 per month over the prior 3 months.

7. Employment in professional and business services continued to trend down in July (-38,000); the industry has shed 1.5 million jobs since the start of the recession.  …  While temporary help has lost 844,000 jobs since the recession began, the declines have lessened substantially over the past 3 months.

8. Transportation and warehousing lost 22,000 jobs in July.

9. Financial activities employment continued to trend down in July (-13,000). The average monthly decline for this industry was 23,000 over the past 3 months compared with 46,000 per month from November through April. Since the start of the recession, the financial activities industry has lost 501,000 jobs.

10. Health care employment increased by 20,000 in July, about in line with the average monthly gain for the first half of this year but down from an average monthly increase of 30,000 during 2008.

11. In July, the average workweek of production and nonsupervisory workers on private nonfarm payrolls edged up by 0.1 hour to 33.1 hours.

Study: Housing market will be in a recession for decades

Aug 6, 2009 14:26 UTC

A University of Utah study predicts that the percentage of U.S. households that own homes — a number which peaked at 70.4 percent in 2004 and 2005 and is now at 67.4 percent — will drop to about 63.5 percent by 2020. That would be the lowest level since 1985. The reasons are a) smaller households, b) tighter credit, c) green desires thatare  pro-renting.

David Rosenberg of Gluskin Sheff give his two cents on what it all means:

At a time when there are still some 800,000 units in excess that are vacant AND for sale, this secular decline in demand spells one thing and one thing only — a secular deflation in residential real estate. The periodic months of “green shoot” stability will very likely prove to be little more than noise along a fundamental downtrend in pricing.


Your link to the study is not working, please post the study link…have you read the study or just Breakfast with Dave?

Posted by Jon | Report as abusive

Cash for clunkers is Obamanomics in microcosm

Aug 3, 2009 17:58 UTC

Think of “cash for clunkers” as a sort of bizarro twin of that “bucks for banks” program from last autumn. You know, the one where Congress authorized $700 billion to keep financial clunkers on Wall Street up and running.

Thank goodness the automobile version won’t be nearly as expensive for taxpayers, consisting of a mere $1 billion in incentives for individuals to trade in their old gas guzzlers for new, (at least slightly) more fuel-efficient vehicles.

And giving away free money turned out to be so wildly and unexpectedly popular that the House quickly passed a bill giving away another $2 billion before heading out on August holiday. Now it’s up to the Senate to pass a similar extension before it takes the rest of the month off.

It shouldn’t. Although there’s no doubt the program encouraged a mad rush into automobile dealer showrooms, what will be the net effect of the deluge once it subsides? Probably not much.

An analysis by Macroeconomic Advisers forecasts that the program will affect only the timing of car sales, not total sales: “In particular, we expect that roughly half of the 250,000 in new sales would have occurred in the months following the conclusion of the program, and the other half would have occurred during the program period anyway. Therefore, we do not expect a boost to industry-wide production (or GDP) in response to this program.”

In other words, the program gets much of its juice via stealing car sales from the near future rather than generating additional demand. In practice, it works much like tax policies and subsidies to encourage women to have more children. Studies have found that women may have children earlier than they would otherwise, but they don’t necessarily have more kids.

The rebate program is also emblematic of the administration’s unwise approaches to economic policymaking. It borrows money to generate economic activity, which in effect borrows growth from the future, since eventually that loan will have to be paid back through higher taxes.

It picks and promotes a particular industry in a sort of small-scale industrial policy. It also places an emphasis on consumer spending as a route to renewed prosperity over greater investment — and isn’t that how the American economy got in trouble in the first place?

And for those reasons, cash for clunkers isn’t just a whimsically named government program that helps automakers clear out some inventory and generate a bit of quick cash flow, while also making average Americans feel they’re finally getting their bailout.

If that’s all it was, cash for clunkers wouldn’t be such a big deal. Rather, it is evidence that no one in Washington is learning any economic lessons. And that is a very big deal.


I did some research and made a list of Pros and Cons to the Cash for Clunkers program. So far, it’s 6-Pro, 12-Con.http://www.CashForClunkersInstruc tions.com(And I added a video – Jon Stewart on Cash for Clunkers, for kicks)

Higher growth vs. rising unemployment

Aug 3, 2009 17:54 UTC

Two fun factoids:

1) During the past two recessions, the unemployment rate kept rising for 15 months (1990-91 downturn) and 19 months (2001 downturn) after the recession officially ended, according to the National Bureau of Economcic Research.  If that happens now, we are looking at rising joblessness right smack into Election Day 2010.

2) During the first quarter of the last 10 economic recoveries, real GDP rose 5.8 percent on average, with a high of 17.2 percent during the first quarter of 1950 and a low of 1.4 percent during Q4-2001. That from Ed Yardeni. Here are the first two quarters of growth from each of the past three recessions: 1981-82 (0.3, 5.1), 1990-91 (2.7, 1.7), 2001 1.4, 3.5).

Bottom line: There is going to be a quarter coming up that Obama can crow about — but won’t because of rising unemployment.

Will GDP pop in the third quarter? If so, will Obama smile?

Aug 3, 2009 13:55 UTC

That is the case being made by the always-great Ed Yardeni (bold is mine):

If nothing changes during Q3, real GDP will be up 4.6% during the quarter. This isn’t our forecast. It is arithmetic. If there is no change in final sales to consumers, business, governments, and foreigners, and if nonfarm inventories are unchanged, that’s how much real GDP will increase. This is because nonfarm inventory investment was minus $144.4bn (saar) during Q2. If it is zero during the current quarter, real GDP will surge. The inventory investments component of real GDP has been negative for five consecutive quarters, the longest stretch since Q1-2001 through Q1-2002. … By the way, during the first quarter of the last 10 economic recoveries, real GDP rose 5.8% on average, with a high of 17.2% during Q1-1950 and a low of 1.4% during Q4-2001.

Me: Will the White House then be ready to declare the end of the recession? My guess is that rising joblessness will impel them to keep any smiles on hold. Also, as long as they can say we are in a “recession,” they can keep talking about how they inherited it from Bush. But they will own the recovery for good or ill.

5 quick takes on the 2Q GDP report

Jul 31, 2009 16:13 UTC

Here is a smattering of quick opinion on today’s second quarter GDP report from around the Street:

1) Nariman Behravesh,  IHS Global Insight:

Today’s GDP release is very much in line with IHS Global Insight’s view that the U.S. economy is at—or very near—the bottom of the deepest recession of the postwar period. We expect real GDP growth in Q3 to be a small positive.However, the early phases of the recovery are likely to be quite weak.We expect growth of only 1% to 1.5% in Q4 and Q1.After that, we expect growth to pick up gradually, and exceed 3% by the end of 2010.

2) Michael Darda, MKM Partners:

Full-year 2008 growth was revised lower, which means the recession is deeper than previously estimated. To wit: GDP has fallen 3.9% from one year ago, the largest annual decline in post-war history. … The  silver lining here is that the largest declines in GDP, including those in the 1930s, all produced robust recoveries, even if they didn’t last long enough to produce full-employment. This is why we continue to believe consensus forecasts for 2010 are far too pessimistic (assuming full-year real growth of just 1.8%). Our credit-based indicators, which captured the depth of this recession nearly perfectly, continue to point to 4% real GDP in 2010. A recession of this magnitude would be expected to produce at least a 6-8% GDP recovery, so our 4% growth outlook could still be considered conservative.

3) Bruce Kasman, JPMorgan:

Today’s GDP report provides considerable new information on the economy’s recent path.  … It is important to express the central point that the report bolsters confidence in both our strong growth and low inflation forecast for the coming quarters. On growth, the composition of demand looks increasing favorable with final sales stronger and inventory drawdowns larger than we had expected in 1H09. As a consequence, we are revising up our forecast for current quarter GDP growth to 3% (from 2.5%). We continue to anticipate GDP growth close to 4% over the course of 2010.

4) Robert Brusca, Fact and Opinion Economics:

The clearest point is that force of the down turn has been muted. The second clearest point is that and true upswing has not yet started. Only government spending among the main domestic components of GDP turned positive and that is on artificial stimulus although that impact should grow as the stimulus package takes hold.

More important than the government sector is that the consumer retrenchment is diminishing. Population growth continues and normal forces should restore positive growth to consumer spending, especially as job losses ease and as the fear of job is eradicated by better economic performance. It could happen in Q3.

5) Andrew Busch, BMO Capital Markets:

It will take very little snap back in either inventories or CAPEX to see a decent rebound in Q3 and Q4 GDP.  I guess where I’ve been incorrect is understanding that the economy fell so far that it has no where to go but up for a bit.  There will be questions of where earnings will come from besides cost cuts going forward, but growth should return with minimal effort.  This shift in expectations has occurred with all the subtlety of a sledge hammer the last two weeks and does draw concerns over additional strength.

Getting a recovery in the worst way possible

Jul 30, 2009 14:03 UTC

It is like opening a present and finding a bomb inside. Gluskin Sheff economist David Rosenberg on the “recovery”:

The government has its hands in 40% of the economy and when public sector officials can influence how banks can value their assets, how mortgage servicers should be doing their business, who shall fail in the financial industry and who shall not; and when we have a central bank that is not just the lender but the market of last resort, even for RVs, and a government willing to run up its deficit to levels that would have made FDR blush, then perhaps we can end up seeing a recovery occur sooner than we had thought.

A durable goods green shoot?

Jul 29, 2009 13:28 UTC

This chart of the trend in durable goods orders makes me smile.  Although June orders were down, notes Michael Darda of MKM Partners, “the weakness was concentrated in transportation, communications and defense. Non-defensecapital goods orders excluding aircraft, which is a component of the Conference Board’s Index of Leading Economic Indicators, rose 1.4% m/m after a 4.3% m/m rise in May — the first back-to-back gains in a year.”


Are profits forecasting a V-shaped recovery?

Jul 28, 2009 15:05 UTC

David Rosenberg of Gluskin Sheff doesn’t think so:

Much is being made of the fact that over 70% of U.S. companies are beating their low-balled earnings estimates, but the majority are still missing their revenue targets (as per Verizon and Honeywell in yesterday’s reports — top-lines down 6.7% and 22% respectively). Even so, a momentum-driven market will always be driven by just that — momentum; and there’s no doubt that investor risk appetite is being whetted. But after paying for the end of the recession in May, the market is now pricing in 40-50% earnings growth for next year, and while costs have aggressively been taken out of the system, this sort of unprecedented profits revival can only occur in the context of a V-shaped recovery, which we give 1-in-50 odds of occurring.

Are corporate profits about to take off?

Jul 27, 2009 18:42 UTC

Jim Paulsen of Wells Capital Mangement points out that companies have cut to the bone in preparation for near-depression. This could result in some spectacular profit numbers ahead (and check out the chart below) — assuming no near-depression:

Second quarter earnings reports have reflected this new trend where a number of companies have thus far surpassed earnings estimates even though sales remain weak. As economic recovery brings renewed top-line growth, corporate profits may continue to amaze and outpace expectations during this recovery. Chart 4 illustrates a fairly good “leading indicator” (by one year) of profit growth based on profit leverage. The dotted line is the multiplicative sum of the business productivity index, the labor unemployment rate and the factory unemployment rate. Essentially, when businesses focus on “rightsizing” (by improving productivity and purging payrolls and factory capacity), about one year later, corporate profits have tended to rise. The dotted line leads profit growth (solid line) by one year and currently forecasts about a 45 percent advance in nonfinancial profits in the coming year! Did the surge in fears produced by the subprime debt crisis cause U.S. businesses to act in ways
which may now lead to a “profit leveraged” bull market?



I understand rightsizing leading to an increased bottom line, but so far there is no indication of a top line growth; and the top line growth is the only indicator of a growing economy. We’re far from it and it appears everyday we’re closer to a jobless recovery [jobless stabilization].

Posted by Hank Reardon | Report as abusive