Healthy economy equals quiet bulletin board

[Giant Communist Robot]

Today's jobless numbers signal improvement in the jobs market. Manufacturing surveys, where the Fed talks on the phone with the business owners, don't suggest any anticipated declines. I'm waiting for ECRI--"the world's leading authority on business cycles"--to admit a mistake.

[Giant Communist Robot]

Since there is always some complaint about adjusted numbers not being "real", take a look at these numbers from the Treasury; specifically withholding Jan 2012 vs. Jan 2011. More withholding tax receipts points to more people employed.

These are not everything, though, we still need to see improvement in housing. It could be around the corner.

[Haggis@wk]

It could be around the corner.

...and the sun will come out tomorrow

[Giant Communist Robot]

It could be around the corner.

...and the sun will come out tomorrow

Aha! You poke fun at me! I'm an easy target, but no one seems to care. My ego can always use a serious deflating; poke away.

[Giant Communist Robot]

The import data suggests businesses expect stronger demand ahead.

[Haggis@wk]

Congress Eyes New Rules For Inherited IRAs.

“A Senate Finance Committee proposal floated this past week as part of a highway-funding bill would give heirs five years to empty inherited individual retirement accounts or 401(k)s, which would typically trigger income-tax payments. The rule change could raise some $4.6 billion in income taxes over the next decade, according to a statement by Sen. Max Baucus (D., Mont.), chairman of the Senate Finance Committee.”

[Giant Communist Robot]

Many feel China has entered a recession. If true, it could lead to deflation for them, and consequently higher prices for their exported goods.

[Giant Communist Robot]

I've read many opinions that the QE's are responsible for the gains in the market; but corporate profits after tax (available from the St. Louis Fed) are at an all time high. My guess is that profits are the engine behind the market.

[Shapley]

The Shale Oil boom, most notable in Pennsylvania but seen most everywhere, has pumped a fair amount of money into the economy. It's not without its detractors, mind you, but it is quite a success story in an otherwise down economy.

[Haggis@wk]

Foreclosures on the Rise Again

Bank repossessions, the final stage of the foreclosure process, increased at least 30 percent year-over-year in several states, including Massachusetts, which saw a 75 percent spike. Bank-owned or REO (real estate owned) activity hit a 16-month high in Illinois and a 15-month high in Indiana. Default notices, the first stage of foreclosure, were flat nationally in January, but spiked in judicial states, like Connecticut and Pennsylvania (up 112 percent) and even in non-judicial states like Maryland (up 100 percent).

And the real problem

Distressed property sales lower the value of homes around them, and that pushes more borrowers into a negative equity position, owing more on their mortgages than their homes are currently valued. Until banks work through the enormous backlog of foreclosures, which number in the millions, home prices will not hit a firm bottom, especially in the most troubled local real estate markets.

[Giant Communist Robot]

If all the problems in housing were solved, then things would be bright and rosy. Some things are still ugly. What Haggis points to is not an economic measurement but something that may logically effect measurement. We all agree these are not the levels we want to see, but there has been striking improvement on the margin--and this is where we should be looking, at the margin not the level.

The Housing Market Index, while at miserable levels, has really improved from it's lows. This suggests that Housing Starts, which were up 25% over last year, are likely to continue growing. Haggis points out that banks have a huge supply of REO that they are going to dump on the market any day now and throw the economy into chaos. However, the Supply of Unsold Homes has declined significantly over the last year--this is because of growth in sales and a slow increase in new homes. A reasonable conclusion would be the market is clearing. Everyone knows prices are still weak and there are plenty of foreclosures on the way, but the improvement is subtle and some will not see it until it is well underway. As for the banks, my guess is that their still fragile balance sheets will meter the flow of foreclosures and we will not see any flood.

We have low mortgage rates, low home prices, and an improving economy. I'm convinced we've seen the worst.

[Shapley]

I'm convinced we've seen the worst.

I'm inclined, cautiously, to agree with you. It still seems as if we're walking on eggshells, with any of a number of things threatening always to crack and cost us our foothold, but I remain optimistic. Cautiously optimistic, to repeat the well-worn phrase, but optimistic.

[Giant Communist Robot]

I'm inclined, cautiously, to agree with you.

I was surprised I didn't hear anyone in the media mention the jobless numbers, which came in "unexpectedly" below the consensus range. We've seen steady improvement here, and when coupled with the optimistic manufacturing reports suggest a few more jobs and more spending. I haven't seen anyone forecast unemployment below 8% yet, but this gradual improvement will have an effect that will work it's way towards housing.

[Giant Communist Robot]

When another drop in a series of drops in jobless claims doesn't get mentioned in the media, it's because it's not news. Even the media sees we are on the road to better times now.

[Haggis@wk]

After three years with unemployment topping 8 percent, the U.S. has seen the longest period of high unemployment since the Great Depression, the [urlhttp://cboblog.cbo.gov/?p=3333]Congressional Budget Office noted in a report issued today.[/url]

And, despite some recent good news on the economic front, the CBO is still predicting that unemployment will remain above 8 percent until 2014. The report also notes that, including those who haven't sought work in the past four weeks and those who are working part-time but seeking full-time employment, the unemployment rate would be 15 percent.

[Giant Communist Robot]

After three years with unemployment topping 8 percent etc., etc...

This confirms what I posted.

I was, however, writing about jobless claims.

[Giant Communist Robot]

I would expect to see jobless claims drop before unemployment comes down. Wouldn't everyone else? Does anyone expect jobless claims to go up and unemployment down?

This is where you argue about what the report measures. There are plenty of reports to chose from, U-6 or whatever, and they counts different things. Jobless Claims counts new jobless claims. I'll admit it's sort of one dimensional, but we are free to read other reports. Doesn't it seem reasonable to assume a decline in new jobless claims suggests an improving labor market? I think one can gain a sense of how tight or loose the job market is by watching this count.

[Shapley]

My own barometer of the economy - how busy my customers are - seems to be picking up. The secondary indicator - how busy my suppliers are - also seems to be picking up.

We had a supplier yesterday 'no bid' us on a large piece of equipment, because they are too busy to handle the order. This leads me to believe, as I see with other suppliers and customers, that they are working their current workforce at capacity but are loathe to add more workers at this time.

One factor in the delay of hiring is the high cost of unemployment and other taxes, as well as the rising cost of insurance. With the continuing extension of unemployment benefits, both SUTA and FUTA taxes are peaked out, and the prospect of seeing them drop any time soon is unlikely. Insurance has become anything but more affordable since the passage of the Affordable Health Care Act (I know, we're supposed to give it time to 'kick in', but we're getting kicked pretty hard while we wait for it to do so). As a result of all this (plus the 40% rise in minimum wage since the beginning of the downturn, thoug everyone hates to talk about that), the cost of hiring employees has risen markedly, while the prospect of having to lay them off again remains high. Employers are loathe to add to their workforce until they are positive that the workload will support them now and in the long term.

[Shapley]

In short, most of them are trying to make do with less, workforcewise, at least. If that means turning down work rather than expanding, so be it. We've seen this before, not on the scale we currently see it.

This, of course, presents opportunities for those who are willing to open facilities and/or invest in expansion - if they can find the financing and are willing to stick their necks out. I don't see a lot of necks sticking out at this point.

Many of them have the facilities to handle extra workload, as they were handling larger workloads before the downturn. That points, as far as I can see, to labour costs as the prime disincentive to accepting additional work.

One other thing, however, is that customers seem to wait until the very last minute to order, demanding rapid delivery times. That puts a lot of demand on the already-burdened labour force in house and means that merely adding additional labour will not necessarily permit them to meet the immediate demand. They may find themselves adding labourers who will be unneeded by the time they are sufficiently trained. This is not really a new problem in this industry, but there appears to be a lot of skepticism about the sustainability of the current recovery, as evidenced by the hesitation to add the labour necessary to aleviate that problem in the long run.

I guess that wasn't 'in short' after all...

[Shapley]

And, my own personnal opinion not supported by anything but observation and guesswork: The recent downturn resulted in many cuts 'at the top' of organizations. Hiring labour is relatively easy, hiring management is a bit harder. Also, white collar workers appear to me to be the worst equipped in the job-search area - they've relied on 'old boy' networks in the past to get jobs as opposed to 'pounding the pavement', and many of them do not know how to 'pound the pavement'.

Companies, likewise, generally prefer to hire management by 'stealing' capable managers from other firms. That's harder in today's environment. Few companies want to hire managers that have been sitting idle for months, since that shows both a lack of incentive and a lack of skills in their ability to manage their own employment. The same goes for technical personnel. The world is full of idle computer operators, but it is hard to find engineering technicians with a sufficiently-broad range of talents that permits them to cross over into different fields, if they are even willing to look for work outside of their own area of expertise. Long-time oil men, for example, may concentrate their job search in oil-related fields, passing up opportunities that may exist in mining or manufacturing fields. Employers in mining and manufacturing will frequently concentrate their searches on people with long-term experience in mining or manufacturing, unwilling to risk the hiring of highly-paid technical personnel with ample experience, albeit not in that field.

Today's markets have been changing, and manufacturer's have been knocking on doors not traditionally in their client-base. As they seek to add technical expertise, they generally look for those schooled in the areas served by these new markets they've found. Unfortunately, some of those markets have already fully-employed their experts, and new experts have to be made, not found.

As a result, expansion is more difficult. There is a sufficient supply of labourers to do the heavy lifting, but there is a requirement for managers and technicians to find the clients, make the sales, define, locate, and acquire the materiel, ensure the productivity, arrange the delivery, and service the product after the sale. This is difficult when working in a new (to the manufacturer) market.

There is potential in several growing markets, but many underworked manufacturers are unprepared to move into them. Their pre-recession ability to survive in traditional markets has left them ill-equipped to exploit new ones. America's long-term focus on 'specialization' contributes to this, again in my humble opinion.