Thursday, December 10, 2009

GDP Update And A Few Remarks About Unemployment

Our standard GDP chart we put up from time to time. Final GDP came out not too long ago so I wanted to stick this up before it became stale.

I suppose a pastime of mine is attempting to get into people's heads. Not everyone and not all the time but it's a habit. The President has been quite confident this crisis has passed since the unemployment report last week. In fact, that day he took the liberty of extolling the virtues of the great economic turnaround and intimated that the worst was over. Hmmm. This crisis has been building for decades. The President has not undertaken a single truly substantive action to resolve it. Nor is it possible to solve it with the wipe of a wand by backstopping tens of trillions of dollars of assets using taxpayer money. President Obama may be getting a little ahead of himself.

On that note, I'll take a quick diversion into unemployment for a second. We don't really talk about unemployment in any detail. Frankly, there are too many other people and firms who have spent years dissecting the deficiencies of government unemployment models. That said, frankly unemployment data is really irrelevant to any type of economic analysis. Seriously. All of the outcomes we anticipated and continue to anticipate have nothing to do with employment. Unemployment data doesn't factor into any of my models or analysis. The world was collapsing well before unemployment ticked higher and the stock market has plowed the largest rally per unit of time since the age of dinosaurs and unemployment has again lagged. We had 4% unemployment while the world was crumbling underneath the surface. Ditto with the same dynamic before the Great Depression and any other serious economic crisis. What relevance does employment have in any analysis? It's a highly correlated lagging indicator. Well, most of the time it is. Though there is a twist to that dynamic in this cycle. ie, Credit is typically used to restart the engine of recovery, be it inventory builds, plant and equipment spending, etc. This takes place well before hiring. That dynamic has proven elusive this cycle as we have highlighted. That means unemployment should be interpreted differently in the 2008-2009 economic meltdown. I guess I could argue unemployment is a leading function of the future to some degree. That also means Wall Street is holding the bag with all of the financial assets they now own by front running credit in anticipation of an economic recovery - the sneaky little scheme used by the bankster monopoly. But, this time they are wrong. Very wrong.

The announcement that we only had 11,000 job losses could be taken as positive news if taken at face value. Yet the trend may be accurate but the specific date surely is not.

There are many data points which do not make sense with the most recent unemployment report. Likely to be flaws in the calculation and/or the data capture process. ie, A tremendous amount of Americans are self-employed or small business owners. Additionally, the services ISM employment numbers are horrible yet the government data shows services as the source of job growth. The industrial ISM data is marginally better yet the jobs data shows the industrial data to continue to shed jobs. The unemployment rate dropping is also dubious for many reasons. I would guesstimate the economy must add somewhere around two hundred thousand jobs just to absorb new entries into the work force and maintain employment levels. That the unemployment rate dropped while we are well below that trend tells you the data is flawed. I'm sure many people have already written of these dynamics but because I don't really follow this data in any detail, I am simply making anecdotal observations about substantial inconsistencies.

The real point to take away from unemployment, be it this month or any month, is that we have the government backstopping tens of trillions of assets and pumping trillions of dollars into the banking system. Yet more than a year later we are still loosing jobs. The return on invested capital for this exercise shows that the government has spent millions of dollars for every job loss and that has had little impact on turning the economy around. And there are many enormous headwinds left in the global economy. Many. In fact more than we have seen to date.
Well, back to GDP. As opposed to prior GDP posts, this time I highlighted an anomaly on the GDP graphic below. My highlight has nothing to do with inventory. There's probably not more than a handful of economists in the country who would know what I am talking about. That is one reason why almost every economist in the U.S. was completely oblivious to this crisis and will be oblivious to the future as well. I could think of one in particular who might know but I doubt he reads my blog. My point is GDP is falsely reported as better than it really is. That means the status quo is again becoming well too comfortable that they have weathered this crisis and hoodwinked the public to their profligacy in the process.

Positive GDP surely isn't a surprise as we said it would turn positive. We can make GDP whatever we want by simply printing enough money or creating enough spent debt. We'll eventually pull this dynamic out and explain it in a future post as we have done so often. I'm just not ready to do so yet. Bada bing bada boom!

posted by TimingLogic at 5:23 AM