Will ECRI’s Call for Recession Prove Accurate?

Sunday, May 13th, 2012

ECRI’s Lakshman Achuthan was making the rounds yesterday, with yet another defense of his firm’s recession call – the first claim which came early last fall.  I do think (from memory) he has pushed out the time frame a bit from when the initial call came, but since early this year has claimed we will see it by mid year.  Perhaps the very warm winter hurt the call as well – who knows with these black boxes.  Below we have a video with CNBC and there is one nugget in there I did not know.  Conventional wisdom is a recession is back to back quarters of negative GDP… but according to the NBER (and Achuthan) that is but one of a group of potential signals.

The Committee does not have a fixed definition of economic activity. It examines and compares the behavior of various measures of broad activity: real GDP measured on the product and income sides, economy-wide employment, and real income. The Committee also may consider indicators that do not cover the entire economy, such as real sales and the Federal Reserve’s index of industrial production (IP).

10 minute video – email readers will need to come to site to view

Tags: Black Boxes, Cnbc, Conventional Wisdom, Economic Activity, Economy, Federal Reserve, GDP, Lakshman, Lakshman Achuthan, Measures, Memory, Nber, Nugget, Quarters, Real Gdp, Recession, Signals, Time Frame, Video Email, Warm Winter
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Mood Swings: Economists Rush to Lower Payroll Estimates; What to Expect on Thursday and Friday

Thursday, June 2nd, 2011

by Mike “Mish” Shedlock, Global Economic Trends Analysis

It’s a never ending source of amusement that economists can never think in advance. Instead they revise estimates after the fact to be in line with the data.

Weekly Claims Numbers

On Thursday the weekly claims numbers come out. I am writing this Wednesday evening.

The number 4-week moving average of weekly unemployment claims is relatively easy to call. The number to beat is 438,500.

Over or Under?

Expect a drop (an improvement) in that number.

In light of recent data a drop may seem counter-intuitive but it is highly likely. The reason is simple. The last four weeks’ claims numbers are, in order: 424K, 414K, 438K, and 478K.

478,000 drops off the list. It will be replaced by the numbers for the week ending May 28. Unless that number is greater than 478,000 the moving average will drop. I will take the under on 478,000 and thus the under (expecting a drop) in the moving average.

My guess is the 4-week average will be between 420,000 to 430,000. For an actual guess, I select 427,000.

If the number is lower expect the bulls to trump it up. Instead it will simply reflect an abnormally high number dropping off the average.

Monthly Payroll Report

Gaming the 4-week moving average of unemployment claims is the easy part. The tough part is gaming Friday’s monthly payroll report.

Two days ago I would have taken the “way-under” in regards to economic estimate consensus. I meant to mention that in Market Ticker in regards to the Slowing Global Economy, but I forgot. Apologies offered.

However, in light of recent “unforeseen” by economists news, economists’ estimates are now far lower.

Economists rush to mark down payrolls estimates

Please consider Economists rush to mark down payrolls estimates

Reflecting one of the largest one-day mood swings in recent memory, the downward revisions now place last month’s job growth at 125,000, the weakest since the 68,000 positions created in January and down from the average of 233,000 over the past three months.

As the sun rose on a steamy Wednesday in Washington, economists polled by MarketWatch had been looking for growth of 175,000 in nonfarm payrolls for May, a consensus figure representing a decline from a healthy 244,000 in April but still passing for strength. The nation’s unemployment rate was expected to reverse April’s slight uptick and fall to 8.9%.

First-time claims for unemployment benefits rocketed to 474,000 in late April — the highest level in nine months — from under 390,000 earlier in the month. Claims have since fallen back, coming in at 424,000 for the latest week.

Analysts tended to dismiss the claims data as an aberration. They saw continued strength in hiring, and some were hopeful that more than 50,000 jobs created by McDonald’s Corp. might offset any weakness in other sectors.

But this confidence cracked soon after data based on payrolls handled by Automatic Data Processing Inc. showed that only 38,000 private-sector jobs were created in May — extraordinarily weak given that economists were expecting a gain in the neighborhood of 175,000 jobs.

Adding fuel to the fire, later in the morning, the Institute for Supply Management’s May survey of factory supply managers was disappointing. The ISM factory index sank by nearly seven points to a 53.5% reading, the largest drop in nine years.

Who cut forecasts and by how much

• “We have no choice but to revise down our payroll estimate” in light of the weak ISM and ADP reports, said the economic team at Bank of America Merrill Lynch, in a note announcing they had sliced their forecast to 125,000 nonfarm payrolls for May from the prior estimate of 165,000.
• “We continue to expect a loss of 25,000 public-sector jobs but have reduced our forecast for private payrolls to 100,000 from 200,000,” said Julia Coronado, chief economist at BNP Paribas.
• Economists at Goldman Sachs cut their forecast for Friday’s government employment report to show 100,000 nonfarm jobs added in May, down from 150,000 previously.
• LaVorgna trimmed his forecast for nonfarm payrolls to 160,000 in May, down from a prior estimate of 225,000
• Stone & McCarthy cut its forecast in half, to 100,000 jobs.
• Jim O’Sullivan,chief economist at MF Global, cut his forecast for May jobs growth to 90,000 from 150,000.
• IHS Global Insight now expects a gain of 135,000 nonfarm jobs in May, down from a forecast of 175,000 before the day’s data were released

Did the Lemmings Overshoot?

It is very difficult to know if the lemmings overshot or not. On one hand McDonald’s allegedly added 50-70 thousand jobs and those jobs may affect the establishment survey. However, no one knows because the BLS in its infinite “wisdom” will not confirm who is in the survey.

Moreover, burger-flipping jobs tend to increase in summer months so one has to seasonally adjust. Then again, 50-75K is likely to be in excess of seasonal adjustments.

Finally, I do not know if McDonald’s is in the ADP survey either. Regardless, picking a number is a crapshoot. It always is, but particularly true now.

The Real Deal

It really does not matter if McDonald’s added 50,000 jobs or not. Flipping burgers will not fuel a recovery. Moreover, even if McDonald’s did add that number of jobs, it is a one-time affair.

I wonder how many desperate engineers or recent college graduates took those jobs out of desperation. The sad fact of the matter is that unemployment has been dropping for a year based on burger-flipping jobs, part-time jobs, or people dropping out of the labor force.

Since April 2008 6,484,000 dropped out of the labor force. In the last year alone, 2,916,000 dropped out of the labor force.

For a discussion of exactly what questions the BLS asks to determine the unemployment rate, please see Reader Question Regarding “Dropping Out of the Workforce”; Implications of the Falling Participation Rate

Here’s the real kicker. In the last year the number of people employed FELL by 292,000! Yet. miraculously the unemployment rate dropped nearly 1%. On that count, the unemployment rate should have risen at least 1%.

What to Expect on Friday?

Garbage. That’s what.

Officially I will take the under on jobs and the over on the expected unemployment rate of 8.9%. For a guess on the latter, 9.2% seems reasonable on the data (and that was my opinion before the ISM and ADP reports). However, Lord only knows how many people the BLS might say dropped out of the labor force.

If burger flipping saves the day, it won’t last.

Copyright © Mike “Mish” Shedlock, http://globaleconomicanalysis.blogspot.com

Tags: Apologies, Bulls, Consensus, Economists, Global Economic Trends, Global Economy, Guess, Job, Market Ticker, Memory, Mish Shedlock, Mood Swings, Moving Average, Payroll Estimates, Payroll Report, Revisions, Rush, Unemployment Claims, Wednesday Evening
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Understanding the Rise of China

Monday, February 7th, 2011

More than 1.3 billion Chinese people are celebrating the New Year this week. We’ll discuss that more in China in the Year of the Rabbit, but a friend sent me this TED video last week that is one of the best discussions on China I’ve seen in recent memory.

Martin Jacques, author of When China Rules the World, spoke at a TED Conference back in October 2010. Jacques began his speech by saying, “the world is changing at a really remarkable speed.”

Jacques says China is going to change the world in two fundamental respects. First, never before in the modern era has the largest economy in the world been that of a developing country. Second, for the first time in the modern era, the dominant country in the world will not be from the West.

Jacques’ speech is a breath of fresh air because of his deep understanding, not just of Chinese culture, but what drives the country’s politics, its business and its people. While much of the U.S. media coverage of China is embedded with fear, Jacques explains that we must better understand the differences between our two cultures in order to really understand what drives China.

The speech is also riddled with lots of interesting little facts but I’m not going to give those away, you’ll have to watch the video.

Tags: Breath Of Fresh Air, Celebrating The New Year, China, China Rules, Chinese Culture, Chinese People, Developing Country, Dominant Country, Economy, Fear, Investor Alert, Media Coverage, Memory, New Year, People, Rabbit, Remarkable Speed, Respects, Rise Of China, Rsquo, S Media, Saying The World, Ted Conference, Two Cultures, Year Of The Rabbit
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Montier: Was it all just a bad dream? Or, ten lessons not learnt

Friday, February 26th, 2010

James Montier, a member of GMO’s Asset Allocation Team, examines whether we learned anything from the market declines of 2008 and early 2009. In this paper – his first since joining GMO from Société Générale – he outlines ten of the lessons he believes not to have been learned.

Here is the opening paragraph:

“It appears as if the market declines of 2008 and early 2009 are being treated as nothing more than a bad dream, as if the investment industry has gone right back to business as usual. This extreme brevity of financial memory is breathtaking. Surely, we should attempt to look back and learn something from the mistakes that gave rise to the worst period in markets since the Great Depression. In an effort to engage in exactly this kind of learning experience, I have put together my list of the top ten lessons we seem to have failed to learn. So let’s dive in!”

And the ten lessons:

Lesson 1: Markets aren’t efficient.

Lesson 2: Relative performance is a dangerous game.

Lesson 3: The time is never different.

Lesson 4: Valuation matters.

Lesson 5: Wait for the fat pitch.

Lesson 6: Sentiment matters.

Lesson 7: Leverage can’t make a bad investment good, but it can make a good investment bad!

Lesson 8: Over-quantification hides real risk.

Lesson 9: Macro matters.

Lesson 10: Look for sources of cheap insurance.

Click here for the full report. (Click through from the link next to Montier’s picture. Please note that a short registration is required.)

Tags: Asset Allocation, Bad Dream, Brevity, Cheap Insurance, Dangerous Game, Gmo, Great Depression, Investment Industry, James Montier, Learning Experience, Lesson 1, Leverage, Memory, Paragraph, Pitch, Quantification, Relative Performance, Sentiment, Societe Generale, Valuation Matters
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