Something Is Still Happening

This article originally appeared in The Daily Capitalist.

You have to consider the impact of continually falling home prices on the national psyche. Now, as a follower of the Marginal Revolution, I know well there is no "national psyche," but in the sense that people are affected by what they see and hear everyday, there is this background drumbeat of bad news from the housing market. And I think that has led to the pessimism the surveys reveal.

For example, DiscoverCard research released the following survey:

Three months of rising confidence among small business owners stalled in December, as fewer see economy getting better and more see it getting worse, according to the Discover Small Business Watch. The monthly index dropped to 81.6 in December, down 5.6 points from November. The index remains 4.6 points higher than one year ago.

Twenty-five percent of small business owners said the economy is getting better this month, down from 33 percent in November; 51 percent said it is getting worse, up from 46 percent; and 22 percent said the economy is staying the same, up from 17 percent the prior month.

Another survey said:

Small, privately held businesses—companies with fewer than 500 employees—added a net 91,000 jobs last month, according to the ADP data released Wednesday. Though that was a sizeable jump over October's net gain of 78,000 jobs, the average net monthly gain so far in 2010 has been just 35,000 jobs.

By contrast, small businesses in 2006 and 2007 added a monthly net average of 143,000 and 79,000 jobs, respectively, ADP's data show.


A number of factors—including pending tax legislation, the ongoing credit crunch, and changes that owners made during the recession to stay afloat—are contributing to entrepreneurs' restrained approach to hiring.

"Like a lot of investors, they're sitting on the sidelines," says Raymond Keating, chief economist for the Small Business & Entrepreneurship Council, a nonprofit advocacy group in Oakton, Va.


Small businesses play a major role in the U.S. economy, employing half of all private-sector workers, according to the U.S. Small Business Administration. They have also historically started adding jobs more quickly after recessions than large companies. For example, small businesses added a net monthly average of 38,000 jobs in 2003, while large businesses shed a net 22,000 jobs on average per month that year, ADP's data show.

I still believe that "something is happening" and the data continues to improve although not in a straight line. Which is normal.

For example, initial jobless claims continue to drop:

Initial claims for unemployment benefits fell last week to the lowest level in more than two years, offering another hopeful sign that the job market is improving as the economy regains some momentum.


New claims fell 34,000 to a seasonally adjusted 388,000, the lowest since July 2008, the Labor Department said Thursday. The four-week moving average for claims, a measure used to smooth volatility in the weekly data, fell to 414,000 from 426,500. New filings have been hovering below 450,000 a week since the beginning of November.

This is positive news, but job losses still outnumber job creation, where I think we will be stuck for quite a while.

Want more? The ISM Manufacturing Index for December was up again, slightly, at 57 versus last month's 56.6:

[T]he ISM's composite index rose four tenths to 57.0, well over 50 to indicate significant monthly growth during December. New orders have moved above 60 for the first time since May, at 60.9 for a 4.3 point jump that hints at a pivot higher for the sector. Tracking new orders is production, up nearly six points to 60.7. Employment slowed slightly but the 55.7 level still indicates a significant monthly gain. ... The inventories index stood at 51.8, versus 56.7 the prior month. ... At the same time, though, inflationary pressures intensified, with the prices index hitting 72.5, from 69.5.

The Chicago PMI really broke out in December:

Purchasers in the Chicago area are reporting red hot conditions in December. Their business barometer index jumped more than six points to 68.6. Details show major acceleration in new orders, to a 73.6 level which isn't likely to be exceeded in future reports, at least exceeded by much. In other words, incoming business is as good as it gets in the Chicago area.


Production, at 74.0, is keeping up with new orders while employment, at 60.2 for a nearly four point gain, is expanding sharply. Inventories are building, deliveries are slowing and input prices are rising -- all indications of strength.


A pivotal sign of strength is a big build for backlog orders which also increased in the Philadelphia and Richmond Fed reports. Rising backlogs point to the need to increase output, increase capacity and hopefully increase employment.

This update (Tuesday) from the Census Department showed new orders for manufacturing goods were up:

New orders for manufactured goods in November, up four of the last five months, increased $3.2 billion or 0.7 percent to $423.8 billion, the U.S. Census Bureau reported today.  This followed a 0.7 percent October decrease.


Excluding transportation, new orders increased 2.4 percent.  Shipments, up three consecutive months, increased $3.4 billion or 0.8 percent to $424.5 billion.  This followed a 0.4 percent October increase.  Unfilled orders, up ten of the last eleven months, increased $4.8 billion or 0.6 percent to $826.9 billion.  This followed a 0.7 percent October increase.  The unfilled orders-to-shipments ratio was unchanged at 5.75.  Inventories, also up ten of the last eleven months, increased $4.1 billion or 0.8 percent to $543.8 billion.  This followed a 1.1 percent October increase.  The inventories-to-shipments ratio was unchanged at 1.28.

The Census Department's State and Local Tax Revenue report showed further gains, matching the data from the Rockefeller Institute which I reported on in my article Why Quantitative Easing And Fiscal Stimulus Are Unnecessary.

State and local governments are still way in the red, but revenues are improving nevertheless. Whether California will go B/K is another topic.

This data on personal income just came in from the BEA:

Personal income (PI) increased $42.3 billion, or 0.3 percent, and disposable personal income (DPI) increased $37.8 billion, or 0.3 percent, in November, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $43.3 billion, or 0.4 percent. In October, PI increased $49.5 billion, or 0.4 percent, DPI increased $39.3 billion, or 0.3 percent, and PCE increased $68.9 billion, or 0.7 percent, based on revised estimates. Real DPI increased 0.2 percent in November, the same increase as in October. Real PCE increased 0.3 percent in November, compared with an increase of 0.5 percent in October.

From this perspective, things are looking better:

FRED data

These numbers from the BEA are quite mixed as this following table shows and do not exactly signal a turnaround as everyone hopes for, but things continue to move sluggishly positive:

For example, here are the "mixed results" part of the report:

Private wage and salary disbursements increased $6.6 billion in November, compared with an increase of $31.2 billion in October.  Goods-producing industries' payrolls decreased $3.0 billion, in contrast to an increase of $3.8 billion; manufacturing payrolls decreased $1.9 billion, in contrast to an increase of $2.6 billion.  Services-producing industries' payrolls increased $9.6 billion, compared with an increase of $27.4 billion.  Government wage and salary disbursements increased $0.8 billion, compared with an increase of $3.2 billion.

As I mentioned in my report on Christmas sales, personal savings are down. But ...

The Fed's Flow of Funds Report that came out December 9 showed that household net worth has improved substantially, mainly from debt reduction.

Household debt contracted at an annual rate of 1¾ percent in the third quarter, the tenth consecutive quarterly decline.  Home mortgage debt fell at an annual rate of 2½ percent in the third quarter, about the same as in the previous quarter.  Consumer credit was down 1½ percent, after a decline of 3¼ in the previous quarter. ...


Household net worth—the difference between the value of assets and liabilities—was an estimated $54.9 trillion at the end of the third quarter, up about $1.2 trillion from the end of the previous quarter.

This means that households are doing the right thing: reducing debt and increasing savings. But perhaps that isn't enough to cheer people up since in their minds their net worth is down $10 trillion since the peak in 2007.

Yes, I am quite aware of all the negatives out there, so I will repeat what I said before:

In my article “Something Is Happening” I noted a glimmer of positive economic data. I was cautious to not call it a “recovery” yet because there isn’t a clear trend. In addition there is some uncertainty about policies of the Fed and the federal government that may well thwart the recovery. But I can’t ignore positive signs. I read the same data as other free market oriented blogs out there, I am just about the only one seeing this. As I reported in “Something Is Happening,” economies repair themselves, absent government intervention in the process.


I believe because of the massive debt buildup during the crack-up boom, that the bust will be much longer than the average recession. At some point, though, banks start to clear out bad debt, especially CRE, residential foreclosures increase until the market absorbs overbuilt housing, and consumers cut back spending, pay down debt, and boost their savings. All these things are occurring now, especially, the CRE problems of banks which is the main problem of local and regional lenders who provide much of the credit to middle and small American businesses.


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