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Main Website >>Structured Finance >>Blog >> Tag: Recession
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ADP Says Private Payrolls Rose 91,000 In September
Wednesday, October 05 2011 | 09:58 AM
James Picerno

The ADP Employment Report for September reveals another month of mediocre job growth in this data series, but that’s better than what the crowd’s been expecting. It sets us up for somewhat brighter expectations that Friday’s employment report from the government will confirm a mild revival in the labor market compared with August’s dismal number a la Washington's bean counters.

Employment in the U.S. nonfarm private business sector rose 91,000 on a seasonally adjusted basis last month, according to ADP. That’s only slightly higher than the 89,000 gain in August, based on ADP’s accounting. The question is whether the September data will bring the Labor Department’s estimate of job growth back from a near-death experience in the last report.

The ADP update suggests there’s reason for hope, as the chart above shows. The monthly gap between the two employment series wanders, but last month’s gap was the widest in absolute terms since January. The implication is that the spread will narrow in favor of growth. With the September ADP number in hand, the odds look a bit stronger that that the government’s report on Friday will bring us a higher number than August’s 17,000 net gain for private payrolls. A bounce back is expected even without the ADP support since the government's previous estimate was reportedly skewed to the downside because of a Verizon strike—a burden that evaporated when the strikers returned to work in late August.

Economists are inclined to agree that Friday's update will show some improvement over the August numbers. The consensus outlook is that the government's employment report for September will reveal an 83,000 net gain in private payrolls, according to That's still weak by historical standards, but it'd be a lot better than the 17,000 private-sector rise for August. Last week’s encouraging update for initial jobless claims offers some additional support for thinking that the next data point will at least be moving in the right direction.

Even if the optimistic forecasts for Friday prove accurate, the best you can say is that the economy appears to be resisting the gravitational forces of recession, which some analysts are predicting is inevitable. It's premature to dismiss calls of a fresh downturn, but the ADP report offers a counterpoint, mild as it is. There’s no law that says a recession can't commence with private-sector job growth rising by 90,000 a month. But if we’re in or near another recession, it would be unusual to see the labor market expanding. We’ve heard of a jobless recovery; is there such an animal as a job-growth recession too?

Hold that thought as we wait for tomorrow’s weekly update on jobless claims and Friday’s employment report.

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0 Comment | Add Comment(s) | US_Employment, Recession, US_Unemployment, US_Economy,


Housing Activity Weakens In April & Industrial Production Is Flat
Wednesday, May 18 2011 | 05:26 PM
James Picerno

Today’s update on new housing starts and building permits for April isn’t surprising, but it’s still not encouraging. Permits slipped 4% last month and are down by nearly 13% from a year ago. Housing starts look even worse, falling nearly 11% in April, pushing the seasonally adjusted annual rate down by 24% vs. the year-earlier number.

The residential real estate market remains in a deep slump and there’s nothing in today’s numbers from the Census Bureau to tell us different. The only questions: 1) Will the slump worsen; and 2) if the answer to first question is yes, will it drag down the rest of the economy?

Answering no in both cases is still reasonable, although the level of confidence with that outlook is far from robust. The main bit of evidence for thinking that we’re not looking at a new leg down comes from reviewing history. As the chart below reminds, starts and permits have been moving sideways for three years. Unless you think a new recession is lurking, there's a case for predicting that the range will hold. Today’s update brings us into the lower realm of that range, but there’s nothing unusual here, judging by recent history.

Then again, if the broader economy is set for another rough patch, the housing market may suffer even deeper levels of pain. Unfortunately, the margin for comfort is now unusually thin. Last year at this time, starts and permits were moderately higher. That didn’t stop the summer slump of 2010 from taking a toll. But the worst levels in starts and permits of last year are now north of current numbers.

It doesn’t help to learn that industrial production was flat last month vs. March, or that manufacturing production slipped 0.4% in April after nine straight months of growth, according to the Federal Reserve update today.

The good news is that the broad trend for industrial production is still positive, as the second chart below shows. Indeed, the 5% year-over-year increase for this series last month is well above average. Historically, that's a strong number. Of course, it’s destined to fade as the cycle ages, and perhaps by more than the crowd expected just a few weeks ago.

Analysts say that industrial production stalled last month because of a drop in auto production, which was hit by the blowback from supply-chain disruptions due to the Japanese earthquake in March. In other words, technical difficulties are to blame. Maybe so, but that doesn’t change the fact that housing is still weak and possibly set to get weaker. Meantime, new questions about the labor market’s strength are still bubbling.

The focus now shifts to Thursday’s update on new jobless claims. The consensus forecast calls for a modest drop. A negative surprise of any magnitude, however, may bring a major attitude adjustment on the general outlook.

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0 Comment | Add Comment(s) | Housing, Recession, US_Economy, US_Unemployment, Industrial_Productio,


Fresh Reminders That The Economic Recovery Continues To Struggle
Thursday, April 28 2011 | 05:12 PM
James Picerno

Is the labor market headed for a fresh round of trouble? Today’s weekly jobless claims report provides some new motivation for going over to the dark side on this question. The usual caveat applies, of course: divining the future from any one number in this volatile series can be misleading. Unfortunately, the jump in new filings for unemployment benefits is no longer an isolated data point.

“It’s clearly disappointing,” Michael Feroli, chief U.S. economist at JPMorgan Chase, tells Bloomberg in the wake of today's update. “It may be that the pace of improvement is slowing.”

Peter Boockvar of Miller Tabak + Co. agrees , writing in note to clients today: "The trend over the past few weeks is clearly disappointing as signs were pointing to a more sustainable pick up in the labor market.”

A chart of recent history tells the story. New filings jumped to a seasonally adjusted 429,000 last week—the highest since January. More worrisome is the recent rise in the four-week moving average for weekly claims, a trend that increased to more than 408,000 last week. Save for one week earlier this month, the four-week average has risen continually since this measure bottomed out in early March at just under 389,000. And while we’re reviewing distressing signals in this corner, let's note too that the four-week average is now above the 400,000 mark for the first time since February.

Is it all just noise? Possibly. Much depends on whether there’s corroborating evidence from other corners of the economy, starting with the next report on nonfarm payrolls, which is scheduled for release next week (Friday, May 6). The last report revealed a fairly strong number: private job creation advanced by a net 230,000 in March. That's hardly a cure-all for the various ills that afflict the U.S., but it's far too strong to inspire writing the epitaph for the current recovery. Even with the concerns embedded in the latest jobless claims report, it still requires an especially negative interpretation of the vast majority of economic reports to argue that the labor market is set to crumble.

One reason for thinking positively is the recent momentum in U.S. corporate earnings and manufacturing. Ed Yardeni reminds that the news on these fronts has been quite positive recently. Even so, “the growth rate in earnings may be peaking,” he notes. “However, that doesn’t mean that it won’t continue to grow along with world exports.”

But the rough rule of thumb that jobless claims under 400,000 imply continued expansion in the labor market will weigh heavily on sentiment until (or if?) a fresh batch of numbers re-boost confidence.

Today’s estimate on Q1 GDP certainly isn’t up to the task. The U.S. economy expanded at a much-slower 1.8% real (inflation-adjusted) annual rate in the first three months of this year—a sharp downshift from the 3.1% pace in last year’s fourth quarter, the Bureau of Economic Analysis reports. The blame for the slower economic growth was a “sharp upturn in imports,” a “deceleration” in consumer spending, “a larger decrease in federal government spending, and decelerations in nonresidential fixed investment and in exports.”

Nonetheless, the bigger risk for now is that the economy’s rebound moderates rather than evaporates. In fact, that’s been the concern all along. There’s still forward momentum in the broad trend, but it’s not as potent or persistent as some have argued. And with various corners of the economy still firmly on the defensive, starting with the residential real estate market, there's little reason to assume that we're set to grow out of our troubles any time soon.

In short, the real danger is less about a new recession than coming to terms with an economy that struggles (still) to grow.

“There are some concerns going forward,” reminds Scott Brown, chief economist at Raymond James. “We think gasoline prices will continue to dampen the recovery,” he writes. “We are looking at a moderate recovery here. It will still some time before we see the economy fully recover.”

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The Recovery Isn't Jobless, But Job Growth Is Still Weak
Wednesday, March 09 2011 | 04:32 PM
James Picerno

A number of pundits warn that the U.S. is suffering from an era of jobless recoveries. It's a popular complaint and it's surely grounded in legitimate concerns about the labor market's strength. But taken at face value, the claim that we're in a jobless recovery is false. The economy's recovering and new jobs are being created. Since the private-sector labor market started growing in the latest cycle in March 2010, total nonfarm private payrolls are higher by 1.5 million through February 2011, based on seasonally adjusted figures, which are used in the analysis below as well. That's a fraction of the jobs lost in the Great Recession, but modest job growth isn't the same thing as a jobless recovery.

The real issue is deciding how the trend in job creation compares with history. To start, let's look at a graph of the monthly change in private nonfarm payrolls over the last 30 years. The average monthly rise for those decades is roughly 93,000, as indicated by the blue line in the chart below. Obviously, the economy has a history of creating jobs over the previous three decades. But it's also true that running a linear regression over those years on the month numbers reveals a gently falling trend (red line). In other words, it appears that the strength of job creation has been weakening through time.

Analyzing the trend over long stretches of time has limits, of course. A more productive focus is comparing job creation during the recovery phases. Considering that there are several ways to proceed, the challenge is deciding how to evaluate the data. One possibility is adding up the total of monthly changes in nonfarm payrolls for each post-recession growth period, based on NBER's cycle dates. By that standard, the last full growth cycle was weak for minting jobs. Nonfarm private payrolls rose by just 6 million from December 2001 through December 2007. By comparison, the gain in jobs during previous cycles was far higher: nearly 22 million for 1991-2011, and 18 million from 1982 to 1990.

Other measures of the labor market's strength also show that the 2001-2007 period looks weak vs. its predecessors. Average monthly job creation was substantially lower in 2001-2007 vs. the earlier periods, for instance. The trend doesn't look any better if we measure the total net change in private nonfarm payrolls as a percentage of the civilian labor force at the peak of each cycle.

Clearly, there's a subpar recovery in jobs in recent years. The big question is whether the 2001-2007 period was an exception or a sign of things to come? Based on the trend since the Great Recession was formally declared history, the case for optimism looks weak.

Measured from the first month of the current expansion, the net change in total private nonfarm payrolls is a mere 362,000. This figure includes the first eight months of the current "expansion," when the economy continued to lose jobs. Before the next recession arrives, surely many more jobs will be created. Indeed, the recent economic news is relatively upbeat for thinking that the recovery is picking up speed. February's jobs report, for instance, was the best in nearly a year.

But it's also true that we are now 21 months into the recovery and total job creation is, at best, modest on both relative and absolute levels. The hope is that this expansion runs longer than usual (the post-World War Two average is 59 months) and/or the labor market accelerates. The prospects on these fronts are mixed. What is clear is that there's a huge amount of ground to make up from the Great Recession and the record so far in repairing the damage is uninspiring. It's not a jobless recovery, but that's cold comfort given the hole we're in.

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0 Comment | Add Comment(s) | Job_Growth, Recession, US_Economy, US_Unemployment,

Roger Nusbaum, Chief Investment Officer, YOUR SOURCE FINANCIAL (RIA)

Ok, But The Math Doesn't Work
Tuesday, March 08 2011 | 11:44 AM
Roger Nusbaum
Chief Investment Officer, YOUR SOURCE FINANCIAL (RIA)

A year or two ago I reconnected with a friend from highschool on Facebook. He has turned out to be extremely liberal in his political thinking and regularly posts links and status updates consistent with his beliefs. He has been very pro-union in some of his posts and has been keenly interested in the goings on in Wisconsin these days despite living in another state. He feels very strongly about his beliefs to the point I would say of being entrenched.

This week's John Mauldin post devoted some space to the various entitlement issues and the notion of congress figuring out how to cut $61 billion in expenses versus a $1.6 trillion problem. As I read this and thought about my friend's posts I had a moment of clarity or perhaps better stated as a moment of simplicity which is that for so many of the country's problems the math doesn't work.

All of the reasons that someone might be pro-union might be 100% correct but the math doesn't work. Cutting $61 billion is expenses might be a win of some sort but in the full context of the problem does not itself represent any progress toward a solution. The retirement savings quandary that now exists (referring to the ridiculously low average savings that people have) can be thought of in one way as not understanding the math needed to make it work.

To the union issue, that there is not enough money for workers to get everything they have previously bargained for, that return assumptions are way too high and that the unions have dirty hands (as well as management) in the failures that have occurred would, I believe, be a conversation that my friend could not hear. If union leaders negotiated some sort of dollar figure 15 years ago (making up an example) that has proven out to be wildly unsustainable what should happen? I am not intending to make a political argument here. I can't say that a union doesn't deserve something they successfully negotiated for but if the math doesn't work then that means the math doesn't work.

In simplistic terms the math appears to be breaking down with all sorts of different things which makes debating these things along political or ideological lines futile. An analogy that is related to our fire department; for several years the community has been having a heated debate about whether or not to become a fire district (an entity with taxing authority) or remain donation based. One bone of contention is how much of a tax would be imposed. Related to the potential tax is what sort of service the community wants. On bit of advice that has been pretty consistent along these lines has been not to ask what service is wanted but how much people want to pay. We can have everything but the more service (really I mean paid personnel and new equipment) the more we will all pay. It is quite simple in that regard.

Well, we can have all the medicare, social security and union benefits we want. It's just that the more we want the more we will have to pay. I'm not arguing for more taxes from a belief standpoint, simply pointing out that there is a deficiency that exists. We either pay more or we get less. To the extent this holds water for you it argues all the more for staying on your own mat (self sufficiency). For me this means saving a lot, living below my means and having a job that I want to keep well past typical retirement age. For you, self sufficient could mean something completely different but either way we cannot rely on other people to get the math right, we need make sure that if nothing else our own math works.

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Bill Carrigan, Founder, GETTINGTECHNICAL.COM

Me see bond, Me run away
Wednesday, February 09 2011 | 09:37 AM
Bill Carrigan

Our anticipated A-B-C correction is postponed as the U.S. FED continues to throw dollars at the capital markets with QE causing the U.S. to export food inflation which will likely end with a commodity bubble. The Double Dip Recession Issue is dead and the recovery is on thanks to the US Fed and QE2. A strong recovery may be pending as U.S. private payrolls increased 50,000 but in spite the smaller-than-expected increases, the headline unemployment rate fell sharply to 9.0% from 9.4% in December. Fed Chairman Bernanke just stated that the economic recovery hasn't been strong enough to significantly reduce unemployment

Not strong enough? Be careful what you wish for - the Fed won’t let up until the recovery gets out of control – inflation is the next big problem. Keep an eye on the US 10-yr T-Note which is now breaking up to the 4% level almost back to pre-financial crisis peaks – yes interest rates are rising in spite of QE2! Our weekly 10-yr T-Bond yield chart displays a bullish higher 18-month low (bullish for yields – bearish for bond prices) positive departure analysis and early positive relative outperform vs. the S&P500.

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