Economic Downturn Not Turning Around
By Larry Johnson on May 7, 2010 at 10:34 PM in Current Affairs
Talk about trying to put lipstick on a pig, many in the media and the Obama team are touting today’s surge in unemployment as “good news” because even though more are reported as unemployed more jobs are being created. While we are at it maybe we can talk about the good news associated with Nazi death camps. I’m sure there was a silver lining there somewhere, somehow.
Sorry, but I ain’t buying this latest line of horseshit. The economy has not turned the corner. In fact, the illusory signs of possible resurgence are likely to be dashed in the coming weeks as the stats catch up to the reality. Rick Davis of the Consumer Metrics Institute reports the following:
A look at our ‘Daily Growth Index’ also shows that towards the end of November 2009 the ‘demand’ side economic activity was dropping so quickly that a two week change in the lead time would make a huge difference in the numbers being reported. At a lead time of 18 weeks the number is the 3.2% reported by the BEA. If the sampling period had shifted to two weeks earlier, the reported GDP number would have been 4.4%, substantially higher. However, if the sampling period had shifted to two weeks later, the GDP growth rate would have been only 2.0%, less than half the reading from only 4 weeks earlier. This is the sign of an economy in rapid transition.
The methodologies used by the BEA when measuring factory production are ill suited to capturing an economy in such rapid transition. In the 4th quarter of 2009 the production side of the economy was topping (reflecting the topping of our measurements on the demand side in August 2009), causing some consistency in the BEA published readings of 5.7%, 5.9% and 5.6% for the quarter’s annualized growth rate in its three consecutive measurement iterations over three consecutive months (all after the fact, by 30, 60 and 90 days respectively). The first quarter’s production environment was at a much more dynamic spot in this particular economic cycle, and the subsequent monthly revisions by the BEA may be significant.
From our perspective the GDP is only confirming where our numbers were in November, which is, relatively speaking, ancient history. Since then we have seen our ‘demand’ side numbers slip into contraction (on January 15th), and they have recently lingered in the -1.5% ‘growth’ range. We have long since recorded the ‘demand’ side activity that has been flowing downstream to the factories during the second quarter of 2010. If the GDP lags our ‘Daily Growth Index’ by 18 weeks again we should see the 2nd quarter 2010 GDP contracting at a 1.5% clip (since our ‘Daily Growth Index’ on February 24th was -1.46%).
I say ‘should’ because we have observed before that factories are loath to actually contract production until building inventories force them to curtail normal production schedules and furlough staff. We saw this happen during the 2006 ‘demand’ side contraction event, when the GDP production side growth effectively dropped to zero but never went negative. The 2010 contraction however is showing enough persistence that inventories are likely to eventually build to the point where production curtailments should be made.
The week long shutdown of aviation in Europe a couple of weeks back has not yet shown up in the stats. Anyone want to argue that the volcanic ash was good for the world’s economic outlook? Let’s not forget the oil leak in the Gulf and the flood in Nashville. Those events as well are likely to impose a further drag on the economy.
Today’s news on unemployment also reported that the broader number of unemployment also increased. Per the Wall Street Journal:
The U.S. jobless rate rose to 9.9% in April, the first increase in three months, but the government’s broader measure of unemployment ticked up for the third month in a row, rising 0.2 percentage point to 17.1%.
The comprehensive gauge of labor underutilization, known as the “U-6″ for its data classification by the Labor Department, accounts for people who have stopped looking for work or who can’t find full-time jobs. Though the rate is still 0.3 percentage point below its high of 17.4% in October, its continuing divergence from the official number (the “U-3″ unemployment measure) indicates the job market has a long way to go before growth in the economy translates into relief for workers.
The 9.9% unemployment rate is calculated based on people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The “actively looking for work” definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things. The number ticked up this month as more people came back into the labor force to look for jobs. (Read a more in-depth explanation for the rise in the unemployment rate.)
We are a global economy and the news out of Europe is not going to inspire or signal growth. We are witnessing a liquidity crisis and a decline in economic growth, with Greece leading the way. This problem is not going away anytime soon. Unfortunately we are looking at the much feared double dip recession. Sorry, I wish we had better news.
by Ronald Scott
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