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Money Credit And Recovery
From The Daily Capitalist
On Monday the NBER reported officially that our Recession began in December, 2007 and ended in June, 2009. While that is nice to hear, in my opinion, when you get down on the ground where most of us are, it doesn't feel as if it has ended.
There have been a number of positive indicators that led the NBER to their conclusion, mainly the GDP numbers and components related to industrial output, exports, and flattening unemployment. I don't think these things are indicative of the overall health of the economy and weakening numbers show that.
Here are the things that tell us there are still considerable headwinds to a full recovery. Industrial production is now falling off, retail sales are weak, business inventories are increasing, credit is shrinking, and so is money supply.
Let's start with the basics, which is money. Here is the chart of money supply that I follow (True [Austrian] Money Supply, TMS):
As you can see, TMS1 and TMS2 have been declining substantially this year, and only recently seem to be expanding. According to Michael Pollaro who puts out these charts:
The money supply aggregates based on the Austrian definition of the money supply (TMS) surged in August, with broad TMS2, The Contrarian Take's preferred money supply metric, up an annualized 9.5%. The more important year over year growth rate on TMS2 was once again sporting a double digit rate, posting a rate of 10.7% in August, up from July’s 10.3% rate. This makes the 20th consecutive month that TMS2 has posted double digit year over year growth, a cumulative increase of 19% over those 20 months. To put those figures into perspective, the run-up to the now infamous housing bubble turn credit implosion turn Great Recession saw a string of 36 months of double digit growth for a cumulative increase of 48%. So yes, today’s inflationary largesse may be only 40% of that which brought on the Great Recession, but this one’s still in process.
I should point out that Pollaro is rather negative about the future. But the point is that he shows that base money has been expanding and that can only be a result of quantitative easing (QE), which, as I have indicated, is the Fed's new mantra to rescue the economy from its current decline.
The Fed's Flow of Funds report came out last Friday and showed that credit is still contracting.
Household debt contracted at an annual rate of 2¼ percent in the second quarter, the ninth consecutive quarterly decline. Home mortgage debt fell at an annual rate of 2¼ percent, compared with a 4¼ percent drop in the previous quarter. Consumer credit contracted at an annual rate of 2½ percent in the second quarter, about ½ percentage point more than the decline posted in the first quarter.
If we were in a recovery, one would think that credit, especially consumer credit, would start expanding, but it isn't.
That gets us back to the consumer. There is no question that the employment situation has been improving, but job growth is centered around health care, construction, and professional temp workers. These gains are not indicative of healthy private employment growth in my opinion. Health care is now being driven by Obamacare and Medicare, construction is driven by Recovery Act spending since new private development has fallen off a cliff, and temp workers show that businesses are still reluctant to hire. The important fact is that jobs are still being lost; it is just that losses aren't growing as fast as they were during the initial phase of the recession. We need somewhere around 200,000 to 300,000 jobs created per month to start growing again.
Recent claims of income gains are nonexistent, as David Stockman pointed out in his article "Income & Spending Report Generates Illusion of Gains," according to his broader measure of income that includes "private incomes." This shows up in measures of retail sales:
Recent sales gains, according to Redbook and ISCS-Goldman reports, have been driven by retail promotions and sales and Back-to-school shopping. Consumers are buying when they have to and sales follows promotions. This makes sense when you look at the savings rate which has declined recently, showing that shopping dollars are coming from savings rather than from increasing wages:
The result of slow retail sales ultimately impacts manufacturers and this is reflected in rising business inventories, indicating that demand for product by wholesalers and retailers is falling:
A slowing down of consumer spending has led to a decline in industrial production:
Some of this decline in production has been caused by fluctuations in the dollar, as multinational exporters are alternately benefited and them harmed by declining and rising dollar rates versus other currencies. But a look at the New York and Philadelphia Fed reports on their local economies, shows that their organic growth doesn't look good.
When you hear our President claim that the Recession is over, or some economist says that we are on the path to growth, the numbers just don't bear them out.
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I'm haunted by a chart I saw here a couple of weeks ago, showing social security receipts in steep decline. A great project for a grad student, shadow stats, or maybe econophile would be to back govenment payrolls out of those numbers and chart the damn thing. In other words, without government employees, health care, military spending etc., cooked down as close as possible to the honest to god private sector, that would give the best possible picture of what's actually going on with jobs.
I'll bet dollars to donuts, the resulting graph will look like a swan dive. Recovery..., in what parallel universe?
The term "improving" probably isn't the best description of a situation where there is still a net loss of jobs every month...albeit at a decreasing rate.
By this metric we could eventually arrive at zero employment via an ever-slower rate and claim "improvement" every step of the way.
Even if employment were improving, I'm a bit hung up on the real crux of the issue being INCOME.
Say a company cuts its middle-management--100 people who'd been making $70K/year are now unemployed. Then the company hires more customer-service reps--200 people who had been out of work now have jobs making $19K/year.
That has a positive impact on the "employment" statistic but a rather severely negative impact on income.
Such a scenario doesn't bode well for growth of future consumption.
I worked at Starbuck's for a few years (not very long ago). People came in buying $4 drinks and asked me what my favorite drink was. Whenever they had commented about the high prices, I always felt a trace of delight in telling them, "Oh don't ask me, I can't afford any of this stuff."
We used to produce things, cars, television sets, washingmachines, blenders, gadgets and widgets. Now I see the greatest growth in the production of fake statistics or selling the market. Perhaps the greatest lie of all was that financial engineering could replace manufacturing engineering. I really don't think China, India and Pakistan are so lacking in brain power they need us to manage their finances.
Liars Poker................a LUCID DREAM.
flattening unemployment,
Yeah, so many are out of work, it had to flatten,we drop from 475k New Files a week to 450k......wow!!.Meanwhile what do they say about the 15 million plus still under employed, or Unemployed?.
especially consumer credit, would start expanding, but it isn't.
( Who can afford to buy, or wants to, when their not sure how much their taxes are going up, or if they will have a job, next week).
Until these two sectors start going UP^ substantially, and regularly, this is someones pipe dream.
What's the old saying?........................Liars figure, but Figures do not lie?
Pure Hollywood.Take the figures as gospel,don,t investigate the sources,ignore the smell that lingers after arrival.
The second largest segment of my business is providing services to Realtors who are presdiding over Fannie Mae foreclosures. Over the past 2-3 months Fannie is really turning properties, so we have been busy as beavers but using temp labor services to supplement.
But are we hiring? No dam way (bad pun with beavers intended). The rug will likely get pulled out from under us after 11/2 and will have to pay unemployment insurance.
Recovery my ass.
RECESSION OVER
http://williambanzai7.blogspot.com/2010/09/recession-officially-over-las...
#here is no question that the employment situation has been improving,
what are you smoking pal...
private job creation is lagging growth in working population.. 70 / 150 th per month
only hope is goverment.. but states are all #ucked.. but federal gov runs 1.5 trln$ budget deficit .. so ,, WEIMAR is ahead..
#2 show any piece of NON BLS proof that labor is approving
there's none... income taxes / SSFT/ unempl benefits yet contract compared w/ 2009
so labor is gettign worse.. or jsut bottoming..
summing
stupid jerk who knows none..
alx
Thank you very much, Alex.
@Econophile
sorry pal if I hurt your feelings..
problem is as GREAT George Carlin I have zero tolerance for bullshit..
so you were brave enough for publish something be ready to be critized
big problem in America is people became too polite,, always afraid of somehing
so next time u will come up w/ something better and I will be first to admit
alx
..