The chart above is the difference between CPI's 6-month
annualized rate(AR) minus the 18-month AR (3-month moving average)
I expect this number to start declining into negative territory
as it has done in previous recessions. This should give the Fed
some breathing room.
This is the Good news.
The rest of the news is that the Economic Indicators are still
pointing towards the same: Recession.
This chart illustrates that for the last 15 months there has been
no job creation, as per the House Hold Survey. Wonder why
Consumer Sentiment is so depressed?
Employment in the Private sector has turned negative. I
excluded Health & Education since it improves timing of the turns.
This chart shows the consequences of lower employment:
destruction of Real Wages. Both the 6-month and 12-month AR are
at onerous levels.
Finally, despite Retail Sales jumping with the rebate, the
"real" number(deflated by CPI) year-over-year change is at
recessionary levels. Remember that the boost of the rebate
is short-lived.
In summary, inflation will improve, but there is nothing in last
week's data that is encouraging for the economy.
I am on my way to Chicago to help my son get established for
his residency program. Will post occasionally.
7 comments:
Hi Will,
A beginner`s question: why are 15 months or 18 months relevant periods of time for this kind of analysis?
Adrian
Adrian I used 15 months for several reasons:
-In the case of Employment by the HHS, I want to point out that is not a recent phenomenon.
-15 months = 5 quarters.
Usually revisions take place during the last three months.
So we end up with 4 quartets of fairly accurate data and one that changes. The annualized number will not be affected as much after revisions.
- I think that fed policy takes about 15 months to work
- It is also an arbitrary number,
just like 18, 6 or for even 12.
What was your opinion on the Employment number? I didn't think it was all that bad and maintain that inflation must be beaten back at the risk of hurting (crushing) the economy.
Banker,
NFP was not bad but the HHS
(used to calculate the Unemployment rate) showed a big drop.
HHS tends to lead at turning points, so it is probably currently more valid than NFP.
Might just add on the employment number that the Bureau of Labor Statistics birth/death model of new business hires has been adding large(huge) numbers of jobs (250,000 in April if I recall). While this might be an adequate adjustment in an expanding economy, they should probably be subtracting jobs for failing businesses in the current environment, rather than the large number they have added. Look it up, it gives some insight on how "innocent" adjustments may be ultimately cooking the figures.
SS
Nice work, Will. Best of luck to your son on his residency.
MarkM
Thanks, MarM
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