It's Still The Economy, Stupid

Thursday, September 25, 2003  

Slippery jobs data?

Alan Krueger takes a stab at analyzing differing BLS employment estimates.

Short version: if you take out the differences in the survey methodology, the difference in the two surveys over the past year falls from 1.4 million to 135,000. There is a multimedia chart in the right column that will illustrate how the changes break out.

posted by Teddy | 1:35 PM |

Little to cheer in the job market

New unemployment claims dipped in the most recent week, but the Conference Board's help wanted index dipped in august and is below last year's level.

My anecdotal evidence for the day: a friend of mine that is a recruiter is now seeing familiar faces on recruiting trips. They were students that couldn't find jobs as undergraduates two years ago, went back for their Masters degree and are now are trying to re-enter the job market. Needless to say, their prospects are not much better despite more education. My friend tells me the job fairs he attends are "at least" half empty and he is now getting prominent corner tables rather than being relegated to the hinterlands as he was just three years ago.

Oh, and FYI. His company isn't hiring anyone for the foreseeable future. His job is now to "collect business cards and dispense cards of other companies that might possibly be hiring". It's depressing, I guess, but I'm happy at least he's employed.

The latest money supply growth figures are still not much above the levels of July 7th. Adjusted M3 is down $3 billion but unadjusted M3 is up $3 billion from that date. Adjusted M2 is up $22 billion and unadjusted M2 is up $33 billion. While these levels are higher, it translates to an annual growth rate under 2%.

We're starting to see some slowdown in the economic numbers from this already. August durable goods orders were down 0.9%. This particular release is quite volatile and hasn't been corroberated in sales yet, but I'd expect the September data to give us a much better indication how slow money growth will brake the U.S. economy.

Lenders are reacting to the dearth of new mortgage borrowing by looking elsewhere. This is flattening the yield curve and lowering lending spreads, according to the latest posting by Doug Noland. Ford, a company that makes the majority of its profit by lending at 0% instead of making cars, borrowed $3 billion and allegedly had orders for $10 billion. The spread over treasuries was half of what they were able to fetch just one year ago.

Flatter yield curves and smaller risk premiums mean smaller profits for lenders because there is less swag to spread around. One of the most recent victims is the New York Federal Home Loan Bank, which will not pay a dividend this quarter for the first time since 1998. The government sponsored mortgage lender expects to lose $100 million in the third quarter after taking a $183 million writedown on securities related to manufactured housing.

Adding to the danger posed by the end of an orgy of refinancing is the reduction in the "Yen carry trade". For years, multinational investors were able to borrow in Japan for nearly nothing and loan money to the U.S. Treasury, making as much money as the spread allowed. As U.S. interest rates bottomed out, one edge of the scissors began moving and now the other edge is cutting too. I don't know if the Japanese Central Bank has the capital to offset the end of the Yen carry and it's certainly not a promising start. The current quote is 112 to the dollar, much less than the 115 bottom that the JCB appeared to previously favor and the peg that contributed to the nearly $1 trillion rate of foreign inflows last quarter.

The lack of action by Bush on creating jobs is already hurting his polling numbers and another slowdown in the economy could be fatal. Even mild cracks in the "everything is recovering will be fine soon" facade are tripping up the stock market. Things could get quite interesting very soon if more weak data starts coming out.

posted by Teddy | 11:46 AM |