Feldstein on the possibility of a double-dip

Martin Feldstein talks to Bloomberg News about, among many other things, the possibility for a double-dip recession in the U.S., an event that he believes is a "significant risk".

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It's a familiar story of higher savings by consumers whose balance sheets have been decimated by multiple bursting asset bubbles, all of which is leading to lower aggregate demand over the long-term and President Barack Obama apparently isn't helping:

This (healthcare) has been his one issue. It's almost as if he didn't know we had a deep recession. He would say, 'My number one concern is jobs', but then he would immediately turn to see what he could do to increase votes for the health care legilation.

On the Greek debt crisis he thinks they're headed for a "polite default", meaning that, instead of paying off holders of maturing bonds with euros, they'll just give them new bonds.

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That mysterious CPI shelter component

Well, it looks like whatever it was that was going on last month within the shelter category of the Labor Department's consumer price data is now back to normal in this month's report. As shown below, after considering the respective component weightings, the total seems to make sense in February (in green) versus the oddity that was January (in red).

Recall that, about a month ago in A math problem at the Labor Department? this question of addition was raised after the -0.5 percent decline in shelter costs caused the widely publicized first negative reading on month-to-month core inflation in many, many years.
What looks to be an obvious error was attributed to seasonal adjustment. That is, after the weightings (in blue) are adjusted for seasonal factors they somehow allow the lodging away from home component to greatly impact the shelter total.

All else being equal, you'd have to increase the lodging away from home weighting by a factor of ten to get the overall shelter total as reported in January. Do that many more people travel in January than during other months of the year?

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Zero inflation in February

The Labor Department reported zero inflation for the month of February as rising prices for medical care and education were offset by sharply lower costs for energy and apparel. This comes after a 0.2 percent increase in January and marks the eleventh straight month that the price index did not drop after a series of steep declines beginning in late-2008.
On a year-over-year basis, the overall consumer price index was up 2.2 percent following an annual gain of 2.7 percent the month before, however, we may not have seen the last of rising annual inflation as recently higher gasoline prices are not reflected in the most recent data.

By category, it was a familiar story as health care and education costs continued their relentless advance while prices for many other goods again fell. The closely watched shelter component (within the housing category) was flat in February after a decline of 0.5 percent last month and is now down 0.4 percent on a year-over-year basis.
Energy prices were down 0.5 percent in February after an increase of 2.8 percent the month prior and are now 14.4 percent higher than a year ago. Last month, gasoline prices fell 1.4 percent but they are still almost 37 percent higher than last year at this time.

Recall that gasoline prices did not move much above the $2 a gallon mark last year until May, so there will be a few more months of big energy price increases in the period ahead.

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Econo-limericks

A few economics-themed limericks spotted over at the WSJ economic blog this afternoon beginning with Fed chief Ben Bernanke:

“I’m afraid,” said Bernanke to Geithner,
“The debt crisis still has lots of bite in ‘er.
Though it may cause some ranklin’
I’ll print lots more Franklins:
We’ll loosen our money, not tighten ‘er!”
...
Said Bernanke, stroking his beard,
“This ‘-flation’ is worse than I feared;
All the research I see
Is pointing to ‘de-’;
It’s the ‘in-’ crowd that strikes me as weird.”

One called “Overheard at Goldman Sachs”:
“We assume that you know what you’re doing,
In this ill-advised trade you’re pursuing,
But the opposite bet
That we place on your debt
May eventually hasten your ruin.”

That last one is an instant classic. There are lots more at Limericks Economiques.

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ECONned

A new book by Yves Smith of Naked Capitalism has just hit bookstores - ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism. It follows in a long line of post-crisis books and, so far, the reviews look pretty good. There's also this slick video that may help boost sales a little.

Interestingly, the only negative review at Amazon complains about there being too many conspiracy theories - what's wrong with conspiracy theories anyway?

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Marc Faber and Mish on Tech Ticker

Marc Faber and Mike Shedlock appeared on Tech Ticker to talk about the prospects for the U.S. economy - shortly after you hit the Play button, you'll start to feel the optimism ooze out of your computer screen and onto your keyboard.

Says Faber: "Well, I think the collapse of civilization has already begun, but it began for me very nicely yesterday. I was at the Chicago airport and I ordered a beer..."

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Surprisingly, retail sales rise

The Commerce Department reports that, despite the inclement weather in many parts of the country during February, retail sales saw broad-based gains, up 0.3 percent on a seasonally adjusted basis following a gain of 0.1 percent in January.
This marks the fourth increase in the last five months and, on a year-over-year basis, sales are now up 3.5 percent in what looks to be a return to the pre-2008 pattern, however, February retail sales are now at about the levels seen in 2006, about five percent below the peak level of sales seen in 2007 and 2008 and this comes for a data series that should naturally rise due to both population growth and inflation.

Data for previous months was revised downward, turning the originally reported decline of 0.1 percent in December to a loss of 0.2 percent and the January increase of 0.5 percent was lowered to 0.1 percent.

February gains were paced by a 3.7 percent increase in sales at electronics and appliance stores while miscellaneous retailers, grocery stores, and sporting goods stores saw strong gains as well. Auto sales fell 2.4 percent in February after a drop of 1.7 percent the month before.
Excluding autos, sales rose an impressive 0.8 percent after a gain of 0.5 percent the month prior. Gasoline station sales rose just 0.3 percent in February and, excluding both autos and gasoline, the monthly gain was 0.9 percent, following a 0.5 percent increase in January.

Overall, this was a far, far better report than expected.

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Dr. Doom and Deputy Doom at CNBC.com

CNBC has two stories out this morning that should scare the bejeebers out of investors, but, the ongoing rally seems indefatigable as of late. Dr. Doom notes in this report that the odds of a double-dip recession were 20 percent before the recent spate of negative economic data.

Poor economic data in the US coupled with Europe's debt crisis are contributing to an increase of the risk of the US economy going through a double-dip recession, Nouriel Roubini, who predicted the 2007 financial crisis, wrote in a research paper.
...
The Roubini Global Economics benchmark scenario puts the risk of a double dip at 20 percent, while a slow, protracted, U-shaped recovery is given the highest probability of 60 percent.

But since the end of February new macroeconomic data from the US have come out and "they have been almost uniformly poor, if not outright awful," Roubini wrote.

Consumer confidence has "tanked", new home sales are "collapsing," existing home sales are also falling sharply, as is construction activity, while initial jobless claims remain "stubbornly high" above the 400,000 mark, he said.

Roubini was unimpressed by the 5.9 percent growth rate for the economy in the fourth quarter as it was largely an inventory rebuilding surge and it came at a time when the maximum impact of the government stimulus was being felt.

A Roubini "protege" (now there's a word that you don't hear too much anymore...) apparently known as "Deputy Doom" also showed up on CNBC.com this morning in this story about another topic that you don't hear too much about anymore - inflation.

'It's Going to Be Inflation Everywhere:' Deputy Doom
The global economy is entering a next "supercycle" phase that will generate inflation necessary for recovery, a strategist and protege of noted economist Nouriel Roubini told CNBC.

Arun Motianey, director of fixed income strategy at Roubini's RBG Capital, said the supercycles feature periods of commodity booms followed by busts, and the US economy is on the verge of an inflationary period that will generate a sharp rise in prices.

"We're heading into a world of inflation because we are highly indebted and we are indebted here in the US economy in the household sector and in the financial sector," said Motianey, author of the book "SuperCycles."
...
"It's going to be inflation everywhere and it's going to happen really through the weakness of the US dollar," he said. "Then inflation in those other parts of the world that are expecting appreciating currencies, they're going to inflate as well because that's the way you ultimately correct this."

You also don't hear too much about "supercycles" these days...

The idea that we were in the middle of a "commodities supercycle" a few years back and that it has been on pause - not over - will likely gain traction as we move further and further away from the cataclysmic events of 2008-2009.

Of course, economists seem to be doing their part to help in that regard and a subject that you do hear a lot of talk about these days is their sudden "embrace" of higher inflation (for the sake of recovery, that is), as seen in this piece at voxeu - A 4% inflation target?

At some point in the years ahead, economists will probably wish inflation was only 4 percent.

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It's still all about jobs

Columbia University economist David Buckner talks to Eric Bolling about the stock market, the housing market, Wall Street bonuses, and politicians in Washington, ultimately coming back to what is foremost on the minds of most Americans - jobs.

Buckner seems to breeze through this interview while easily maintaining consciousness, unlike a previous appearance on the network - I wonder how long it will take for this HuffPost item David Buckner Faints, Passes Out on Glenn Beck Show to work it's way down the first page of the Google search results for David Buckner...

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Tom Delay: People want to be unemployed

Former House Majority Leader Tom Delay shares a few thoughts on the high jobless rate, arguing that extended unemployment benefits encourage more of the same. Fortunately, he had the good sense to stop short of saying we are a nation of slackers.

While the term "funemployment" has been popping up on a somewhat regular basis over the last year, this is clearly a twenty-something phenomenon and those with families to support would no doubt overwhelmingly argue that there is nothing fun about it.

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Stephen Roach on discouraged workers

After last Friday's print of 9.7 percent for the unemployment rate, more than a few pundits are calling the 10.1 percent jobless rate seen back in October the high for the cycle. It seems to be way too early to make that call based on the millions of "discouraged" workers who, when they start looking for work again, will suddenly count as "unemployed" again.

Stephen Roach seems to agree, figuring that the real jobless rate today is 11.5 percent.

The odds of a double-dip recession are now 40 percent? That's good to know. There's been a lot of talk about another downturn for the U.S. economy, but it comes as news to me that they've already taken the time to poll economists and that they were this pessimistic.

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Mind the private/public sector pay gap

This data is more than a year old and has undoubtedly gotten worse in the interim, all the more reason why it may be a rude awakening for many elected officials this November as more and more voters come to learn about the widening gap between public and private sector compensation and benefits as detailed in this report in USA Today.

Federal pay ahead of private industry
Federal employees earn higher average salaries than private-sector workers in more than eight out of 10 occupations, a USA TODAY analysis of federal data finds.

Accountants, nurses, chemists, surveyors, cooks, clerks and janitors are among the wide range of jobs that get paid more on average in the federal government than in the private sector.

Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.

These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.

Someone will have to refresh my memory about how this isn't really as it appears. If memory serves, this subject was broached here some time ago and there were a few gubment workers who disagreed with the numbers for some reason.

During my working career, I always thought of private versus public sector work as being a trade-off between higher pay and better job security with slightly better benefits.

Now it looks as though you get all three.

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Payrolls fall 36K, jobless rate steady at 9.7%

All the talk about the severe winter weather grossly distorting the monthly labor report turned out to be just that - talk - as both nonfarm payrolls and the unemployment rate were surprisingly tame during the month of February.
Due largely to a decline in construction jobs, nonfarm payrolls fell by 36,000 in February after declines of 109,000 in December and 26,000 in January. There were total upward revisions of 35,000 for prior months' data, the December total adjusted up from -150,000 and the January job losses slightly greater than the originally reported -20,000.

Turning to the establishment survey, the unemployment rate held steady at 9.7 percent as the ranks of the unemployed increased, but at a slower rate than the workforce grew.

The number of respondents working part-time instead of full-time rose from 8.3 million to 8.8 million and the broader U-6 measure of under-employment (including this group along with discouraged workers) rose from 16.5 percent in January to 16.8 percent in February. This comes after reaching an all-time high of 17.4 percent last October.

By category, changes to nonfarm payrolls were dominated by the loss of 61,000 positions in construction and a gain of 51,000 jobs in professional and business services, the vast majority of which were temporary jobs. Importantly, steady increases in temporary positions are often a precursor to hiring for permanent positions.
Education and health care services added their typical 32,000 jobs, however, government payrolls fell by 18,000, paced by a decline of 31,000 at the local level, about three-fourths of these job losses coming in education.

Census hiring has yet to show up in any substantive way as Federal government payrolls (excluding the U.S. Post Office) saw an increase of just 16,000. It is expected that more than a million workers will be hired in the months ahead to conduct the 2010 Census.

Interestingly, the impact of the many warnings over the past week about horrific jobs numbers that could have been reported a short time ago have contributed to a tremendous amount of enthusiasm in financial markets - judging by how prices for stocks and commodities are now rising, you'd think that a quarter of a million jobs were just added.

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Home prices and the labor market

Leading into tomorrow's highly anticipated monthly labor report, here's the last in the series of recently updated charts that lay the S&P Case-Shiller Home Price Index up against other economic data, in this case, the year-over-year change to nonfarm payrolls (see here, here, here, and here for the first four in the set).
Second derivative-wise, things are really looking up for both housing and jobs, but, despite the promising shape of the curves above, both home prices and payrolls are still lower than they were a year ago with an uncertain near-term future, particularly for payrolls.

Current estimates are for a loss of somewhere between 50,000 and 200,000 jobs in tomorrow's labor report, a number that will have been affected in big way by the record snowfall seen during the month of February on the East Coast.

Actually, there was one more chart in the home prices vs. other data series...

Since being bought by Bank of America just before the wheels fell off the global economy in 2008, Countrywide Financial no longer trades on any stock exchange, but, this final chart can still be updated one last time.
What's new with Angelo Mozilo anyway?

According to this report in Reuters today, the SEC is moving forward with their case against him for securities fraud and insider trading having to do with the sale of about $150 million in Countrywide stock. The Orange Man has just hired some high priced help.

It looks like we haven't seen the last of him...

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Jobless claims down, but still high

The Labor Department reported that initial claims for unemployment insurance fell from an upwardly revised three-month high of 498,000 to 469,000 during the week ended February 27th. As shown below, the four-week moving average fell by 3,500 to 470,750, a level that is still quite high as compared to prior recessions.
For example, during the 2001 recession, the four-week moving average exceeded the current level only four times and, during the 1991 recession, this level was surpassed for just two months. Despite the widespread belief (amongst economists, at least) that the recession ended last summer, weekly jobless claims are still about the same as when the 1991 and 2001 recessions were at their worst.

More evidence that the current recession has little in common with the last two comes in the continuing and extended claims data. Continuing claims fell to 4.5 million, a 13-month low, however, extended claims continue to rise, now at 5.9 million.

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Home prices and revolving credit

This could be the most interesting chart in the updated series of charts where the Case-Shiller Home Price Index is laid up against all kinds of other economic data. Two days ago it was home prices and gasoline prices in The Hummer "sweet spot" revisited and yesterday it was the mostly unexciting home values and consumer sentiment.

Today, the relationship between the nation's housing bubble and the country's outstanding revolving credit (i.e., mostly credit cards) is examined with some surprising results.
First, you can see how consumers turned to credit cards as both the 2001 and 2008 recessions began, however, due at least in part to real estate related financial resources such as home equity lines of credit, the surge was not nearly as great in 2008 than in 2001.

Notice that as home prices started to take off in 2004, revolving credit dropped sharply, presumably because money started gushing out of the housing ATM. After turning to credit cards a few years later following the bursting of the housing bubble, it looks as though consumers have sworn off plastic for good as revolving credit continues to decline even though home prices have been staging a bit of a rebound.

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It (the IRS) pays to be a snitch

It's tax time again and, during a recession (or whatever it is we are still in at the moment) the temptation to leave out a little income or inflate a few deductions on your tax return is as strong as ever. But, those thinking of doing so should heed the warning in this CNN/Money report about how the IRS encourages snitches.

If you knew coworkers, former bosses or exes who cheated on their taxes, would you turn them in? The Internal Revenue Service can make it worth your while.

As tax season nears, we all want to get as much money back from the IRS as possible. And while taking advantage of this year's new tax breaks will put some extra money in your pocket, snitching on a tax cheat could make you rich.

In a recent poll from the IRS Oversight Board, 13% of those surveyed think cheating is acceptable, up from 9% in 2008. As the recession puts the squeeze on household finances, the lure of fudging on a tax return is even greater.

"In a down economy, the temptation to cheat on taxes is much stronger because people are in more desperate situations more often," said Bill Raabe, a tax expert at Ohio State University's business school.

More people may be just as desperate to turn in a business, rat out an ex–spouse or report a colleague to collect a reward.

For those who have fudged their taxes, it's probably not a good idea to talk about it.

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Postal service asks to drop Saturday deliveries

USA Today reports that mail carriers may spend their Saturday's home watching college football this fall if their request to ditch weekend delivery is approved by Congress. I don't know about you, but, while I was aware that the Postal Service wasn't exactly killing it bottom-line-wise, it comes as news to me that they too are struggling with "massive debt".

The U.S. Postal Service will move this month toward reducing mail delivery from six days a week to five, a change Postmaster General John Potter has said is critical to reducing its massive debt.

Potter said Monday he'll submit a formal request by the end of this month to the Postal Regulatory Commission, which must issue an advisory opinion on any change in mail service that would have national impact.

"We know we're going to have less mail in 2020 than we have today," Potter says. "We can't freeze wages. We can't freeze fuel costs."

Once Potter makes the request, the Postal Regulatory Commission will hold public hearings in Washington and around the USA and seek expert testimony, Commission Chairwoman Ruth Goldway said.
...
The Postal Service has already borrowed $10 billion from the U.S. Treasury. Potter says it expects to borrow another $3 billion this year, leaving it just $2 billion under the $15 billion cap set by Congress.

Is anyone not borrowing from the Treasury Department these days?

Wards of the state Fannie Mae and Freddie Mac along with the FDIC, the FHA, and other government agencies are already getting billions from Tim Geithner and the crew at Treasury or they soon will - what's a few billion more for the Post Office?

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Home prices and consumer sentiment

Here's another chart from the long dormant series of charts that put the S&P Case-Shiller Home Price Index up against a variety of other economic indicators. In this version, home prices are shown on the same chart as consumer sentiment with an unsurprising result.
With the exception of the early-2007 period, the two track pretty well.

In fact, if you smooth the consumer sentiment curve as shown below, the two are nearly identical, save for a delayed reaction in the outlook of Americans in 2007 leading up to the fateful events of 2008.

This is a 12-month moving average that not only takes out the month-to-month volatility but reflects the average sentiment over the last year, a metric that would seem to match up better with the change in home prices over that same period.
Any way you look at it, that mid-decade high for the mood of the consumer now seems like a distant memory - about the only thing we had to worry about then was a war that was going badly and gasoline prices that were rising toward $3 a gallon.

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How not to win friends and influence people

Senator Jim Bunning (R-KY) is doing his impersonation of a "one-man wrecking crew" when it comes to the 100,000 or so unemployed, who are in desperate need of having their jobless benefits extended, along with thousands of government employees who, were, as a result of Bunning's actions yesterday, told not to report to work.

The Miami Herald reports on the fallout:

The Department of Transportation furloughed nearly 2,000 employees without pay Monday as the government began to feel the impact of Republican Sen. Jim Bunning's one-man blockage of legislation that would keep a host of federal programs operating.

Bunning's "hold" also affects jobless benefits for thousands of unemployed workers, rural television customers, doctors receiving Medicare payments and others.

Bunning, R-Ky., wants the $10-billion price of extending the programs offset by reductions in spending elsewhere in the budget to not drive up the deficit.

Absent that, his objections to proceed with the legislation deny the Senate the "unanimous consent" that Senate rules require for going forward under expedited procedure. The Senate can overcome his objection if 60 of its 100 members vote to do so. So far they haven't, and doing that would take at least four days under Senate rules.

There is also this report of a testy encounter between Bunning and ABC News correspondent Jonathan Karl in a "Senate-only" elevator in the Capitol building.

Not that someone putting their foot down when it comes to rising deficits and debt isn't a good idea, but it's worth noting that Bunning plans to step down from his Senate post this fall and he does have something of a history of "erratic" behavior.

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