Take a deep breath, guys.
With all the hyperventilating about today’s (February 4) disappointing initial claims for unemployment numbers you’d think that everyone has forgotten that unemployment is a lagging indicator.
Unemployment numbers will be one of the last economic indicators to improve. Other economic numbers released today show that the economy is about where it was expected to be at this point in the recovery.
No doubt the initial claims number—the number of previously employed workers filing claims for unemployment for the first time—was disappointing. For the week ended on January 30, initial claims climbed to 480,000 from 472,000 the week before. Wall Street economists had expected that the number would drop to 455,000.
The weekly initial claims numbers are incredibly volatile, which is why economists prefer to follow the four-week moving average for initial claims. Even here the most recent figures were a move in the wrong direction. The four-week moving average climbed to 469,000. That’s up from 457,000 the previous week and well above the recent low of 441,000 that the moving average set back on January 9.
OK. Certainly not what we were wishing for. But if wishes were horses, beggars would ride. And the rest of the day’s economic numbers say the economic recovery is on track in the United States.
For example, factory orders increased 1.0% in December. That’s the same growth as in November. Economists had been expecting just a 0.5% increase.
A revision of the numbers for durable goods orders showed that instead of increasing by just 0.3% as initially reported, orders for durable goods grew by 1%. And growth would have been even stronger if orders for nondefense aircraft (Boeing (BA) is the single biggest contributor to the nondefense aircraft number) hadn’t tumbled by 30% for a second consecutive month.
Productivity numbers were the most encouraging sign for anyone watching for a turn in the unemployment trend.
Nonfarm productivity jumped by 6.2% in the fourth quarter of 2009 after growing by 7.2% in the third quarter. (The consensus among economists was for a 6.5% increase.)
Although the gross productivity number fell short of expectations, the make-up of the number was encouraging for a turn to job growth. Extremely so.
In the third quarter much of the growth in productivity came from a decrease in the number of hours worked—workers put in fewer hours to produce more goods resulting in a big gain in productivity.
In the fourth quarter productivity growth came from an increase in goods produced (roughly a 7% increase) and in hours worked (1%). The growth in the number of hours worked actually took productivity growth down a bit, but the increase is extremely important for an eventual turn to job creation.
Before employers hire more workers, they increase the number of hours worked by current employees. It’s only when they see that they can’t get more production without hiring more workers that employment starts to rise.
So the productivity numbers contain a small leading indicator for a turn in the lagging unemployment indicator.
Pretty much where the economy should be in this stage of a relatively slow recovery from a very deep recession.
Jim,
What do you think about the allegations that JPM propped up the markets towards the end of the day?
http://www.zerohedge.com/article/thank-you-jpmorgan-must-see-jpms-etf-desk-ramps-market-higher-close
mopama + Upside,
Oh great. I’m scared again.
Upside,
In reading my post I did not once state that he created this mess. Yes he did inherit an economic crisis. It is his leadership over the past year and now that I call into question. Instead of focusing on the economy and jobs he worked on healthcare. I am an independent I voted for Clinton because he figured out that it was the economy.
My issue with Obama is that he still is blaming Bush, yes we got that point can you move on and actually do something! When you are a leader and take over a tough situation you can point out the mess but then you have to move on and try to turn it around.
Also he is not the first President to inherit a mess so stop complaining.
A financial advisor friend said that the drop yesterday had NOTHING to do with the unemployment data, but everything to do with the currency crisis in Greece and Portugal. He tried to explain it, and though my grasp of what is happening is a bit weak, it has to do with these foreign nations selling stocks that were used as collateral to repay debt obligations.
Oh the good old days of tax cuts, defense spending, massive corporate welfare programs, medicare drug benefit (free dope for everyone over 62) and a no-money-down mortgage for anyone who could fog a mirror. Can’t pay them back? No worries, we’ll become a depository institution and get free money from Uncle Sugar. If he don’t pay, we nuke everybody. Then we’ll blame Obama.
Let’s see, the national debt went from 1 trillion to 14 trillion in the last 30 years, but that must be Obama’s fault too for attacking the bankers. Never mind that virtually all of the growth the last decade was built entirely on borrowed money; that’s what leads to growth. It must be Obama’s fault that California paid out 20.2 billion in Unemployment benefits this year to 3+ million unemployed people (on a total budget of 144 billion). Must be Obama’s fault that the economy shat 7.5 million jobs the last two years (or is it 9 million?).
Meg WHitman spoke in my town the other night- she noted California’s tax receipts dropped 20% yoy in 2009; she said our state’s revenues were as low in 2009 as they were in 2003. Must be Obama’s fault. (Funny, she didn’t think that- and she’s running for governor- as a republican no less. But if I say it enough, I guess I’ll believe it.
Obama’s fault. Obama’s fault. Obama’s fault. Hmmmmm. Not working. Must be I’m getting to obsessed by facts.
jamba,
It’s ridiculous to blame Obama for this mess. The Republicans and Democrats refused to reign in the financiers who deceitfully bundled low credit worthy mortgages and other investment vehicles to boost their margins. The rating agencies, the government regulators, and the commentators all turned a ‘blind eye’ as long as they were getting theirs. Your friends in HR should be pounding the doors of the loan VPs, not Obama (at least for creating this mess(.
Jim,
Unemployment can also be a lead indicator when you have a double dip W recession. In any case, isn’t this where we should be 6 months after the end of the recession, the economy improves and the market declines?
Thanks to your summer/fall analysis in 2008, I avoided a lot of the 08-09 crash. I’m worried that the fear of more credit instability will cause a market correction before the 2nd half of 2010.
* Jeremy Grantham estimates that the value of the S&P is 850 (see his latest report at:
http://www.gmo.com/websitecontent/JGLetter_ALL_4Q09.pdf)
* Marc Faber is looking for a possible 20% correction to 830.
* And of course there’s Gary Shilling who sees a retrenchment to 650…
Anyone have an idea on how to quantify the amount of money tied up in the carry trade?
Also — the housing bubble is just starting to burst now in Australia, where they learned nothing from what happened here.
Sometimes I don’t understand you at all, Jim Jubak. The recovery is on track????? Greece is bankrupt, industrial production in Brazil has fallen more than any time since 1990, cities across the US are eliminating police departments and laying off workers. Abd you have people on this blog excited to be using today as an opportunity to buy stocks? The charts of all the markets look like death.
Jim,
Don’t you think the recovery will be somewhat sidetracked by the ineffective leadership in government? You have a president who from one day to the next attacks business leaders as being greedy and thinking only of themselves, that is I guess one place where they are following governments lead!
I just do not think that a lot of CEO’s are going to hire back people in great numbers when they have no idea if corporate taxes are going up, or if their business is going to be in the cross-hairs of the president.
I know 5 HR managers in varying industries and 4 out of the 5 have hiring freezes on this year. I just don’t see how we sustain a recovery with high unemployment.
DFLIPPIN,
Try not to underestimate Mr. Jubak’s knowledge. Those of us who’ve followed Jim for years have done so because he continually amazes us with his breadth and depth of astute insight. I can recall an excellent article he wrote a long while back on msn.com regarding GDP flaws, and how they contributed to the bubble. Keep reading and you’ll see his knowledge is extremely deep and especially insightful of capital markets.
mopama,
That may be the only thing I ever say that I can guarantee will be 100% correct!
greedibanks… i think ABV got punished like all Brazil stocks did today. I started a small position in BRF based on the decline and am long in PBR and CPL, both of which got kicked. Had a few other emerging stocks that did not quite make it down to my limit.
It’s just one day, no worries.
Jim,
The only thing that concerns me with your analysis is: How much of the increased productivity was from inventory restocking? Once that’s done, then what?
I ask this because: If we have one bad quarter where those numbers you cited go down, then those unemployment numbers are no longer “lagging indicators”. They become a new economic reality.
greedibanks, IMHO today and probably in the near future, will be traders time to make a kill. Things will change in two or three weeks, I believe. The market is not thinking right now is only reacting. As EdMcGon rightly said and quoted: ‘I could be wrong’.
All I can say is that I hope Jim’s analysis proves to be right. I’m keeping the faith in a number of his picks but the action today was so uniformly hideous, the normal human reaction is to get out. I also wish he’d post some remarks on ABV which has been punished unmercifully.