Personal Income Up; Disposible Income Down

From the BEA:

Personal income increased $11.4 billion, or 0.1 percent, and disposable personal income (DPI) decreased $47.6 billion, or 0.4 percent, in January, according to the Bureau of Economic Analysis. The decrease in DPI reflected an increase in federal nonwithheld income taxes. Personal consumption expenditures (PCE) increased $52.4 billion, or 0.5 percent. In December, personal income increased $41.2 billion, or 0.3 percent, DPI increased $40.3 billion, or 0.4 percent, and PCE increased $26.4 billion, or 0.3 percent, based on revised estimates.

Let's go to the data:


Service wages are up, and have been increasing for most of last year. However,



Goods producing industries are seeing their wages stall. This makes sense, given that manufacturing employment is taking a massive hit during this recession.


After five months of increases, disposable personal income dropped.


Note that total PCEs (personal consumption expenditures) have been increasing since July.

Service expenditures -- which account for about 65% of total PCEs -- are a large reason for that increase.


Non-durable purchases appear to have stalled, but are still at higher levels than lase year.


Durable goods purchases have been increasing for the last four months. This is very good news as it indicates cash for clunkers did not skew purchases forwarded as feared.

Read More

Getting it wrong about Retail Sales and Sales Tax Receipts

- by New Deal democrat

Well (sigh), Mish is at it again.

He claims that retail sales aren't actually increasing because state sales tax receipts are in continued decline on a YoY basis. Once again, he misuses YoY comparisons, and ignores them when they contradict his case (which is often). This is the very same type of analysis he did back in June when he claimed that "Rail traffic is horrific with no end in sight." I called him on that, pointing out that simple YoY comparisons, without noting the most current trend in those comparisons, missed turning points -- and that it looked like more recent comparisons showed that rail traffic was about to turn up. In fact that is exactly what happened, and for some reason Mish hasn't commented on rail traffic in awhile.

He had the same problem analyzing the CS-CPI, noting in September how awful it was on a YoY basis, citing February 2009 YoY data! In fact, as I pointed out, that metric too was improving YoY, and as we saw last week, the CS-CPI is now positive YoY. For some reason Mish hasn't commented on the CS-CPI for awhile either.

Now he is making the exact same error with regard to state sales tax receipts. The meat of Mish's article is that state sales taxes continue to get worse and worse. He quotes or lists reports by state for 6 states, and I will not only rebut him state by state, but will examine several more states examined in an article to which he links apporivingly.

I. The starting point for our examination is national sales tax information. To begin with, Mish makes the observation that

unadjusted numbers vs. a year ago are the only valid way of looking at data. Same store sales, comparisons to projections, and non-seasonally adjusted comparisons to the previous month are all bogus comparisons.

I agree that, if we can't gauge seasonality in the data to enable valid month-over-month comparisons, then we should at very least take a look on a month-by-month "unadjusted numbers vs. a year ago" to see whether the YoY comparisons are getting better or worse -- this is what Mish failed to do with either railroad data or the CS-CPI, and why both of those data series moved against him.

To show you what I mean, let's look at the actual retail sales series, unadjusted for inflation. In the graph below, the amount of sales are in blue, measured on the right scale; the YoY % change is in red, measured on the left scale:


Now this graph is pretty straightforward. Both measures hit their low point in December 2008 -- but the YoY % change didn't turn positive until 11 months later, in November 2009!

So if state sales tax receipts were consistent with that, on an apples to apples basis, the YoY unadjusted receipts Mish cites ought to start turning positive in November 2009, even though the actual bottom was nearly a year before. Furthermore, the maximum YoY % decline should have occurred in December 2008.

II. Now let's turn to Mish's argument and the actual data.

As to the national sales tax data, John Liscio puts out a monthly compilation of state sales tax receipt information. According to a Reuters summary of his December 2009 report, 13% of states showed growth, compared with none showing growth in November. You would think that would be an improvement in the trend. Not according to Mish:

"note that only 13% of states are reporting growth which means that 87% of states have flat to declining sales. Amazingly the headline has a positive spin that revenues was up.

Even then, close observers will note that revenues were up vs. projections. That does not mean they were up at all. That was very sloppy reporting, at best."

Except that the article very specifically uses "unadjusted numbers vs. a year ago." exactly what Mish calls "the only valid way of looking at data." The article says:

In November, no state registered sales tax revenue growth over the year, but by December 13 percent enjoyed growth.
.... Those numbers could change quickly, it said. The states reporting year-on-year growth were concentrated in the Midwest, where the federal automobile industry bailout boosted manufacturing sales and inventories.

(my emphasis)

The data support exactly what the Reuters story claimed, and the data is reported exactly the way Mish claims is the only correct way to report it. So it is Mish, not the reporter, who has a sloppy, spinny way of looking at the data. And the data turns positive in 1 in 4 states only one month after the unadjusted retail series discussed above.

In a subsequent post, just to "drive home" his point, Mish posts the following graph of sales tax receipts:



If minds were truly inquiring, they would note that this is a graph of annual data, with the most recent data point that for the entire year of 2009, which as we've pointed out above obviously came in less than 2008 when the recession was just getting underway. Duh! This is badly lagging data and tells us zero, nada, zip, nothing about the current trend. For that, we have to examine monthly data, which we'll do below.

As an aside, Mish is so proud of himself that he actually also cites this graph:



as further proof that the recession isn't over, and helpfully circles bottoms, which very clearly show that the data series is a lagging indicator that in the past has bottomed after the recession ended. That's His. Own. Graph!

III. In support of his thesis, Mish copies and pastes news reports or data from 6 states: New York, Indiana, Texas, Tennessee, Alabama, and Georgia. Let's look at what the monthly data on sales tax collections for each of those states actually shows.

Mish cites a newspaper article about New York that compares 2009 to 2008 collections on an annual, not monthly, basis, and found a 5.9 decrease in collections statewide. Not only is it a no-brainer that tax collections got worse as the recession deepened from the first to second year, but this method, of course, is precisely NOT what Mish claimed was the proper way to look at sales tax collections. In fact, had he actually checked by month, he would have found that

- in January 2010, sales tax receipts were down -2.0%.

- In December, they were UP 5.0% YoY.

- In November, they had been down -4.3% YoY.

- In October they were down -3.3%.

While the trend is a little erratic, it is nevertheless improving.

Next Mish cites Indiana, and gives the following list of monthly comparisons (YoY percentage changes are mine):

December 2009 Sales Tax: 476,111,101.58 (-4.3% YoY)
December 2008 Sales Tax: 497,628,352.13

November 2009 Sales Tax: 473,363,430.53 (-6.1% YoY)
November 2008 Sales Tax: 504,327,778.19

October 2009 Sales Tax: 485,658,222.21 (-11.1% YoY)
October 2008 Sales Tax: 546,284,648.12

In other words, the trend is that Indiana's sales tax receipts are rapidly approaching positivity YoY, and may well have bottomed in November 2009.

Texas is literally the ONLY state whose sale tax receipts support Mish's opinion. Mish gives the following list (again, YoY percentages are mine):

January 2010: $1,655.3 million (-14.2% YoY)
January 2009: $1,928.3 million

December 2009: $1,653.1 million (-11.6% YoY)
December 2008: $1,869.4 million

November 2009: $1,696.9 million (-15.4% YoY)
November 2008: $1,983.1 million

October 2009: $1,517.9 million (-12.8% YoY)
October 2008: $1,739.8 million

I'll give him Texas.

Mish next turns to Tennessee. whose tax commissioner, Dave Goetz said as to January 2010,

For the first time in many months, the total Tennessee tax collections were actually a bit above the level of the prior month a year ago

Mish actually highlights the fact that the receipts came in less than estimates -- again, not the method he himself accepts as being valid.

Since I don't have a clue what Mr. Goetz actually meant, I went to the data, which showed that total Tennessee tax collections were actually UP 1.16% from a year ago. To be fair, since I want to stick with sales taxes,

- in January, those were down -1.8% YoY.

- This is better than December, when sales tax collections were down -2.9% YoY.

- November's were down -4.5% YoY.

Tennessee doesn't support Mish's argument either.

Mish makes his most hilarious mistake when he turns his attention next to Alabama,, citing an article that states:

Taxes collected by the state Education Trust Fund continue to jump around from month to month, with tax collections in January dropping 17.5 percent, or $80.7 million, compared to January 2009, the state finance department reported Monday.

That followed a gain of 13.5 percent in December compared to December 2008 and a drop of 6.7 percent in November compared to November 2008.

Of course, the discussion isn't about corporate or estate taxes, it is about sales tax receipts, and had Mish moved his gaze ever so slightly to the left, he would have seen, clear as day in the accompanying chart, that sales tax receipts were UP 7.2% in January 2010 vs. January 2009.

In short, Alabama's statistics actually contradict rather than support Mish.

Finally, Mish turns his attention to Georgia, citing an article noting that

It was another tough month for Georgia revenue collections. Governor Sonny Perdue’s office says for the month of January, collections dipped 8.7 percent from the same month a year earlier. That now makes it 14 straight months of declining tax revenue.

That's certainly looks bad, but again Mish fails to take account of the trend. Specifically, in December 2009, Georgia reported that

The Peach State pulled in $1.4 billion, compared with $1.49 billion in December 2008.
The $1.4 billion last month included $347.4 million in sales tax revenue (down 20.2 percent),

Like Indiana and Tennessee, the Georgia statistics show continuing improvement, and a likelihood that the bottom on a monthly basis has already taken place.

IV. Mish next cites approvingly to a Motley fool bulletin board piece dating from November -- four months ago now. That piece listed 7 states who were all showing increasingly bad tax collections through October or November, some of which are those discussed above. I followed up on the others, and here is the current status through January 2010 sales tax collections:

While in California "through December, the state’s tax revenue take was down 13.7 percent to $7.25 billion," January's tax receipts were UP YoY, and in particular "Sales Tax came in about 80% higher than January 2009." which one California blogger called "finally a ray of hope that California is turning the corner on the recession."

In Florida, January sales taxes were down -4.3% YoY. But the trend was clearly improving, as December was down -4.9% YoY, and November down -8.1% YoY.

Similarly, in Pennsylvania January 2010 sales taxes were down -1.1% YoY, compared with December 2009 when they were down -1.7% YoY, and November 2009 when they were down -6.1% YoY.

In New Jersey January 2010 receipts, reflecting the bulk of the important holiday shopping season, increased by 1.9% over last January, the first monthly increase since May of 2008."

Finally, in Ohio. "January receipts were 5.2% above the same month a year ago."

To summarize: of the 11 states we have looked at, 4 actually have increased sales tax receipts compared with a year ago, 6 although negative YoY show improving YoY comparisons and probably have already hit bottom on a monthly basis, and exactly 1 - Texas - actually supports Mish's case. Oh, and one more thing: while I haven't been able to check all 11 states yet as to when their maximum YoY % decline occurred, I have done 7 of them. In 6 of the 7 -- New York, California, Tennessee, Florida, Ohio, and Pennsylvania -- the maximum YoY% decline in sales tax receipts was in December 2008. In the 7th - New Jersey - it was in November 2008.

While this isn't exactly the same as the retail sales' November 2009 YoY% turning point, it isn't an apples to apples comparison either. For example, many if not most states do not charge sales tax on necessities like food and clothing. Others do not include their gasoline taxes in the sales tax figure. Some do not record tax receipts until a month after the retail sales take place. It should hardly be surprising that this may lead to some differences in the statistical reports.

V. Finally, Mish also claims that the Census Bureau's retail sales data is bogus, claiming that it fails to account for "survivorship bias", in other words, that same store sales will increase if there are a fewer number of retail stores left. What Mish believes the Census Bureau lacks is - a birth/death model!

In fact, the Census Bureau statisticians are not idiots, and do account for this in a number of ways. The following description comes from my co-blogger, Silver Oz, this site's resident statistical geek:

From How the surveys are collected:

"Births are added to the monthly survey in February, May, August, and November of each year. At the same time, deaths are removed from the survey. To minimize the effect of births and deaths on the month-to-month change estimates, we phase-in these changes by incrementally increasing the sampling weights of the births and decreasing the sampling weights of the deaths in a similar fashion. In the first month, we tabulate the births at one-third their sampling weight and tabulate the deaths at two-thirds their sampling weight. In the second month, we tabulate the births at two-thirds their sampling weight and tabulate the deaths at one-third their sampling weight. In the third month, we tabulate the births at their full sampling weight and the deaths are dropped (sampling weight equal zero)."

And here is the reliability of the survey:

The alleged survivor bias argument appears to be addressed by both the methodology and the error in the survey itself, as the survey seems to take a gross sales number (ie dollars) and uses IRS and EIN's to identify firms for the survey (including deaths). So, while he is correct in that surviving firms have a bigger slice of the pie (master of the obvious!), that does not imply that the pie itself necessarily shrunk and the methodology seems to take care of his fears.

To which I would add that the Census Bureau also uses a chain weighting which ensures month to month consistency:

Estimation and sampling variance
Advance sales estimates for the most detailed industries are computed using a type of ratio estimator known as the link-relative estimator. For each detailed industry, we compute a ratio of current-to-previous month weighted sales using data from units for which we have obtained usable responses for both the current and previous month. The For each detailed industry, the advance total sales estimates for the current month is computed by multiplying this ratio by the preliminary sales estimate for the previous month (derived from the larger MRTS) at the appropriate industry level. Total estimates for broader industries are computed as the sum of the detailed industry estimates.

In other words, the Census Bureau tracks respondents for several months. If any go out of business, they get zeroed out. The statisticians aren't dunces. They account for exactly the issue Mish complains about, except he wasn't inquiring enough to check their actual procedures.

So I suppose in a couple of months, just like rail traffic and the CS-CPI, we won't be hearing about state sales tax receipts from Mish either.

Read More

The Seduction of The FSA

Lord Turner, the chairman of the Financial Services Authority (FSA), has told the Treasury Select Committee that the FSA was "seduced" into thinking that the economic boom was unstoppable.

In other words the FSA was asleep at the wheel.

He also noted, quite correctly, that another global financial meltdown could occur.

In the event that the Tory Party wins power at the next election, the FSA will become a footnote in the history books as the failed tripartite system (set up by Brown) is dismantled.

Read More

Treasury Tuesdays

The main point of the above chart is to illustrate that prices are currently at the 50% Fibonacci level and are finding a tremendous amount of upside resistance at that level.


A.) Despite the gap higher (a positive technical development), prices have formed some incredibly weak candles, indicating the upward momentum isn't as strong as the gap indicates.

B.) Note the EMA picture: they are essentially in the same place they were several weeks ago. In other words, nothing has really changed.


Take a close look at the last ~month of price action: nothing has happened.

Read More

Yesterday's Market

Just to remind everyone, the market recap is now going to be in the AM. It's simply easier for me to get this out when I wake up and look at the markets then in the middle of the day.



Yesterday's price action can be broken down into two sections. The first (A) was right at the open. Prices gapped higher and formed two consolidation pennant patterns, using the EMAs as technical support. Then prices hit their top and continued to use the EMAs for technical support.


Yesterday I raised the possibility the market might be forming an up/down/up pattern. That appears to be the case, especially with yesterday's action.

Read More

Today's Market

A note to readers --

From now on, today's market will be posted in the AM, along with the chart of the day (Treasury, Commodities etc..). I'm just running out of time in the afternoon.

Read More

More on Recent GDP Revisions

In response to a recent post on the latest GDP revision, a commenter posted the following:

Laughing at those who said the GDP would be revised downward is a legitimate thing to do. But only if you were to give us some details about this upward revision, as you have done in the past when GDP is released. Why not explain how the analysts are wrong who are saying that this GDP upward revision is indicative of a worse situation for actual growth than the lower GDP number announced last month?

First, note the use of the "some analysts are saying this is bad" -- a tactic that a person with press experience should find reprehensible (of course, unless you're doing it). Secondly, think about the actual statement being made: "prove to me more growth isn't in fact worse." This is the standard upside down logic of the doom and gloom crowd -- for whom there is no good news. But more to the point: the number was revised higher. That means there was more growth. More growth is better than less growth -- at least in the reality based community. Remember shows like Sesame Street and their nice little presentations of concepts like big and small or more and less? That's pretty much where we are here.

At this point, Bill Engvall would say, "Here's your sign."

Let's look at the data.

Personal consumption expenditures compose the largest component of GDP. In addition, PCEs are divided into three sub-categories which are (from the largest to the smallest) services, non-durables and durables.


First, the overall trend for all real (inflation -adjusted) PCEs is still higher.


Services (which comprise about 67% of PCEs) are starting to increase after flat-lining for several years.


Purchases of non-durables dropped, but this is after 4-5 months of increases.


Real durable expenditures also increased slightly.

Let's move on to investment:


Real gross private domestic investment continues its rebound.



With equipment and software investment providing a fair amount of the growth.


Non-residential fixed investment is bottoming as is


Residential fixed investment.


The import export business appears to be moving back into its old, familiar situation: the US is again becoming a net importer. The total trade balance appears to topping out and will resume its old, downward trajectory.

Let's take a look at some of the data from the report:

Motor vehicle output added 0.44 percentage point to the fourth-quarter change in real GDP after adding 1.45 percentage points to the third-quarter change. Final sales of computers subtracted 0.01 percentage point from the fourth-quarter change in real GDP after subtracting 0.08 percentage point from the third-quarter change.

Last quarter several commentators pointed to the fact that auto production accounted for most of the growth and wondered how more growth was possible. Last quarter, auto production dropped down dramatically and we still grew.

Real personal consumption expenditures increased 1.7 percent in the fourth quarter, compared with an increase of 2.8 percent in the third. Real nonresidential fixed investment increased 6.5 percent, in contrast to a decrease of 5.9 percent. Nonresidential structures decreased 13.9 percent, compared with a decrease of 18.4 percent. Equipment and software increased 18.2 percent, compared with an increase of 1.5 percent. Real residential fixed investment increased 5.0 percent, compared with an increase of 18.9 percent.

First, PCEs did decelerate. But this is in line with my projections for GDP growth which I made last year. Briefly, while the US economy is use to PCE growth in the 3-4% range, I think we'll see them grow in the 1-2% range. So, the drop to 1.7% quarter to quarter growth isn't a concern.

Real exports of goods and services increased 22.4 percent in the fourth quarter, compared with an increase of 17.8 percent in the third. Real imports of goods and services increased 15.3 percent, compared with an increase of 21.3 percent.

While the overall trade deficit pattern appears to be returning to its old ways, it is important to note that exports are increasing. This is due to other countries buying US goods and services. In fact, exports actually added to growth last quarter accounting for 5% of overall growth.

Perhaps the best part of the report was the contribution from investment. The economy grew 5.9%, 4.63% of which was investment. In other words. investment accounted for a whopping 78.47% of growth.

I suspect what "some analysts" don't like is that inventory restocking accounted for 3.88 or 65% of overall growth. However, the "concern" over this number is misplaced. First, inventories are at very low levels:


There is plenty of room for restocking, especially in light of how lean inventories are:


As demonstrated by the lean inventory to sales ratio. Again, this is a development I anticipated in the August 31 article cited above.

In short, this is still a good report. We'll have to wait and see what the final report says before we draw really firm conclusions, but overall this is a good report -- despite what "some analysts" say.

Read More

The Bifurcated Recovery

- by New Deal democrat

On Friday I noted that the week's data about the American consumer and industrial economies was so different that you may as well be looking at statistics from two separate countries. Looking at other data series over the weekend, I was surprised to find that the stark bifurcation between the two economies - industrial vs. consumer - carried through almost all the data series. The recovery is indeed bifurcated. The industrial recovery is V-shaped and stronger than any recovery since 1983. The consumer economy is little better than L-shaped and in some cases isn't happening at all. What follows is a detailed look.

I. Let's start with the overall GDP, shown here in real, inflation-adjusted terms:

The economy as a whole declined about 4% in real terms from its peak in 2Q 2008. It is over half the way back, as V-shaped as could have been hoped for.

That V-shaped recovery also shows up in industrial production:

Industrial production declined 15% from its peak and has recovered 1/3 of its loss.

This is the strongest recovery in industrial production by far since 1983:

Exports have also regained over half of the ground they lost:

And V-shaped charts turn up in virtually every other aspect of manufacturing, for example, the latest ISM manufacturing report from January:

showing a much stronger recovery than either those from the 1991 and 2001 recessions, and showing an intensity of growth that has only been matched in 1994 and 2003 in the last 20 years.

The Chicago PMI for February, which was just reported on Friday, shows a similar intensity:

Looking at some subparts of the industrial economy, this graph shows durable goods manufacturing and employees so employed:

Durable goods declined almost 35% from their pre-recession peak and have come over 1/3 of the way back. That hasn't helped durable goods employment, which declined 20% and just turned positive on a preliminary basis in January.

The same story has played out in nondurable goods manufacturing and employees in that sector:

Nondurable goods manufacturing declined about 6% from its pre-recession peak (right scale) and has made 2/3 of that up. Employment in that area is still in decline.

The V-shaped recovery also shows up in average weekly hours (blue, left scale) and overtime (red, right scale) worked in manufacturing:


But if hours have gone up, the sector continued to hemorrhage jobs as shown on this graph of monthly gains and losses in industrial employment:

Industrial employment finally eked out an +11,000 gain on a preliminary basis in January's jobs report.

II. Over 100 years ago, Charles Dow (of the Dow Jones Industrial and Transportation Averages) theorized that the amount of goods produced should correlate with the volume of traffic moving those goods to market. Indeed, as we saw last week, the trucking industry has recovered about 2/3 of its volume:

Total rail traffic declined almost 30% from peak to bottom in late 2008. Some of that was seasonal, but the fact remains that about half of that decline has been erased:

Cyclical rail traffic, which is most sensitive to economic conditions, and which did improve first following the 2001 recession, shows a similar pattern:

Railroad revenue ton-miles, which are reported quarterly, show about 1/3 of the lost ground recovered through December 2009:

Although I can't show you a graph, I can tell you that air cargo revenue ton-miles show a smaller rebound as well, having fallen 2/3 from 1.22 Billion in December 2006 to 0.75 Billion in February 2009, and as of November 2009 had increased to 0.92 Billion (note: like rail traffic, undoubtedly some of this is seasonal variation, but the YoY decline from Feb. 2008 - 09 was 50%. November 2009 showed the first YoY increase since April 2007-08).

But despite that improvement, employment in the transportation industries was still declining even in January:


III. If industry and associated economic metrics show a strong V-shaped recovery, the best since 1983, then once we look at that part of the economy most closely associated with average American consumers, another picture emerges entirely.

Real residential spending has typically powered consumer recoveries. Housing permits, however, after collapsing nearly 80% from their levels during the boom, have made up only about 10% of that ground -- the weakest housing recovery on record, including the Great Depression:

(note: I am addressing volume of new homes built, not prices of either new or existing houses, in this discussion. Foreclosures are likely to increase for several years yet, and prices are almost certainly going to resume their decline to the long term mean).

Courtesy of Calculated Risk, we can break out residential vs. non-residential construction spending:

Rsidential spending has improved, but has relapsed somewhat due to the (believed) expiration of the $8000 housing credit. Commercial construction is still in strong decline, and probably will be so at least until later this year (CR notes that historically commercial spending has usually bottomed about 16 months after residential spending).

Reflecting that, construction employment continues to decline relentlessly (it was one of two areas responsible for January's preliminarily negative jobs report):

Over two million jobs have been lost in construction since its late 2005 peak. (note: there is no data breaking this down between residential vs. commercial construction jobs)

If houses are typically the largest and most important purchases made by consumers, autos are second. Auto sales declined from about 16 million a year to 9 million in early 2009, and have since rebounded to about 11 million, or about 25% of the way back to their peak:

This is a better situation than housing, but not nearly as strong a rebound as in the industrial economy.

Real retail sales (blue) which make up about 70% of consumer spending, declined about 12.5% from their pre-recession peak, also increased from their bottom, but only made up about 1/5 to 1/4 of that loss. Employment in the service part of the economy (red) declined almost 4%, and just started to eke out small gains in November's jobs report:

Government employment now includes more workers than all goods-producing employment. It is typically the last to turn down in a recession, and the last to turn up, sometimes not doing so until a year later. For example, here is the graph of gains and losses in government employment on a monthly basis during the 1970s:


and here is the chart of the same data, showing that even after the economy began to recover from the deep recessions of 1973-74 and 1981-82, employees in government continued to be laid off:

Here is the same graph as to the 2001-03 recession and "jobless recovery":

and here is the chart of the same data, showing again that government employees continued to be laid off even into 2004, even after employment as a whole turned up in late 2003:

In the last 8 months, there have been signficant layoffs in government. This undoubtedly is due to the steep decline in revenues, which is reflected in the US Treasury receipts for withholding taxes, shown here (h/t to RDan at Angry Bear):

Daily fluctuations in YoY receipts are in red, the 30 day YoY moving average is the black dotted line. While as of February 25, 2010, this had improved to about -2% YoY, there is every reason to believe that there will be significant layoffs of government workers for the foreseeable future. Government was the second area responsible for the continuing job losses in the economy reported preliminarily in January.

IV. Finally, I would be remiss if I did not look at income and wages. Because of high unemployment and slack in production capacity, there was been much downward pressure on wages and salaries. As a result, after a big decline, real income has stagnated, just barely turning up in the last few months, and lagging the turnaround in all post-WW2 recessions:


Wages are in more severe trouble. In the graph below, average hourly earnings are in green, and the employment cost index (which is a median measure which does not get upwardly distorted by salaries at the upper end of the income scale) is in blue:

As you can see, both have been under intense downward pressure since the onset of the recession, and when one takes into account inflation (in red), both are now negative on a year-over-year basis. Quite simply, wages - which had a respite during the brief interval of low gas prices a year ago - aren't undergoing any recovery at all.

But if wages are in real decline, there is yet one more graph that is probably the most V-shaped of them all. S&P 500 earnings, which almost entirely disappeared during the past recession - for the first time since the worst days of the 1929-32 contraction - have almost all been made up (h/t chartoftheday):

In real terms, profits at America's largest companies are the highest they have even been with the exception of the dot-com and housing bubbles.

In summation, we really do have two separate economies:
(1) an industrial and export economy, which is in a strong, full, V-shaped recovery;
(2) an economy consisting of
- a commerical construction subpart, which is still in sharp decline,
- and consumer related goods and services (residential construction, vehicles, and retail), which are barely growing.

- employment, which even in the industrial sector, is either still declining or just barely growing.

Wall Street and industrial companies are showing near record profits, while employment, wages and salaries for ordinary workers/consumers are totally stagnant or in actual decline.

A bifurcated recovery indeed.

Read More

Market Mondays

First off -- congratulations to Canada's Hockey team for their gold medal -- and thanks to both teams for one of the most exciting hockey games I've see in some time. It was one of those games where you don't want anyone to win, only so it will continue for as long as possible.


Are the SPYs moving into an A/B/C (up/down/up) pattern? Let's take a look.

A.) Prices rose from their early February lows.

B.) Prices consolidated in a downward sloping pennant pattern.

C.) Notice the EMA picture: The 10 day EMA has moved through the 50 day EMA and the 20 is about to do so. The 10 and 20 day EMAs are moving higher as is the 50 and prices are above the EMAs



Let's see if the transports are confirming the possible uptrend.

A.) Prices continue to move higher. Last week they corrected sideways rather than lower.

B.) The EMA picture is bullish: All the EMAs are moving higher, the shorter EMAs are above longer EMAs and prices are above all the EMAs.

Read More

Upward Revision

Last week saw the Office on National Statistics (ONS) issue revised growth figures for the last quarter of 2009.

The initial figures for growth of GDP) were revised upwards from 0.1% to 0.3%.

However, before champagne corks are popped, the ONS also revised downwards the overall contraction in GDP during the recession; from a 6% contraction to a 6.25% contraction.

Hardly time for celebrations just yet!

Read More