On the state of the economy

[J]

So in the last few months we've had one heck of a rally in the stock markets, with most indices up anywhere from 25-40%. Initial unemployment claims are falling month on month and housing sales are showing month on month gains. While bank failures continue, they've been small banks, nothing of the size of WaMu, Lehmans' or Wachovia. The media is of course all over this, and every day brings countless reports that the recession will soon be over, if not by the end of this year then certainly by next year.

I'm curious as to what you guys believe, is the worst truly behind us or are we seeing a textbook bear market suckers' rally?

[Mr Bean]

I'm curious as to what you guys believe, is the worst truly behind us or are we seeing a textbook bear market suckers' rally?

Sucker rally
The bankers are so far up shit creek it's not even funny, only the fact the markets have calmed down a bit has prevented more panic, and we are oh one to three good panics away from a Black "Day of the week" being announced by the mass media which will cause yet more panic.

[erik_t]

The length of this rally leads me to think that the worst (in a rate sense) is over. I mean things will bottom out below where they are now in a number of measures, but I don't expect a re-acceleration of bad shit going down.

I have nothing to back that up but my gut, really.

[Prannon]

I continue to read reports in the economist indicating that this type of recession (debt and confidence based) tends to last for a long period of time with weak recoveries, so I'm not really expecting it to end any time soon. I'm not really out to make predictions though. I'm in wait and see mode. So "unsure" for me.

[TimothyC]

Anecdote: Last year at this time, in the market where I live, the popular size for new flat panel TVs (LCD and Plasma) was the 46-47" range. Now it is the 37-42" range (in November it was down to 32"). Take that as you will.

[Surlethe]

There's been plenty in the news about indicators "stabilizing", and that being good news, but the observant reader will notice that what the data really means is that the decline is no longer accelerating. In other words, if these indicators are to be trusted, the economy is still falling; it's just reached terminal velocity, so to speak. My (ill-informed) guess is that we're at an inflection point, not bottomed out yet, and I'm pretty sure that prominent economists share my opinion.

[Count Chocula]

Still tough, and continuing to worsen. Last I read, for example, the much-heralded then delayed bank stress tests were based on trends that were already shown to be false. There's still a greater than 9-month supply of unsold home inventory and it's creeping back up. My company's done okay so far, but our book to bill ratio is below 1:1 now and the trend is not all that encouraging. Like Bean said, we're in another bear trap in the markets. If you have the stones, now's a good time to go short. Oh, and guess what just happened: the president of the New York Fed just resigned! Unfortunately, this ain't over by a long shot.

[Edi]

Bear market suckers' rally. I still haven't seen anything to indicate the actual financial bombs have been defused. It'll blow up in time.

[weemadando]

And the big industries are still tottering around like a drunkard at 4am on Sunday. Primary through to Tertiary for the automotive chain (mines, processing, production and sales) are all primed to be nailed to the wall should the automotive industry actually take a header. And it's not like they're doing anything to help themselves in the meantime.

[Hillary]

What's interesting about the stock market rally in the UK is that the higher the FTSE goes, the lower the volume of trades. That doesn't fill me with any sort of confidence.

Anyone know if this is the case across the board?

[muse]

I've already lost my job twice this year and it's only May, so you'll forgive me if I say "are you fucking shitting me??!"

[weemadando]

I've already lost my job twice this year and it's only May, so you'll forgive me if I say "are you fucking shitting me??!"

I work in social security and can say that from our P.o.V the problems are BAD. The big thing is that the unemployment rates in Australia are a total lie - they hide the under-employed and those who are unemployed, but not claiming a job-search payment (but can be on other forms of welfare). And there is way more work coming through the door than ever before according to those who have been around for 30+ years.

[aerius]

I work in social security and can say that from our P.o.V the problems are BAD. The big thing is that the unemployment rates in Australia are a total lie - they hide the under-employed and those who are unemployed, but not claiming a job-search payment (but can be on other forms of welfare). And there is way more work coming through the door than ever before according to those who have been around for 30+ years.

I'm hearing the same thing from my friends who works for the employment insurance division of Service Canada. Everyone there actually has to do work now and they're also doing lots of overtime and hiring more staff.

On fudging the numbers. I don't think anyone does it better than the US. What they've been doing for over a year now is deliberately understating the jobless claims for the current month, then on the next month's report they revise the numbers downward to the actual figure so that the most recent month's data is almost always an "improvement" on the previous month's. For instance, let's say it's April and they just came out with the March numbers, and there's 500k lost jobs. In May, they'll come out with the numbers for April and say that 550k jobs were lost, but at the same time they revise March down to 600k lost jobs, and everyone goes hooray, we lost less jobs in April than March! And I don't even want to get in the birth/death "adjustments" which is a fucking joke. Basically, it's like "we'll stick a number in here so the unemployment numbers don't look too bad".

[Lonestar]

Another good metric is watching higher education enrollment and how the military is doing with recruiting. When both of those go up(as, anecdotally, I've heard from an old shipmate who now pushes boots and from one of my profs) the economy isn't doing too well.

[Surlethe]

Regarding unemployment figures, there's also the fact that people leave the workforce or are forced to work part-time; they're not counted in the figures. When I checked on those figures in February or March, that was about 15% and rising.

Also, aerius, would you mind linkjing several of those reports to show that it happens and is a pattern? I'm also skeptical about claims of nefarious intentions.

[aerius]

Also, aerius, would you mind linkjing several of those reports to show that it happens and is a pattern? I'm also skeptical about claims of nefarious intentions.

September: -159k
October report October is -240k, September revised to -284k
November Nov: -533k, Oct: -320k, Sept: -403k
December Dec: -524k, Nov: -584k, Oct: -483k
February Feb: -651, Jan. revised from -598k to -655k, Dec. revised to -681k
April reportFebruary revised to -681k, March revised from -663k to 699k

Maybe they're just incompetant, or maybe their models are broken, but when that many reports in a row underestimate the numbers that badly, something wonky's going on.

Then we have the birth/death adjustments which as I said are used to account for small business births & deaths which won't always show up in the unemployment survey. If it's positive it means those mom & pop shops are popping up faster than they're dying and creating jobs in the process, if it's negative it means those small businesses are dying faster than they're being opened and putting people out of work. IMO, this January was the only month where the number wasn't fudged.

[ArmorPierce]

I see one more major downward trend beofre the economy begin to slowly recover.

[Surlethe]

Also, aerius, would you mind linkjing several of those reports to show that it happens and is a pattern? I'm also skeptical about claims of nefarious intentions.

September: -159k
October report October is -240k, September revised to -284k
November Nov: -533k, Oct: -320k, Sept: -403k
December Dec: -524k, Nov: -584k, Oct: -483k
February Feb: -651, Jan. revised from -598k to -655k, Dec. revised to -681k
April reportFebruary revised to -681k, March revised from -663k to 699k

Maybe they're just incompetant, or maybe their models are broken, but when that many reports in a row underestimate the numbers that badly, something wonky's going on.

Okay, thanks. Economic reports routinely adjust numbers from previous reports - they do this with GDP all the time - so I'm guessing that's what's going on here; they're having trouble keeping up with the decline.

Then we have the birth/death adjustments which as I said are used to account for small business births & deaths which won't always show up in the unemployment survey. If it's positive it means those mom & pop shops are popping up faster than they're dying and creating jobs in the process, if it's negative it means those small businesses are dying faster than they're being opened and putting people out of work. IMO, this January was the only month where the number wasn't fudged.

How much do these impact the overall unemployment rates? What evidence makes you think the numbers are fudged?

[aerius]

How much do these impact the overall unemployment rates? What evidence makes you think the numbers are fudged?

It depends, they change the adjustment factor for the birth/death model every month so it's a "black box" operation. David Rosenberg (a Merrill-Lynch analyst, and one of the few who tells the truth) thinks the numbers are skewed about 60k or so to the plus side this month by the B/D adjustment.

As for why I believe the numbers are fudged, small business loan defaults are soaring which means many of those businesses are going kaboom. In the vast majority of cases, when the loan defaults the bank liquidates the business and it's toast. Retail & commercial vacancy rates have also been going up, which supports the case of lots of business closures.

[Surlethe]

But you can't make a determination about the net just by looking at the default rate; that just gives you a rough idea of how many small businesses are leaving the market. It could be that there are more entering the market now, too, or that the rate of small business creation, while smaller, still outpaces the rate of exit.

[aerius]

That's why I'm also looking at the vacancy rates. If the defaults are going up and the vacancy rate is going down, then one could argue that businesses are popping up faster than they're dying. If they're both going up, it's almost certain that businesses are dying faster than they're being created.

[Uraniun235]

I don't even know how the economy would start to recover or what it would look like. It just seems completely implausible right now.

[rhoenix]

This is technically a blog post at DailyKos, but the information, links, and data within it are from news sources: China cancels America's credit card.

Again, when it comes to economics, I'm still a layman, and still learning - but this does not appear to fall under "good news."

[TrailerParkJawa]

I put myself down in the probably not category. In some ways it does "feel" like things are getting better. When you look at the lows we reached in March for the stock market things have improved. Yet, I'm noticing some interesting things around the Bay Area. I went to Lowe's last weekend to buy blinds and the place was deserted. On Friday night I was able to a seat at Outback Steakhouse immediately. These are things that never used to happen even in the dot com collapse which hit this area hard. So at least from personal observations it seems that things are going to get worse before they get better.

[Surlethe]

So Krugman says that the rally is probably a sucker's rally. I think the reasoning is that fucked-up financial system recessions don't tend to be associated with V-shaped recoveries.

May 12 (Bloomberg) -- Paul Krugman, Princeton University’s Nobel Prize-winning economist, said global economic prospects don’t justify the two-month rally that has restored $8.9 trillion to stock markets around the world.

Speculation government spending packages and interest-rate cuts worldwide will reinvigorate the global economy has helped the MSCI World Index rally 37 percent since falling to its lowest since 1995 on March 9. The U.S. Standard & Poor’s 500 Index surged 34 percent in that time.

“It looks to me now as if the markets are now pricing in a rapid recovery, that they’re pricing in a V-shaped recession, which I consider extremely unlikely,” Krugman, 56, said at a forum in Shanghai today. “The market seems to be looking as if this is going to be an average recession, but it’s not.”

Krugman, who won the 2008 Nobel Prize for economics, joins New York University’s Nouriel Roubini in calling for a more cautious outlook on growth. Roubini said last week analysts expecting the U.S. economy to rebound in the third and fourth quarter were “too optimistic.” Nassim Nicholas Taleb, the author of “Black Swan,” said the current global crisis is “vastly worse” than the 1930s.

The International Monetary Fund said on April 22 the global economy will contract 1.3 percent this year, downgrading its January projection of 0.5 percent growth. A recovery will take longer than normal because the slump was precipitated by a worldwide financial crisis, the IMF said.

Stimulus Packages

Governments around the world have announced spending packages and cut interest rates to lift the global economy out of the worst slowdown since the Great Depression. The Group of 20 industrialized economies has already pledged more than $2 trillion, according to data compiled by Bloomberg.

“Some of the measures that have been taken to deal with the crisis seem to be predicated on the belief that this is going to be a short, short recession,” Krugman said today. “Everything says that’s wrong, that this is going to be a sustained period of weakness.”

The economist wrote in a New York Times editorial on April 16 that the “green shoots” for a recovery being cited by government officials and investors could “breed a dangerous complacency.”