"Nonfarm payroll employment fell sharply (-533,000) in November, and the unemployment rate rose from 6.5 to 6.7 percent... . November's drop in payroll employment followed declines of 403,000 in September and320,000 in October, as revised. Job losses were large and widespread across the major industry sectors in November."
This is unusually blunt language from a statistical agency like BLS and these developments indicate how much short-term impact the financial meltdown and credit freeze are having on the production economy. And for an economy already 12 months into a recession, these are very tough impacts.
There have been 10 recessions since the end of the Second World War—a conventional dividing line between old and modern economic structures and policy regimes. They can be roughly sorted into short, average, and long durations. Four were short—6 to 8 months in duration; Four were average—10 or 11 months; and two were long—16 months each.
As I wrote earlier, the short and medium ships have sailed, so we should look at the prospect of something quite like the longer recessions of recent times. In those long recessions the unemployment rate rose by an average of 3.7 percentage points. Thus far in this recession, the jobless rate has gone up 1.7 percentage points, as the Bureau of Labor Statistics stated in their release.
On the payroll employment side, the two longer recessions of the modern era (1973-75 and 1981-82) generated job losses amounting to 2.4 percent of employment at the official turning point. As of November, the economy had shed a net of 1.9 million jobs, approximately 1.4 percent of the stock of filled positions in December 2007.
Given these figures, a statistical determinist would suggest that the current recession has 4-6 months left to run, will result in about 1.3 million additional job losses, and about 2 additional percentage points of unemployment.
While statistical determinists are notorious for their optimism, I would like to inoculate readers about some foreseeable pessimism; Next May, with the economy still sluggish, reports of various types will begin to bloviate about “the longest recession since the Great Depression.” At least through next year, that would have to be taken as a deliberate attempt to sensationalize. The downturn that created the depression of the 1930s lasted 43 months—let’s at least wait until any current episode is more than half that lengthy before we start using such comparisons. (With any determination, luck, and policy skill we won’t have to use that line at all.)
Friday, December 5, 2008
Wednesday, December 3, 2008
Recession already 12 months old
Anyone who is reading this blog has, in all likelihood, closely read the National Bureau's December 1 declaration that last December (2007) was the peak of the most recent economic expansion and the starting point (month 0) of a recession.
The Bureau's Business Cycle Dating Committee again seemed to place much weight on the payroll employment numbers which peaked in December 2007 and have declined in each subsequent month. This determination was backed by careful analysis of production and income data including GDP and GDI, peal personal income (less transfers), real business (manufacturing and trade) sales, industrial production, and employment as measured by the Current Population Survey.
The recently ended expansion had lasted 73 months, thus ranking 5th longest of the 32 business cycles chronicled by NBER and of the 11 expansions of the modern policy era that began at the end of 1945. While the duration of the expansion is of some historical interest now, the history of recessions is perhaps now more important.
Since the end of World War II there have been ten complete cycles of recession and recovery; the average recession of that "modern policy" era has lasted ten months. Unfortunately, at the 10-month mark of this episode (October) the credit and other financial markets had gone into crisis. The overall impact of that is as yet unsure, but already the downturn has lasted a bit longer than the post-War average and half again as long as the two most recent recessions (1990-91 and 2001).
If the downturn is still going in May 2009, we will have reached the 17-month average duration of all 32 downturns that NBER has identified as having occured since the mid-1850s. At the extreme, the longest recessions of the modern era were 16 months in 1973-75 and 1981-82; the longest continual period of contraction in the 1930s was 43 months in 1929-33; the longest downturn in the chronology was a 65 month episode lasting from late-1873 to early 1879.
The Bureau's Business Cycle Dating Committee again seemed to place much weight on the payroll employment numbers which peaked in December 2007 and have declined in each subsequent month. This determination was backed by careful analysis of production and income data including GDP and GDI, peal personal income (less transfers), real business (manufacturing and trade) sales, industrial production, and employment as measured by the Current Population Survey.
The recently ended expansion had lasted 73 months, thus ranking 5th longest of the 32 business cycles chronicled by NBER and of the 11 expansions of the modern policy era that began at the end of 1945. While the duration of the expansion is of some historical interest now, the history of recessions is perhaps now more important.
Since the end of World War II there have been ten complete cycles of recession and recovery; the average recession of that "modern policy" era has lasted ten months. Unfortunately, at the 10-month mark of this episode (October) the credit and other financial markets had gone into crisis. The overall impact of that is as yet unsure, but already the downturn has lasted a bit longer than the post-War average and half again as long as the two most recent recessions (1990-91 and 2001).
If the downturn is still going in May 2009, we will have reached the 17-month average duration of all 32 downturns that NBER has identified as having occured since the mid-1850s. At the extreme, the longest recessions of the modern era were 16 months in 1973-75 and 1981-82; the longest continual period of contraction in the 1930s was 43 months in 1929-33; the longest downturn in the chronology was a 65 month episode lasting from late-1873 to early 1879.
Friday, November 21, 2008
Housing construction dips further
Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 708,00. This figure is 12 below September's rate and is 40 percent below October 2007. While it is hard to state with statistical confidence that housing starts fell further in October, the number of starts has fallen to 828,000, an estimated 38 percent below the rate a year ago.
In the current cycle, starts and permits peaked in early 2006 or the latter months of 2005, respectively. The next nail in the scaffold of housing construction data will be driven on December 16. (CEN)
In the current cycle, starts and permits peaked in early 2006 or the latter months of 2005, respectively. The next nail in the scaffold of housing construction data will be driven on December 16. (CEN)
Thursday, November 20, 2008
Fewer cattle on feed, more to market than last year
Cattle and calves on feed for the slaughter market totaled 10.4 million head on October 1, 2008. The inventory was 5 percent below October 1, 2007 and 9 percent below October 1, 2006. Placements in feedlots during September totaled 2.28 million, 6 percent below 2007 but 2 percent above 2006. Marketings of fed cattle during September totaled 1.81 million, 7 percent above 2007 and 3 percent above 2006.
Real earning up in October
Real average weekly earnings rose by 1.4 percent from September to October after seasonal adjustment. This increase stemmed from a 0.2 percent increase in average hourly earnings combined with a 1.2 percent decrease in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Average weekly hours were unchanged.
While an increase in real earning is never, by itself, anything other than good news, the fact that so much of the increase was due to the unsettling price declines of last month should help analysts restrain ther enthusiasm.
While an increase in real earning is never, by itself, anything other than good news, the fact that so much of the increase was due to the unsettling price declines of last month should help analysts restrain ther enthusiasm.
Prices fall on flagging energy
All four major price measurements at the Bureau of Labor Statistics fell sharply in October: Import prices were down 4.9 percent, domestic producer prices were down 2.8 percent, export prices were down 1.9 percent, and domestic consumer prices were down 1.0 percent. These are remarkably large over the month changes. Indeed, the consumer price analysis stated that this was "the largest one month decrease since publication of seasonally adjusted changes began in February 1947." The fall in the top-side PPI for finished goods was by a large margin the largest percent decline in that number in the post-WWII era (and was the second largest change in absolute value). The import price decline was put in the context of the past few months and characterized as "three of the four largest monthly declines for the index since being published monthly for the first time in December 1988."
In addition to the size of the drops, there was a common factor in the commodities leading the fall: energy, specifically petroluem products. Although energy price declines are typically thought of as good for the economy, these declines are just too big and destabilizing; especially when seen in conjunction with even modst declines in the core CPI (excludes food and energy) and non-petroleum import prices. There was an increase in the PPI for finished goods besides food and energy, but the indexes for non-food-non-enrgy goods at the intermediate and crude stages of production both fell.
In addition to the size of the drops, there was a common factor in the commodities leading the fall: energy, specifically petroluem products. Although energy price declines are typically thought of as good for the economy, these declines are just too big and destabilizing; especially when seen in conjunction with even modst declines in the core CPI (excludes food and energy) and non-petroleum import prices. There was an increase in the PPI for finished goods besides food and energy, but the indexes for non-food-non-enrgy goods at the intermediate and crude stages of production both fell.
Tuesday, November 18, 2008
Special factors boost industrial production
Total industrial production increased 1.3 percent in October after a downwardly revised decline of 3.7 percent in September. The revision to September output resulted, in part, from a larger estimate of the impact of Hurricanes Gustav and Ike on the chemical industry.
Manufacturing production, which dropped 3.7 percent in September, rose 0.6 percent in October. The output of mines advanced 6.1 percent, as most crude oil and natural gas operations in the Gulf of Mexico were brought back online after the hurricanes.
Industrial production in September and October was substantially affected by the hurricanes and a strike in the commercial aircraft industry. Excluding these special factors, total industrial production is estimated to have fallen around 2/3 percent in both September and October.
Looking at just these two relatively benign numbers gives the impression that some recession talk may have been overblown. However, note that industrial production had been slipping since January before Ike drove it over a cliff. IP is now more than 4 percent lower than it was a year ago. Similarly, the capacity utilization rate is down 4.5 percentage points over the year and has been wobbling south since July of last year.
Still, factories, mines, and utilities seemed to have been able to find the financing to rebound in October from storms and strikes; will they be able to continue in November's credit climate and forward? We'll start to find out on December 15. (FED)
Manufacturing production, which dropped 3.7 percent in September, rose 0.6 percent in October. The output of mines advanced 6.1 percent, as most crude oil and natural gas operations in the Gulf of Mexico were brought back online after the hurricanes.
Industrial production in September and October was substantially affected by the hurricanes and a strike in the commercial aircraft industry. Excluding these special factors, total industrial production is estimated to have fallen around 2/3 percent in both September and October.
Looking at just these two relatively benign numbers gives the impression that some recession talk may have been overblown. However, note that industrial production had been slipping since January before Ike drove it over a cliff. IP is now more than 4 percent lower than it was a year ago. Similarly, the capacity utilization rate is down 4.5 percentage points over the year and has been wobbling south since July of last year.
Still, factories, mines, and utilities seemed to have been able to find the financing to rebound in October from storms and strikes; will they be able to continue in November's credit climate and forward? We'll start to find out on December 15. (FED)
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