Slowing Economy

The last 2 days' economic calendar have provided strong and consistent evidence that the economy is slowing markedly. As usual, the government overestimated almost every category prior to the release of the actual numbers. The preliminary estimate for Construction Spending had been for an increase of 0.6%. Instead, Construction Spending declined 0.1%. Furthermore, there were downward revisions to the previous month's numbers as well. Private Construction for March was revised downward from an increase of 1.1% to only 0.9%. February's Private Construction was revised downward from an increase of 1.2% to only 0.7%.

Residential Construction declined 1.1% for April (or a change of -1.1%) This is not surprising considering the rapidly declining sales rates of new homes over the last several months. March's original Residential Construction figure was revised downward from an increase of 1.6% down to only a 1.0% increase. February's Residential Construction number was also downwardly revised from the original 1.3% increase to only a 0.6% increase.

Below is a chart showing both the revisions to Construction Spending (revisions that took place in less than 24 hours) as well as the revisions to the NonFarm Payroll Employment numbers.



Friday's Payroll Employment Report was also much worse than expected. As can be seen from the chart above, NonFarm payrolls increased only 75K, not 170K has had been predicted the previous evening. (In this case, the revisions took place in less than 12 hours prior to the release of the "actual" numbers.) Again, previous months' numbers were also revised downward. April's Nonfarm Payroll Employment increase was revised from the original 138K down to 126K. March's overestimate of 200K was revised downward to 175 K. Over the last 3 months, this puts the monthly average employment increase at 125,000. The general consensus is that we need to created 150,000 jobs per month to keep pace with labor force growth.So the current numbers indicate that 75,000 jobs less have been created than necessary to keep up with labor force growth. Below is a bar graph from Briefing.com showing the declining employment growth.



Given that the growth of labor "supply" has been greater than the growth in labor "demand," it might be expected that the "price" of labor (or wages) would decline. In fact, that's exactly what has happened. Real wages (inflation-adjusted wages) declined 0.2% from February through April. May's nominal hourly wage increase of only 0.1% probably represents a net decline in "real" wages as the increase in inflation will probably be much larger.

Factory Orders also declined 1.8% (or a change of -1.8%.)

In summary, the last 2 days' economic reports provide considerable evidence that our economy is on the decline, despite what some of the supply-side maniacs, like Larry "I-lost-my-straitjacket" Kudlow might proclaim. Construction spending is declining. Residential Construction, which has provided over 40% of the new jobs created under the Bush dictatorship, is also declining. Employment growth is not keeping up with labor force growth, causing downward pressure on wages. The decline in real wages is putting downward pressure on consumer spending and production demand, putting still further downward pressure on demand for workers to provide production. To put it differently, as aggregate worker/consumer income stagnates, so does the production demand provided by consumer spending. And so does the demand for workers to provide that production.

The decline in factory orders was completely predictable, due to the decline in real consumer income to purchase factory goods. Does this sound like an economy that is "strong, and getting stronger," as Der Fuehrer so bone-headedly claims?

just think how bad it actually is.

Lake Co.. CA

From a friend who's husband is in the biz:
The "ritzy" gated community (Hidden Valley Lake) has over 200 properties offered, and they aren't moving. This is the area where commuters to Santa Rosa were buying. (The commute is hell- over Mt. St. Helena and through the hills, about an hour of two-lane driving.) Houses and properties around Clear Lake are still selling, but very slowly.

There are lots of "for sale" signs in my neighborhood, but only the cheapest places are selling, mostly fixers. Looks like the real estate bubble is leaking badly. And that is what has been keeping the part of the economy here going. That and agriculture are about it, unless one counts social services and education.

Thanks the update on Real Estate in California. My information on asking prices in Southern California is that they're about what they were 7 months ago. Meanwhile, inventory is skyrocketing.

a bit off topic, but related in the big picture...if the dollar goes to hell, all bets are off...and we won't be able to buy anything, 'cause we don't make anything "onshore" any more...

http://www.informationclearinghouse.info/article13493.htm

Requiem for the Faith-based Greenback          
By Mike Whitney


O6/03/06 "Information Clearing House" -- -- The great dollar sell-off has begun in earnest, although to a large extent, it is being concealed from the public.     

Wary currency traders have been expecting a dollar-slide for months but were nervous about the possibility of widespread panic. Everyone from Bill Gates to Paul Volcker has predicted that the current trade deficit of $800 billion (7% of GDP) would inevitably produce a weaker dollar, so it is only natural that China, Japan and other foreign lenders would begin to cut back on their purchases. The danger to the United States, however, remains extreme. If the transition doesn?t go smoothly, it could precipitate a run on the dollar and trigger economic pandemonium.  No one wants to see the world?s economic powerhouse pirouetting through the ether in flames. By the same token, no one wants to be the last man holding onto stockpiles of scrip that are diminishing in value.

-snip-

Thanks for the link to that article. I wasn't aware of just how much the money supply had been increased under Bush's dictatorship.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriots' Forum

___________
The economy needs balance between the "means of production" & "means of consumption."

did they decide that May looked so lousy with only about 38K new jobs that they just shifted the numbers of new jobs in March and April so they could add another 37K and get a total of 75K for May? They didn't just "discover" in the last few days that the previous months' numbers were wrong. Rather they lied about the previous months' numbers to make this month look a little better. Did I understand that correctly? And how can that be legal??? Don't things like the stock market pay attention to these numbers and expect them to be accurate???

If I understand your first question right, you're asking if they moved moved some of the new jobs created in March and April to May, to make May look better. I wouldn't be surprised if they did. The government certainly appears to do this almost every month with New and Existing Home Sales. They go back and lower the previous month's numbers to make the current month's numbers look better. It hadn't occurred to me, however, that they might be taking the reduction in the previous month's numbers and adding them to the current month.

Regarding whether it's legal or not, that's never stopped the Bush-ites in the past. Furthermore, you can ignore the law if no one brings charges against you.

I think the stock market likes for the Bush dictatorship to fudge the numbers. It causes more people to invest when they are overly optimistic about the economy, even if it is based on fake numbers.

the Bush junta is desperate to spin the economy.

the MSM is desperate to project the propaganda that the economy is doing well.


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I can only hope people aren't buying it.

they certainly don't seem to be buying anything else, like at my store, where sales dropped 75% between March and April. That doesn't happen because people suddenly decide that your inventory sucks. That kind of a drop in sales has a name.

Recession.

They certainly are trying to spin it. For the last 4 quarters, Consumer Spending has exceeded disposable personal income. More interesting is that the gap between Consumer Spending and disposable personal income has actually been revised upward for the previous 3 quarters. In other words, the amount of money consumers have been spending in excess of their income is even more than was originally stated. Needless to say, this is not a sustainable situation. Consumer spending cannot continue to increase on the basis of increased borrowing alone.

If the labor force is approximately 150 million that means that 150k people now have jobs over the previous released unemployment number to cause a .1 of 150 million drop from 4.7 to 4.6%. But add in the 75 decline vs. labor pool growth that means 225k people are now working at non-existent jobs or is all this just more of the big lie?

FreeStateDemocrat,

LOL. That's a great question. You've pointed out an obvious conflict in the report. Clearly the Bush dictatorship mixes and matches numbers in very "creative" ways.

In this case, however, the 1st thing to understand is that the unemployment rate and payroll employment are calculated off 2 different sets of numbers. The unemployment rate is calculated from the "Household Survey" which comes from answers on a questionnaire sent to 60,000 households. In contrast, the payroll employment numbers come from statistics compiled from over 400,000 businesses. Most agree the latter is far more reliable and accurate. However, the more reliable payroll employment survey doesn't attempt to determine how many are actually unemployed. It simply ascertains how many are currently employed.

Even still, your question is right on target. How do we create only 75,000 jobs, with a labor force growth of 150,000, and reduce the unemployment rate. Shouldn't there actually be 75,000 more people unemployed than the previous month? Shouldn't an "increase" in the number of those unemployed increase the unemployment "rate," instead of reducing it?

The answer comes from the "household survey." The household survey shows an increase in the number of jobs by 288,000 and an increase in the labor force size of 180,000. Thus from this survey, there were 108,000 more jobs created than growth of the labor force. Thus, from the household survey, the number of those unemployed declined by 108,000
(288,000 - 180,000 = 108,000).

So the more accurate and reliable "payroll survey" showed and increase in jobs of 75,000. Meanwhile, the less accurate and less reliable "household survey" showed an increase in jobs of 288,000. And it is the less reliable household survey they calculate the unemployment rate from.

Below is a copy of 3 charts from the Bureau of Labor Statistics. The top one is the total number of unemployed from the "Current Population Survey" (the "Household Survey") The middle is the size of the 'participating' labor force, again from the "Current Population Survey" (the Household Survey") The bottom chart is the total nonfarm employment number which is NOT from the "Current Population Study," but the "Current Employment Statistics Survey" (or the "Payroll Employment Survey"). Again, the latter survey comes from actual employment statistics reported by over 400,000 U.S. businesses. The latter is based on actual statistics, not the results of a questionnaire like the previous 2.

As you can see from the bottom chart, employment increased 75,000 in May.



The links to these charts can be found at the Bureau of Labor Statistics at:

Unemployment Number
Labor Force, Participating
NonFarm Employment

But the bottom number is NOT the number used to calculate unemployment. Those numbers come from the "household survey," which claimed an increase in employment of 288,000. (It must be from all those new Ebay jobs Cheney talks about.) Thus the "decline" in unemployment was calculated from the far less reliable Household Survey.

The general consensus is that the total NonFarm Employment, from the payroll study, is a far better gauge of our employment situation. If those numbers alone were used, unemployment would have increased, not decreased. But using those numbers is not in the best interests of the Bush dictatorship. So they espouse the concocted results of a highly unreliable survey as the best indicator of employment. For the month of May, this conflict is very obvious.

I infer from you information that being counted as employed includes people who are working less than full-time.

weren't so careful and clear. I really appreciate the charts all positioned together so I can follow your argument. And the red underlining is awesome at helping me find the right stats. Economics usually makes my eyes glaze over, but I think I understand you pretty well! Thanks Unlawful.

:kick:

because people don't understand them. At the whitehouse web site, they flash the following:75 K jobs created in May (which really translates to 75 K net jobs lost in may)

The second thing they are bragging about on the site reads 5.3 million jobs created since August 2003.

That is a about a break even or net loss of 100 K during that period. So you combined with Bush's first three years and you have several million jobs lost. They are completely distorting the truth.

though I now fully understand the concept of "Ignorance is bliss". Scary stuff coming down the pike.

reading.

The recent sell off certainly is interesting. It appears money is simply being drawn out of the markets altogether.

The Dow has dropped over 700 points, or over 6.5% in the last month. Meanwhile, gold and other precious metals have also dropped, which is unusual. During the last month the price of gold has dropped 13.6%. Silver, palladium, and platinum have seen similar declines.

Bond yields have declined, indicating some increased investment in the bond market. (Meaning a decline in investor confidence in the stock market.) So apparently some of the stock market and precious metals capital has flowed into bonds.

Bonds rates have now inverted again, with the 2-year rate being higher than the 10-year. This is usually considered a sign of a slowing economy, and sometimes even a portender of a recession.

Nothing about the economy is looking good right now, unless you're Larry "I-lost-my-straitjacket" Kudlow. Real wages are stagnating, consumer confidence is declining, employment growth is slowing (73,000 new jobs created last month), the dollar is declining, the housing bubble has burst, and there's no end in sight to Bush's gross mismanagement of the economy.

unlawflcombatnt

EconomicPopulistCommentary

EconomicPatriotForum

___________
The economy needs balance between the "means of production" & "means of consumption."