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Searching for Good News

This is a day for incredibly lousy economic news.  The US House failed to do its part to pass a debt ceiling increase, thus starting the serious phase of negotiations (given that finance bills must start in the House).  But even worse are the GDP figures for this year, showing a terribly anemic 1.3% annualized growth in GDP for the last quarter and an incredible downward revision to the first quarter of just 0.4%.  It would take unbelievable optimism to find something good in the news today.

Actually, the is something good.  Initial unemployment claims have fallen to a seasonally adjusted 398k, continuing a rapid drop over the last month.  What on earth can we make of that?  Maybe a lot.

I’ll leave aside the debt ceiling “negotiations” after a few snide comments.  It deserves mention because it appears that no matter what the cost of our borrowing is likely to increase north of $100B a year, or about $1,000 for every household in the US.  Meanwhile, comparisons with the Lord of the Rings are flying.  I think this is much more like the very similar “Ring” cycle by Richard Wagner – hours upon hours of screaming and posing followed by heaven and earth burning down.

But what really matters is the horrible Gross Domestic Product (GDP) figure that was released.  Not only did last quarter fail to come anywhere near the generally assumed 1.9% annualized growth, the previous quarter was revised down sharply to a near contraction.  This far below inflation and nowhere near the 3.3% or more that is needed to see a net increase in the number of jobs.  We’re still in deep trouble.

Yet take a look at the 4-week average of initial claims, shown here from our good friends at the St Louis Fed since November.  The most recent figures aren’t even on here yet, but the trends continue:

While the revised GDP figures tell us the story of what was happing back at the end of January, about 6 months ago, the 4-week Initial Claims data apparently reflects what was happening only 2 months earlier – the spike came at the beginning of April.  This means that if the stock market is watching the GDP figures (and, after today, you can bet they are) you can get a jump on them by knowing what you are looking at.

More interestingly, the Initial Claims may well be falling to a level not seen since 2007 if they keep this up.  The trend, right now, is extremely positive.  It’s all a matter of Congress not screwing things up.

Whoops, sorry to bust that bubble of optimism for ya.

But it may be possible to collect GDP data in somewhat real time by watching Initial Claims data and assuming that it is 2 months old.  That correlation is probably only very strong since about 2007, so this will take some fudge.  But it looks like we may be able to catch these nasty revisions before anyone else does and get a stronger correlation between GDP growth and jobs growth.

Meanwhile, there is some faint optimism.  Something has been going right over the last month or so and there is a good chance that the antics in Congress are going to screw it up bad.  I’m not a huge believer in Keynsianism but I can be sure that draconian cuts right now without positive steps to reform and transform will not boost the optimism that is brewing.  Those are the stakes playing out right now.  Good night, and good luck.

17 thoughts on “Searching for Good News

  1. I think what scares me the most is the size of the revision to GDP. Something went wrong in the way they collect the data which means that we really can’t rely on any of it until we’re sure it has been straightened out. It wasn’t clear what the problem was and it may be months before we know what happened. Whatever correlation you find in initial claims is almost certain to be as good as the official numbers.

  2. I think calling this “good news” is a stretch, since there were still 400 thousand people who lost their jobs last week. But I see your point that something is moving, which I guess is something. I’ll bet it’s reversed in a month the way things are going though.

  3. Anna: Good point. Something is broken, and I have no idea what right now. I’ll let you know if I find anything.

    Dale: It’s an improvement. Maybe not good news, but we had to break out of that 430k Initial Claims range before we’d see anything. Barring a financial self-inflicted disaster I don’t think this will reverse that easily – the job market is looking up because hours of employed people are just not going down. There’s still pressure to hire more, but it’s held back by pessimism, IMHO. That’s why solid action by our leadership would be such a great help right now – but look what we get instead.

  4. The bigger issue: We have got to make a transition from growth-dependent prosperity to steady-state prosperity. The growth is going to take place elsewhere, for the most part. But we can’t and don’t even talk about this. We have no idea how to achieve it, or even what it would look like. The “Transition Town” people are the only ones I hear from who are even dancing around this.
    For that matter, suppose we wanted to reverse some trends and reindustrialize. How could we do that? What would be the costs and benefits? To whom? I’m not even saying “do it,” I’m just saying we can’t rationally decide without developing scenarios to look at. (I don’t think MInnesota could do it alone, in the current environment of competitive “economic development” scams, it would have to be done on a national level.)
    I suppose the Chinese, with their recent history of suffering at the hands of western aggression, must look with amazement at the self-destruction of the US economy. Yes, it benefits them in the short term, but how can one respect fools…..?

  5. Alan: You’re bringing up an issue that I’ve largely been punting on – but I have a very good excuse. I agree that we will not see the kind of growth that we saw in the past, but I largely think that most of the “growth” since 1980 has been artificial, as it was fueled entirely by increases in consumption that include a lot of fudge – a big part of that is increased health care spending, for one. I always liked this simple article, right-winged as it comes off:

    The remaining “growth” all came from goosing monetary policy, which is utterly unsustainable. So what does a sustainable economy look like to us? How much of it might include new gizmos created by new tech? I honestly have no idea at all, and I dare anyone to say they do. There’s just way too much fudge in the data we have.

    What I say instead is that our economy has to Restructure. In private I use the word “Perestroika” for a weak laugh. That almost certainly means a reduction in consumption, but I have no idea what category that will come from. We could easily cut our health care in half (that is, saving on the order of 9% of GDP for other uses) and still have a health care system on par with every other “mature” nation such as ours. That’s huge.

    So I honestly don’t know what to make of it. For now, I say we have to Restructure, with a capital letter, and leave it at that. I honestly don’t know exactly where it goes from here. I am enough of a free market maven to say that a fluid and free market will probably find its own equilibrium somewhere – all that assuming adopt appropriate public policies that reflect the values we expect in that market (such as a reasonable health care system!).

  6. I have a question. You say you’re not a big believe in Keynesianism (sp?) and I can see that. But wasn’t Keynes about balancing the budget or even paying off the debt in good times? I don’t think we’ve ever actually practiced what Keynes had to say except when Clinton was president.

    Sorry to bring this up now but I was thinking about it on the last post and I see you referred to it again. I’m trying to understand this. You do a good job of avoiding jargon most of the time but this is one big word you keep coming back to.

  7. Jim: Sorry ’bout the jargon – I think Keynes and related terms are pretty essential, but I keep thinking I’ve explained them already. May not do a great job of that.

    You are right as to what Keynes’ actual theory was. He would indeed be horrified to learn what happened to his work and how it’s been used to justify constant large deficits. It’s something I sort of covered in this piece:

    I say “sort of” because the huge budget deficits on the Reagan Era were done in the name of Milton Friedman and his “Supply Side” theory, which I sort of covered in the link referred above. Thing is that in practical terms I see no difference at all between Keynes and Friedman, at least in how they have been practiced. BOTH men would be horrified! 🙂

  8. That’s still 400 thousand people per week losing their jobs, right? That’s an awful lot of jobs we have to create just to stay even. It may be better than it was but I don’t see how this is good news at all.

  9. What would happen if the government defaulted? Would all the people not receiving their paychecks qualify as “initial claims”? I am wondering about this because it seems that even trimming the budget will result in some layoffs. These would only add to the totals here, right?

  10. Sheryl: Yes, per week – sorry I left that out. And it is a big number, but it’s dropping rapidly. Another two weeks and I think we’ll be able to see if it’s a long term trend – but it’s already hitting the slowest pace since the start of this phase of the Depression.

    Janine: It would add to this, yes. Horribly so. They need to be careful what they do because this is a very new and fragile improvement.

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