Employment Outlook: Weaker than the 110K Headline
110K jobs were created in September and the July and August figures were revised upward. So is it all rosy for the job market? Not really for several reasons
First, the August revision (+93k) was almost only goverment job which went from -28K to +57K (a +85K revision).
Second, employment in the private sector was only 73k and this has been its average for the last quarter; this is a weak figure for private sector job creation. 80% of job created in September were either in government or in health/education services.
Third, since the increase in the labor force is closer to 120k per month this 73k average private jobs for the last 3 months represents a relatively weak job creation.
Fourth, losses are continuing in housing (-20k in September), manufacturing (-18k) and retail trade (-5k), but the housing losses are still mismeasured as many undocumented workers do not show up in the employment statistics.
Fifth, the unemployment rate went up to 4.7% in September.
Sixth, the annual benchmark revision of employment figures up to March 2007 show 297k less jobs than initially estimated by the BLS, this is a significant downarward revision (25k per month between March 2006 and March 2007). Given the most recent weakening of the economy BED and annual benchmark revisions may further reduce in the future estimates of job creation between April and September.
Seventh, the year over year job growth has been falling for the last year and it is still falling in September.
So a stronger than expected employment report that has many elements of weakness once you look at the details.
62 Responses to “Employment Outlook: Weaker than the 110K Headline”
Nouriel, that is all fine and dandy but no body seems to care. Stocks are off to all-time new highs and the financial press are gaga over this report so why should we care. If the general impression disseminated to the general public is positive, that should translate into a continuation of the US consumption frenzy above and beyond their means and thus a healthy economic picture lies ahead, not a meltdown.
Health Care and Restaurants Support Modest Job Growth October 5, 2007 By Dean Baker The hourly wage has risen at a 4.3 percent annual rate since June. The establishment survey showed the economy adding 110,000 jobs in September, 73,000 in the private sector. There were also substantial upward revisions to job growth reported for July and August, bringing the three month average for the economy as a whole to 97,000, and to 74,000 for the private sector. The gain in private sector employment in September was more than accounted for by an increase of 44,000 jobs in the education and health services sector and 35,900 jobs in the accommodations and food services sector. These two sectors have accounted for all the private sector job growth over the last three months. The household survey showed little change in the unemployment rate at 4.7 percent. The employment rate was also essentially unchanged at 62.9 percent, but it stands 0.5 percentage points below its cyclical peak of 63.4 percent last December. The falloff is attributable to declining employment rates among younger workers of both sexes, as workers over age 55 continue to get a disproportionate share of employment gains. They accounted for 238.5 percent of reported employment growth over the last three months and 72.0 percent of employment growth over the last year. There was little clear trend in other data in the household survey. Involuntary part-time employment fell slightly but it is still more than 200,000 higher than the June level and 400,000 higher than the year ago level. The average duration of employment spells fell slightly, but the median duration and percent unemployed more than 26 weeks both rose. Most sectors in the establishment survey showed weak growth or declines. The residential construction sector is finally showing substantial job loss, losing 46,500 jobs over the last two months. By comparison, the sector reported losing 108,500 jobs over the prior ten months. This decline is just 3.2 percent of total employment, even though residential construction had fallen by nearly 20 percent. Manufacturing is again losing jobs at a rapid pace, shedding 63,000 jobs over the last two months. This job loss was broadly distributed within manufacturing. The durable goods sector lost 37,000 jobs over this period, while non-durable goods lost 26,000. The financial sector is also now shedding jobs at a rapid rate, reversing strong growth earlier in the year. It has lost 28,000 jobs in the last two months, undoubtedly reflecting the wave of layoffs hitting the mortgage sector. This will continue in the months ahead. Remarkably, jobs in the real estate sector remain largely unaffected thus far, employment is up by 18,100 from year ago levels. Temporary employment fell by 19,600 in September. It is down by 64,000 since April. Wage growth remains relatively healthy. The annual rate of wage growth for the last three months was 4.3 percent. This is up slightly from the 4.1 percent rate over the last year. With inflation at slightly under 3.0 percent, this is sufficient to allow a respectable pace of real wage growth, if it can be sustained. This report also included the preliminary benchmark revision for March of 2007. It showed the economy created 297,000 fewer jobs than had previously been reported. This implies a somewhat weaker pace of employment growth over the year from March 2006 to March 2007, although it raises the reported rate of productivity growth by approximately 0.2 percentage points. However, the average rate of productivity growth over the last three years is still below 1.5 percent. The net picture in this report is fairly ambiguous. The job growth reported for September is largely in line with expectations, but the upward revisions for the prior two months indicate that the labor market has been somewhat stronger than previously believed. Still, there is considerable basis for concern about this pattern of growth. Manufacturing employment may stabilize in the months ahead, but construction employment will almost certainly continue downward. It is unlikely that the job growth in health care and restaurants will be sufficient to keep the labor market strong. At the same time, the Fed may be hesitant to respond to a weakening labor market because of continuing weak productivity growth coupled with relatively healthy nominal wage gains.
weak data = Fed ease, stocks rally consensus data = lower volatility, stocks rally strong data = economy strengthening, stocks rally bank loses $4bln = bad news out of the way,stocks rally oil spikes = great for energy companies, stocks rally oildrops = great for the consumer, stocks rally dollar plunges = great for multinationals, stocks rally dollar spikes = lowers inflation, stocks rally inflation spikes = will inflate all assets, stocks rally inflation drops = improves earnings quality, stocks rally no further comment
executives at wall street banks fired = stocks rally multiple heads of investment banks on wall street have been fired and we have had a 10% correction in equities, ok, hold on I just saw a unicorn outside my window I have to go chase it… the truth left the building a long time ago… don’t take it personal, Professor. you are looking for validation of bad numbers from the people who need good numbers and also publish them… the only analysis relevant to equity prices, data released is where the powers that be would like to see them – nothing else matters folks…
the stocks will keep rallying untill all bears capitulate. So from now on I am a bull. Others, please join me “bear in the bull’s skin” movement.
@mirage Your point is well taken. That is why I could not be bullish, even if my research was shown to be off. The market is not reactionary to data, info and news. It just rises, and I am sure these are short term momentum players who are the most skittish money around. @Nouriel ”Fourth, losses are continuing in housing (-20k in September), manufacturing (-18k) and retail trade (-5k), but the housing losses are still mismeasured as many undocumented workers do not show up in the employment statistics.” Your point is well taken. Small to medium sized developers often use non-union labor who often do not file for unemployment. Small investors and developers make extreme use of “off the books” labor as well. The public homebuilders use contractors who they are most assuredely squeezing for margin, who in response are squeezing margin out of every corner possible. One of their biggest expenses? Labor. What is your opinion on how long it will take for your realization to manifest itself in a) the risky asset markets (and in what ways) and b) the economy itself? What are the direct consequences if you are correct? I ask these questions under the assumption that you answer queries such as this in your blog. If you do not, please pardon my grand inquistion.
bottom line, until unemployment rate go above 5 or 6, you can hardly say that we are in recession. NR, your call is wrong again
your call that Fed need to cut rate is wrong too. how many wrong do you need to have, before you get it right.
“Give them a fish a day and you will feed them once a day, teach them how to fish and you will feed them for the rest of their lives” Do not worry you know how to fish, but what is offered today is a fish a day.
Dude, where’s my recession?
If you havd been watching the LEI you would have seen that the economy is getting better, not worse. There is no recession in sight now. This problem has been swept under the rug and we will never know how truely bad it was. All that matters is that stocks are bullish as hell and anyone on the sidelines here is being passed by like a dork at prom…
I missed the boat on this rally since the Fed cut rates. Sure I regret it and wish I didn’t sell. What am I doing now? I’m parked in gold, euro and soft commodities. The game is long and I’m not going to buy stocks at these over valued prices. I know I’m glad I didn’t buy a home in 2005, but it took me 2 years to find out that was a good decision. Yes I might be wrong about the stock market but all I lose is upside, downside hurts my wallet much more for poor folk like me. You can wrong today and right tomorrow.
Obviously, interest rates don’t matter to most folks. Credit cards carry what, 15% interest rates-idiots! WASHINGTON (MarketWatch) — Outstanding U.S. consumer debt rose at an annual rate of 5.9% in August, pushed higher mostly by a hefty gain in credit-card debt, the Federal Reserve reported Friday
A serious red flag on the US consumer has just reared its ugly head. Retail sales are only growing at an annual rate of 3.36% and yet, consumer debt (most growth in credit cards) grew at an annual rate of 5.9%. Soooooo, that means the consumer is borrowing money (at 15% interest rates)to pay bills!!!!! Uh Oh!!!!!!!!!!
I just checked the FED homepage to see how much the consumer debt is. It gives it as 2.5 trillion. Is this the whole private debt? I thought that it was a lot more. The public debt is 9 trillion. If the private debt is “only” 2.5 trillion, it is not that serious as I thought. Or do I miss something?
Mortgage debt is not in this number, obviously. It is about 10 trillion. So the total household debt is around 12 trillion dollars. The total private debt is even a lot more than that, because it includes the business and financial sectors, too.
It’s going to take a lot more terrible news before the stock market begins to lose its superbullish nature. The US economy refuses to go into recession just as Bush refuses to get out of Iraq. Stubborn seems to be the fashion everywhere.
http://www.safehaven.com/article-8553.htm In actuality, officially benign inflation statistics (which are coming at a time when actual inflation is getting worse) give the Fed further cover to create even more inflation. So the dollar is not weak because inflation is under control as the consensus believes, but because the opposite is true. Inflation is completely out of control and the Fed, hiding behind phony government numbers that purport otherwise, has the green light to add additional fuel to inflation’s fire. It’s the ultimate irony that the lower the official preferred measures of inflation are (core CPI or the core Personal Consumption Expenditure Index,) the worse inflation actually gets.
In searching for debt numbers, I found this nice page about the various components of US debt: http://mwhodges.home.att.net/nat-debt/debt-nat-a.htm . There is only one way to describe it: total failure. If the flagship of the global capitalism is in such a catastrophic state, then the whole system must fail sooner or later.
Strange that when there is a Credit crunch and the FED has to lower interest rates to save the banks then the jobs number comes in low(-4000). Now with the credit crunch abading the jobs number comes in high and the low one is revised up. If the FED wants to lower you get a low jobs number if it doesn’t want to lower you get a decent jobs number. Just a coincidence I’m “sure”.
Debt is healthy in all forms – consumer discretionary, mortgage, LBO debt, increasing debt/equity ratios, etc. quit fussing about the backbone of growth being a negative. It is good that people are comfortable consuming beyond their means. It would be prudent to go out and borrow money to get long the stock market. Live the American Dream. Life Takes Visa After All…
Looks like Nouriel was a year off. I am forecasting 1.5% for the last quarter and around 0% for the 4th. Didn’t Nouriel “predict” something like that a year ago?
It’s not that the problems have been swept under the rug; quite the opposite. The problems have been brought to light and losers selected. Those losers get killed. Then the lingering uncertainty, which Nouriel has quite rightly identified over the past years, is gone and the markets can charge ahead. At least, that’s what the bulls are hoping.
Oh yeah, keep it up Dr. Nouriel Roubini (and other bears)… doom and gloom just around the corner! Recessions, utter and complete chaos, terriorism, less mortgage equity withdrawl by the trillions, declining house and commercial property prices, nuclear bombs exploding on the north and south pole, everyone swimming, stock market crashes, extreme weather, weak US Dollar and stronger foreign currencies, interest rates surging, GDP collapsing, inflation surging, huge trade deficits, bigger federal budget deficits, unemployment rising, declining labor force participation rates, and birth control becoming even more popular making the fertility rate and the brith rate drop further— straining Social Security even more as babies never born don’t ever grow up to reach the labor force to be taxed at the payrolls level, and “The Greator Depression” just ahead around the bend! HA!!! GIVE ME A BREAK!
I’m as pessimistic as anyone but I wonder if it’s possible to get too close to the day-to-day numbers. For example, if one didn’t get into the actual real estate market in the last few years and say you were to try and get in soon since this is a so-called ‘buyers’ market’ with price reductions and incentives from builders and property resales…well now lenders will look at docs and income and debt ratios and guess what…it’s not as easy to purchase investment properties even IF you do find a great deal. I know there’s a lot of stock traders here but I believe more wealth has been built in the past by actually owning(holding) real estate whether residential or commercial properties. I don’t mean ‘flipping’ but holding over a longer period through cycles. So it’ll be harder to use leverage for investors and primary home owners in the future. There’s always ‘owner carry’ which will make it easier to purchase the RE deals. Also with so many subprime, alt-A, and even prime borrowers set to lose their homes to short sales or foreclosures, well…this has to be ‘good’ for rental markets because families have to live somewhere. Buyers who have lost their homes will have poor credit from their foreclosures and may even face deficiency judgements and possibly tax consequences from short sales. So the available buyers and RE investors who can qualify at the stricter lending standards and income checks will shrink since many can’t qualify for what they would like to buy but the available renters who have to rent will increase which will be good in the long run for property owners who offer rentals. If investors bought too late in the game, the rents won’t cover mortgages and they’ll bail also leaving more properties available at reduced prices in the future. Buyers are waiting to see how low RE prices go but when it comes time to buy to get a deal, will the buyer get financing and will mortgage rates be higher in the future making the cost of buying go up also? If one holds RE for the longer term and was able to get in at cheap mortgage rates and can rent properties out for enough rents to meet mortgages, the RE bubble may still pay off for some RE unvestors who got in when the getting in was easier. Multi-plexes or even duplexes pencil out the best for rental income. Most single family homes even bought five years ago won’t pencil out for rents. Inflation should actually keep rents high in many areas even with more rentals coming to market. Another thing RE critics focus on are the few really bubbly markets like las Vegas and Miami and san Diego but much of the country did not appreciate at the double digit pace that creates an unsustainable bubble. Do you see any ‘bubble’ blogs for say Fargo or Duluth. It’s California mostly with Florida, Nevada, and Colorado with the big blow-ups in valuations. If you bought and the price blew up 100% or more, that’s a long way down to lose all the equity. If you bought late in the game and the payments are not possible due to income after payments adjust, walking away is necessary. At any time in the history of real estate, buyers say it’s too expensive and prices will never get any higher that the present time. Buyers thought RE was too expensive 30 years ago. Buyers think it’s too expensive now. To think that RE prices will NEVER go any higher than today with continued inflation, is ignoring the history of real estate. Cycles do occur but the upward march of prices never ends or why should it end this time? Comic were 10 cents in 1962. What did a house cost then? It’s hard to believe in a longer view of price increases but what evidence is there that prices will just reverse permanently into a downward spiral and the day comes when comics will be 10 cents again?
Just to correct myself many RE buyers do buy because they anticipate rising prices but they ususlly feel they are buying high but are afraid of buying higher. As for the housing inventory problem of way too many houses, well builders are going to cool it and slow their building down and for a while there will be ‘deals’ on excess RE inventory but once that inventory gets liquidated, supply and demand will be back to more normal levels that support steady ‘inflation’ of prices and valuations. Declining prices will mean property tax rates will slow the coming increases that were coming due to wild appreciations of the past few years. This excess inventory of homes will granted take a while to unload. There will be some deals maybe in another year or two. When to buy at the bottom is tricky but buyers are already picking up condo deals at ‘half price’ in Miami. I say it’s a questionable deal because maybe the price was inflated 100% so the real price that’s more in line with income is 50% off. Buying in large metro areas like Phoenix or Las Vegas with unlimited expansion(suburbs>exhurbs) is always risky to try and time a boom/bust cycle. Smaller towns with universities in rural areas and limited land availability is maybe a safer investment bet to find rentals that will pay themselves.
The actions of the market are a mystery to me also. Gary Dorsch has some explanations in his newletters – don’t know how much will be available without a subscription – check out the archives in September. He explains that the U.S. and global stock markets movements are all about liquidity – the more liquidity, the higher the markets. http://www.sirchartsalot.com/newsletters.php
Nouriel Roubini is always wrong. quit believing in him to avoid getting burn.
ashkan, you think too much. the fact is, current home price is not affordable. so there is no rush to purchase home yet.
Stocks are about earnings and nothing else! Earnings are strong everywhere outside of the financials and the market believes that earnings hits in the financials are a one quarter event. The market will continue to go up. Consumer spending is not slowing down. I don’t care what NR says. He always sees the glass half empty. You can always find something that isn’t as it should be. Name a time that the economy was without problems. Most of the nonsense on this blog could have been written any year and yet the market goes up 75% of the time.
The bubble may be hissing, but it has not burst. Until consumer credit tops out, there is enough air to keep the bubble intact. The crash is nearer, but it won’t happen until the consumer credit card is denied. I don’t think credit cards can save you for too long. If this was good news, maybe the main stream media would have voiced this news louder: ”Consumer Borrowing up Sharply” http://ap.google.com/article/ALeqM5hvFxPJys9xNqYjr8t8A0O7bQUs3gD8S3AGF03
Does anybody on this blog care about anything but themselves? Millions of Americans are getting trashed and all you people care about is your own portfolios. All religion and all philosophy teaches the same lesson: Greed Destroys EVERYTHING. Always has, always will.
Here’s a more detailed discussion of the employment data. September Employment Rebound Lifts Market One of the main points: The large gyrations seen in the government’s employment data are due to the relative roll of the BDM (Birth Death Model). Over the last twelve months, the BDM has accounted for 69% of the job creation in this country. It is a scary thought when 69% of the jobs created in the most widely-used employment data set are statistically made and suspect to large revisions.
Re — Andrew G. Bernhardt If you see the present and the future so bright, that you are annoyed by Nouriel’s posts or the gloomy comments, then maybe you shouldn’t read these pages.
Out in the real world, the economy stinks. Ask the average American how they are doing, and you get a far different picture than rosy Wall Street. The consumer confidence index is a much better predictor now days than unemployment, since many people are disemployed or not participating in the official labor market anymore.
@Dr S spot on, its all about the portfolio, nevermind that the middle and underclass are being screwed and that the US is being dragged down the preverbial toilet in a mad dash for cash. 70% of GDP is made up by the consumer, how is that sustainable ? It will all end badly, exactly when is anyones guess. Its amazing how much damage one Texan clown can make in 6 years.
@Written by Lyle Burkhead on 2007-10-04 15:55:38 Here are some examples of sterilization: http://economictimes.indiatimes.com/Markets/Forex/RBI_intervention_pulls_Re_down_from_9-yr_high/articleshow/2433567.cms Guess only mature central banks can pull it off to further deepen their bond markets. Summary: Given that a global asset bubble has got to deflate, each country faces a simple choice, (i)break the peg and limp along OR (ii) be the last one standing to accept the global deflation by keeping the peg and become destitute. I think it is fair to give Bernanke some credit (of course, we don’t know what we don’t know). If we do nothing the global asset bubble WILL cause terrible deflation. Given a choice between hyperinflation and devastating deflation, we should pick the former – just ask Japan. Its also a great pre-emptive currency strike before SWF’s / CB’s dump dollar assets. Given that it’s a global asset bubble – it has now spread to the BSE Sensex – someone *will* experience the severe resulting deflation. Given that you panic first if there’s a panic, I think Bernanke has panicked first. Now China has a choice, (i) continue with the peg, experience a point-of-no-return asset bubble and then a massive deflation Japan style OR (ii) let go of the peg and take the pain right now. Its now a fight to the death between US export of inflation and China’s export of deflation. India’s RBI has already buckled (panicked even before Bernanke), opting for a stronger rupee and will not want to get caught in the cross-fire – but will ease the pain of a stronger rupee.
To that one “guest” that keeps bashing Roubini, you are certainly entitled to your opinion: ”bottom line, until unemployment rate go above 5 or 6, you can hardly say that we are in recession. NR, your call is wrong again” ”your call that Fed need to cut rate is wrong too. how many wrong do you need to have, before you get it right.” ”Nouriel Roubini is always wrong. quit believing in him to avoid getting burn” but please learn some standard written english.
Wait until after the election and after the Olympics.
Sadly, ‘recession’ is when you finally discover that everybody around you has been or is losing their job, but even then you are only concerned for yourself and cannot believe that you will lose your job. BUT, when you do lose your job, ‘depression’ has arrived at your door, and even then you do not want to understand. Sadly again, ~99.99% of the global population has no idea of that which is being discussed on this blog, nor are they aware of the probabilities – or consequences of a global economic crash; neither do they care – at this time. It may be true that only a few of us that have read and experienced widely for many decades truly comprehend the implications of a systematically flawed fascist system that is totally out of control and is permitted by the credentialized “authorities” in collaboration with “leadership” (political) to suck the real economies totally dry of the asset substances – of the people which truly represent the energy drive of the global economies via individual demographic endeavour and productivity – for their own individual enjoyment? Do they really believe that “approved rating agencies” “produce” any substance? IOW, they that would be kings, merely scam those that do produce. Andrew: take a break by all means – you will need all the energy that you can muster soon enough. PeterJB
Stock are up simply because it’s safe heaven compared with any other asset. So most probably a buble is being created in the stock market especially in the emerging market such as India, China and Brasil. Global imbalance, again most probably will readjust in an abrupt and disruptive manner next year, sending stock to bottom and at the same time yeld in long end will shoot up. Next year will be good time to buy an iPod instead of Gold. just switch the business news and listen to music while waiting for ALL market to readjust in a painfull way. Hoepfully it won’t create political instability or an increase of protectionism…in that case maybe it’s better to buy an Helmet.
http://kpfa.org/archives/index.php?arch=22000 interesting perspective PeterJB
The financial crowd that makes a living on BS now propagates the notion that we don’t need to worry as the US sinks under the weight of plummeting real estate values, because the “global economy” will steam ahead. The propaganda word they have coined for this is “decoupling”. But forget about the fact that the Asian economies are export and investment driven—not consumption driven. Consumption is about 35% of GDP in China (compared to 70% in the USA). And secondly, forget about the fact that their exports are driven by the US consumer. And thirdly, forget about the fact that their investment is driven by massive printing of their local currency as their central banks accumulate giant stockpiles of US dollar reserves (which are causing their economies to overheat big-time as we speak). This notion of “decoupling” has been part of what has propped up global stock markets and commodity markets lately (in addition to “the Fed will save us” mantra). The US consumer is the driver of the global economy–pure and simple. A US consumer that has been propped up by a US credit securities creation machine (fuelled by recycled foreign capital). As well, the plain fact of the matter (which be should be very obvious by now–but nonetheless ignored by many) is that the world financial markets and the world economy over time have become increasingly SYNCHRONIZED as a result of globalization of capital flows and advances in communications technology. EVERYTHING moves up and down increasingly together. If you calculated the correlation co-efficient among the world’s stock markets and the world’s bond markets, I’m very confident it would be very high, and far higher than it used to be 10, 20, or 30 years ago. The same thing goes for the world’s various economies—there is far higher synchronization in growth then their used to be and I am sure that a correlation co-efficient would demonstrate that in spades. But nonetheless, the Wall Street propaganda machine would have me believe that there is going to be this big DIVERGENCE in growth patterns (between the US and the rest of the world), and that for this reason I should just go ahead and plow my money into stocks and commodities.
Professor Roubini’s thesis is predicated on a consumer slowdown. We saw yesterday that consumer borrowing is going up, not down as NR has suggested. Borrowing has just shifted to credit cards from home equity. I would really like to hear some opinions on how long this can last, and what the ramifications will be. Unfortunately these post are dominated by nihilists rather than real economic debate.
-It is fascinating to observe the DOW’s irrational upward trend in light of both positive and negative news. -The data from the birth-death model are revealed by astute observers on this blog to be noise masking the obvious downward trend of employment. -Predictions on when unemployment will reach its greatest highs in this cycle would be of great benefit. -The accusation of fascism so eloquently brought forth is particularly alarming. -A cleanup of political and financial corruption is long overdue. -The people of character in the world must demand and create political and financial change or this fantastic run of creativity and prosperity in human history is over. -Finding people who truly think for themselves and who have not become so partisan to one failed ideology or another is so rare that future prospects do not seem positive. -Despite this, man is resilient.
To the posters alleging financial cos. issues are over and the guest looking for a real economic debate: Well here is an economic debate, and furthermore here is evidence that the bank’s malaise is a lot more than one quarter deep. Here you will see a list of the earnings reports and warnings for the last two weeks. You will also find that the banks/brokerages that issued the warnings did so primarily due to mortgage and real estate related issues. Thus, it stands to reason, that if the companies that had to write down mortgages due to devaluation and default had to do so again, then it is not over. Over a broad sampling of MSAs that the homebuilders concentrate in, REOs (properties taken back by lenders through foreclosure or given back by the borrower) have been increasing somewhere around 9% per week. That’s right, per week! Now this number fluctuates depending on the area, but it is high in over 50% of the areas. The link provided above is just for Riveside, CA, but it is quite convincing. If you want more proof, try this one on for size: http://reggiemiddleton.typepad.com/reggie_middletons_perpetu/2007/10/bubbles-banks-1.html Now, tell me how the financial cos. issues are over with this latest, ONE TIME writedown, that allegedely solves an ongoing and very rapidly increasing problem. In addition,I will be working on a piece that will show at least one builder going bankrupt before the end of the earnings season. What does that mean? It means the banks will run on all of the other marginal builders, massive amounts of debt will get devalued (further), and land values will plummet even harder. This will make the not so marginal builders more marginal because there debt will be under more scrutiny and their inventory will be worth even less. This will then bounce back to the banks holding the REOs and the homeowners trying to sell.
I agree with Pr. Roubini´s comments on the employment report. There is also a possibility that some of the statistics may have been falsified, deformed or omitted. Stagnation accompanied by inflation is a symptom that capitalists are not able to obtain profit. Speculation in housing and stock markets is a symptom of this, and it will be sustained at all costs, in order to make profits for speculators. It is impossible to know beforehand how long the crisis will last or how deep it will go. However, one or two banks in the USA have already gone bankrupt. At a certain moment, it will all turn around preserving capital, not increasing it.
Dr Roubini Thank you! So nice to really know what is happening!
Story in the Wall Street Journal sheds a bit more light on what consumers are doing to get their cash fix: ”Despite potential tax and investment consequences, more individuals have been borrowing from their 401(k) plans or taking hardship withdrawals in recent months, some retirement-plan providers say…. Many in the field expect more 401(k) borrowing in 2008 as consumers struggle with tighter credit and potentially higher mortgage payments.”
GREENSPAN on DEFICIT SPENDING and GOLD No, these are not the latest pronouncements from Alan Greenspan’s book. Ironically, this quote below comes from Greenspan a long, long time ago. It spells out in detail how the USD Gov’t deliberately rips off its citizens through deficits anbd inflation, and why the Fed sees the price of gold as its “mortal enemy”. These words bear contemplating today, as the Fed now shifts into high gear by increasing the flow of credit into the system: ———- Alan Greenspan … ”In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.” ———————– Special thanks to Dave Lewis for including this quote in his recent article at this link: http://www.itulip.com/forums/showthread.php?p=17184#post17184 Greenspan’s comments provide a short but eloquent summary which strongly implies why Americans should consider diversifying some funds into precious metals and hard assets. Pete, CA
Re — Guest on 2007-10-06 07:37:12 Re – consumer borrowing is going up, an how long can it go The consumer debt is at 2.5 trillion (and the mortgage debt is at 10 trillion). Why couldn’t it go on forever? Why can’t the consumer debt go up to 10 trillion, 100 trillion, or 1000 trillion? The lenders securitize these debt so on paper they have profit. Those people who buy the securities make profit not on the interest paid after the debt but by selling the securities for more than they were bought. It can even happen that the consumer who borrowed the money in the first place, invest in a fund that invest in debt securities, so in the end the consumer makes profit on his own debt. Debt becomes wealth. It makes everyone (banks, funds etc.) rich, so why couldn’t it go forever? This whole thing should be familiar to everyone. It is the classic pyramid scheme. And we all know how such schemes end: when participants leave it in large numbers. In the case of the pyramid scheme of global capitalism, it will happen when the USA baby boomers start to retire in large numbers. These people will want to spend the money that does not exist, because debt is not wealth. We still have some 5 years before this will start. I don’t agree with people who say that there will be a big crisis or stock market crash or something like that next year. If anything, we will probably see a golden age never before seen in the next 5 years, leading up to the beginning of the end.
to guest, You are saying there’s no rush to buy RE but check statistics…homes are being sold now. The excess inventory of houses will be liquidated while builders slow the construction of new homes. Supply and demand will correct…
From Naked Capitalism blog (http://www.nakedcapitalism.com/2007/10/floyd-norris-skeptic-of-job-creation.html) Saturday, October 6, 2007 Floyd Norris: A Skeptic of the Job Creation Stats I must have problems with authority. One of my forms of recreation is looking out for statistics, particularly government releases, that don’t seem to comport with reality. Fortunately, I have plenty of good company in this endeavor, including (but far from limited to) Barry Ritholtz, Michael Shedlock, Dean Baker. A frequent target is the nonfarm payrolls report (see here and here for past examples), particularly its dubious “birth/death model” which attempts to allow for jobs created by new firms (or conversely, lost due to businesses closures). Oddly, the usual suspects refrained from attacking the validity of Friday’s report. Perhaps they felt the fact that it has been revised significantly and frequently is starting to speak for itself (last month’s 4,000 loss, for example, has somehow morphed into an 89,000 gain). This month, the criticism comes from an unexpected quarter: the restrained and evenhanded Floyd Norris of the New York Times, in a blog post, “Assuming Jobs”. While he maintains his levelheaded tone, he makes no bones about not liking the data: The employment report is being hailed as good news, proof that the economy is stronger than it appeared after last month’s bad report. Well, maybe. As reported, the last six months have seen an average job gain of 112,000 — the lowest such figure for any six-month period in three and a half years. But that is probably overstated. The most interesting part of the report to me is that the government now thinks it overstated job growth in the year through March 2007 by 297,000 jobs. It will later restate those months. The employment numbers come from a survey of employers, but the numbers put out by the government are not what the survey found. Instead, the statisticians add a fudge factor, to account for jobs created by new companies that the government does not know about, less those lost when employers went out of business and did not respond to the survey. In the 12 months through March, that fudge factor added 1,073,000 jobs to the total reported. The government now thinks that about a quarter of those jobs did not exist. Chances are that most of the overstatement came in the later months of that period, as the economy began to weaken, and that it is continuing now. Since March, the fudge factor has added 839,000 jobs to the total. And the total increase it has reported, before seasonal adjustment, is 1,709,000. What all this means is that a significant part of the employment gains this year came from the fudge factor, or the birth-death model, as the government prefers to call it. Of those 839,000 jobs added, 150,000 were in the construction industry. Anybody want to bet that the number of jobs created by new construction companies, less those lost from failed builders, is that high? Anybody want to bet it is positive? Comparing pre-seasonal adjustment figures to figures after adjustment is risky, and the fudge numbers are not available on a seasonally adjusted basis. But it is worth noting that, after seasonal adjustment, the government thinks that over the last six months the economy has added 671,000 jobs — fewer than the fudge factor has added before the adjustment. The bottom line is this: Job growth this year is mediocre if you accept the figures as reported. But we have good reason to think they are overstated, and will be revised lower at some point. Today’s figures were better than many expected, but they do not indicate a strong economy, and they should not provide a reason for the Federal Reserve to conclude all is well with the economy. Update, 3:45 AM: Whoops. Dean Baker is indeed on to this item, and due to the difference in his style and readership, is more pointed than Norris: However, it is worth noting another item in the report. The September report included preliminary benchmark revisions to the establishment survey based on state unemployment insurance records. These records, which provide a virtual census of payroll employment, show that the establishment survey overestimated job growth by 297,000 in the 12 months from March of 2006 to March of 2007, an average overestimate of approximately 25,000 per month. The obvious culprit in this overestimate is the imputation for job growth in nearly created firms that could not be included in the survey. It would seem that the Bureau of Labor Statistics (BLS) overestimated job growth in new firms last year. This fact is relevant to the September jobs data because BLS has actually imputed slightly more jobs into the establishment survey in the last three months than it did over the same period last year. If the imputation led to an average overestimate of job growth of 25,000 last year, it is reasonable to believe that the overestimate may be at least as large this year, since the economy seems weaker by most measures. Reported job growth has averaged 97,000 over the last three months, so if BLS is overstating job growth by 25,000 a month due to a faulty imputation for jobs in new firms, the error would account for a substantial portion of reported job growth. We’ll know the answer to this one in September of 2008 when next year’s benchmark revisions are first released, but it is worth keeping an eye on this issue. Posted by Yves Smith at 3:04 AM Topics: Dubious statistics, Economic fundamentals
Roubini has been wrong as long as Mish and is similar to Prechter. Doom and gloomers have been wrong for decades and yet they continue to spout their spud. Best not to listen to them.
Hey, big Andy’s back ! Ready to spit out the details of your bullish portfolio for us yet, Andy ?
Reading the snarky comments of people who come here with the sole purpose of crapping on Nouriel reminds me of nothing so much as the NASDAQ bulls of 2000 … happy denial right up to the big bang.
Guest asks how we can say a consumer led recession is coming, when consumer debt is up? Guest, if you follow retail numbers, you see they are down. You are following only credit card numbers? I don’t mean to come down harsh on you, but lower retail, including durables like cars, at the same time that consumer debt is rising has led many of us to conclude that consumers are turning to credit cards to pay not for “stuff”, but for necessities like food, gas, and perhaps property taxes. Housing sales are down, and 40% of jobs created since 2000 are housing related. That will have an impact, because those jobs are not being replaced by a new sector. Another starling comment, this from CNN a couple weeks ago: data shows credit card default rates are (flat or falling, can’t recall), while foreclosure are rising, implying to their analysts that consumers will do anything to keep up their credit card payments IN PREFERENCE over their mortgage payments, because the credit card is their lifeline to meet their daily expenses!!!!! This is a serious serious serious!!!! problem. The housing cash out refis were done among the subprime people (many had their homes paid off) to overcome the weak economy: they could not save enough to handle a major issue like job loss, divorce, medical bills, so they tapped their house when an emergency arose. This time, that bill will go unpaid. Most Americans have no safety net. Once their credit card is full, they are homeless. And credit cards cannot go on foreever. They raise you to 30% if you are late. See how long you can last at 30%.
I have 3 ways of explaining Andrew: 1) He lives in his own fantasiworld where everything looks rosy and he will stay there rather than discover the truth. 2) He is not cleaver enough to see what is really going on 3) he is an egoist who only cares about the stock market going up 10-15% and then everything is like he said, who cares about those people who are really suffering, its about stockmarkets only, or the dollar direction, its not about people. If this is not something to talk about, then I do not know what is worth talking about, i am advising everyone to dump US stocks and bonds until the US wakes up and starts to regulate those US banks, oh sorry they cant do that, it would not look pretty if allot of US banks whent broke would it? here are the articles to talk about: http://www.larouchepac.com/news/2007/10/02/citigroup-kkr-create-enron-style-shell-company-conceal-billi.html http://www.larouchepac.com/news/2007/10/05/banks-lend-vulture-funds-buy-their-own-junk.html http://www.ft.com/cms/s/0/f421162a-7213-11dc-8960-0000779fd2ac.html The Dane PS.: sorry for my english.
@Guest on 2007-10-06 07:37:12 ”Professor Roubini’s thesis is predicated on a consumer slowdown. We saw yesterday that consumer borrowing is going up, not down as NR has suggested. Borrowing has just shifted to credit cards from home equity. ”I would really like to hear some opinions on how long this can last, and what the ramifications will be. Unfortunately these post are dominated by nihilists rather than real economic debate.” The short answer is that no one knows how long it can last. There are too many variables; it’s like trying to predict the weather. If you read this blog for a while, you will find that the posters are not all alike. I keep reading because some posters make well informed points that would not have occurred to me. Other posters just clutter up the forum, but it only takes a few seconds to glance at their posts and skip them. Whether there will be a consumer slowdown depends on many things, such as what is going to happen to the dollar. Another page on this site- http://www.rgemonitor.com/blog/economonitor/218870 adresses this question with a link to an article by Paul Krugman- http://www.economic-policy.org/article1.asp?src=bpl&aid=183&iid=51&vid=22&id= This is a 32 page PDF file. It starts with Krugman’s article, which is about 20 pages of close reasoning, and then there are comments by Kevin O’Rourke and Giancarlo Corsetti. This is the level on which the subject should be discussed. If you want a higher level of debate, why don’t you set an example? You could post your comments on Krugman’s article, either there or here. Show us how it’s done. You might also sign your post.
Nouriel, I am new to learning about all these financial matters. However, since I have lost my home due to getting ill and not being able to rent my house out – I am now trying to learn all that I can. I have these questions. Who exactly is the FED? Not who are the Banks – but who are the people who own them? Who are the people being bailed out by the interest rate cuts? Is the Fed possibly bailing themselves out of something? If they are helping themselves at our expense – then why is that allowed? And what are they helping themselves to? Why did they choose to encourage a housing boom to build more houses than there are people – when the money could have been better spent on cleaner forms of energy, fixing the roads, the bridges and planning what to do with the sewers and utility systems and homes and businesses that will be under water when the oceans rise? This would have created possibly some good paying jobs and the people could have spent money still. If there is nothing really backing the dollar – then why do we allow the Fed to print money and then basically loan it back to us causing us to pay interest for it? Does the Fed have to answer to us – or do we have to answer to the FED and why is that? I know we answer to them and they seem to have no rules – but what I mean is – don’t we have any means of making them answer for some of this stuff? Why can’t we print our own money and save the interest? Where is all the Gold and Silver that we thought was in Fort Knox? Who took it if it isn’t there? The whole banking system sounds like it is so corrupt that maybe going to a barter system might start to make sense. I certainly have changed my thoughts about buying stuff. I shall reduce my “wants” and learn to be happy that the sun rises and that I have food and water to drink. I shall be more careful about my investments and any large purchases using money from a bank. I also would like to criticize our school system. All through school we were told about who discovered what and where and this and that war and told to remember names and dates. Boooooring! History is all about money in one way or another and we were never taught this aspect of why people went exploring and having wars. Had I learned about our dollar’s history and what is becoming of it- when I was in high school – I would never have made some of the decisions I did. I at least am finding all this new stuff very fascinating and will be educating my friends and family as I find out the real truth. I like how you give reasons for why you think things are happening the way they are. From where I stand/sit – it appears to me that you are right on – except somebody is playing with the numbers so it just doesn’t look like what it really is to everyone. And now what little I have left is being devalued out from under me. What next?????
On the employment report – The BLS reported unemployment rate drastically undercounts unemployment claiming that many of the unemployed have dropped out of the labor force. The labor participation rate has dropped sharply since 1999. Total number of people employed is only slightly higher than it was in 1999. Population growth, immigration, and minimal employment growth doesn’t square with a low unemployment rate. Remember in the ’90s economists were surprised when a low unemployment rate did not result in higher inflation — it resulted in higher labor force participation. Now we are getting layoffs, foreclosures and only a small increase in the unemployment rate. I will bet that the BLS will soon report a drop in the labor force participation rate.