"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

The Required Disclosures

The information presented in this blog and its individual articles is provided for informational use only and should not be considered investment advice or an offer for a particular security. The contents reflect the views and opinions of the individual writer as of the date the article was written and do not necessarily represent the views of the individual writer on the current date. They also do not in any way, shape, or form represent the views of the Firm Never-To-Be-Named. Any such views are subject to change at any time based upon market or other conditions and The Great Redoubt and its individual writers disclaim any responsibility to update such views. These views should not be relied on as investment advice, and because investment decisions for any security are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any contributor to The Great Redoubt. Neither The Great Redoubt nor any individual author can be held responsible for any direct or incidental loss incurred by applying any of the information offered. Please consult your tax or financial advisor for additional information concerning your specific situation.

Thursday, August 4, 2011

First Time Jobless Claims

It's that time of the week already.  So let's brace ourselves for the last bit of employment data we get before tomorrow's Employment Situation report - the oft-revised First Time Jobless Claims!
Last week, the seasonally adjusted initial claims figures for the week ending 7/23 came in at 398,000.  Which nicely beat expectations (except for that pesky 87.81% chance that it will be revised upwards today).  Actual initial claims fell as well, dropping to a level of 366,578, with the total number of people claiming benefits in all programs for the week ending 7/9 rising to 7,645,601.
And what are the Econoday-surveyed analysts thinking for the week ending 7/30?  They're thinking that we'll see an uptick in the number of people filing for benefits, and the consensus prediction is for a seasonally-adjusted 403,000 new claims.  But are they right?  Let's go to the Unemployment Insurance Weekly Claims Report and find out.
First off, to nobody's surprise, the figures for 7/23 were revised upwards to 401,000 new claims[1].  The advance figure for seasonally adjusted initial claims for the week ending 7/30 then comes in at 401,000, beating expectations by 2000.  The unadjusted initial claims for the same period come in at 339,348, a decline of 27,230.  And the total number of people claiming benefits in all programs for the week ending 7/16 comes in at 7,570,439 (a decline of 75,162).
All things considered, this wasn't too bad a report.
[1]  Still beating last week's expected 423k new claims, but also meaning that we now have 19 upward adjustments out of 23 total weeks

Wednesday, August 3, 2011

This Is The First Day Of The Rest of Your Fiscal Life, And Here Is The World News!

  • Bomb-disposal teams have surrounded a house in Sydney.  Reports are that an 18-year-old woman is inside, with a bomb and a ransom note strapped to her.  Police have not confirmed the details, but have said they are treating the device as live until it can be proven otherwise.
  • Parliament has approved a plan to help TEPCO compensate individuals affected by the Fukushima Daiichi power station disaster.  The government will put an initial 2 trillion yen (about $26 billion) into the compensation pool.  TEPCO will then restructure, and then the restructured company and other nuclear power companies will make annual contributions (in an unannounced amount) to the pool.  Most analysts assume that, rather than shouldering the financial burden, the cost of the contributions will simply be passed along to consumers.
  • Japan's annual defense report is warning of increased Chinese naval activity in the East and South China Seas, and expressed concerns that this could lead to a potential conflict.
United Kingdom
  • In "behold the oncoming Singularity" news, a 40-year-old man dying of heart failure has been released from Papworth Hospital in Cambridgeshire after having an artificial heart implanted - the first man ever discharged with an entirely mechanical heart.  This is still considered a stopgap until a real heart can be acquired for transplant, and it does require a 13.5 pound backpack motor, but still.  Suddenly, it feels like I'm living in the future.
  • Using a particular method of examining variations in the cosmic background radiation, cosmologists at University College London believe they have found the signature of four other universes created near our own..These other universes would have collided with ours early in the formation of the early universe, and are most likely absolutely inaccessible now due to the expansion of space-time.
United States
  • In "And that's when the Duke boys knew they should consider an IPO" news, the Dark Corner Distillery is taking advantage of new micro-distillery laws in South Carolina to sell moonshine.  Legally.
  • Weighing in with Fitch, Moody's has reiterated its Aaa rating for US sovereign debt.  For the moment.  There is still a negative outlook on the US, meaning a downgrade is still possible in the next 12 to 18 months.  Now everyone is just waiting to see what Standard & Poor's will do.
  • The computer security McAfee has discovered the largest and most comprehensive series of cyber attacks known to date.  The attacks date back to 2006, and the 72 affected organizations include the US, Taiwan, India, South Korea, Vietnam, Canada, the Association of Southeast Asian Nations, the International Olympic Committee, the World Anti-Doping Agency, and the United Nations.  In most cases, the hackers (not named publically by McAffee, but said to be China) obtained access and simply used it to review secure information.
  • A meter wide spherical tank from the space shuttle Columbia - the one that burned up in re-entry in 2003 - has been found in a drought-strcken lake near nacogdoches, Texas.
  • Researchers with the Herschel Oxygen Project have found free molecular oxygen - the type of oxygen we breathe - in a star-forming nebula in the constellation of Orion.  This represents the first discovery of molecular oxygen in space - something that had been hypothesized but never verified before.

ADP Employment Report

Here's a report I've neglected for a few months.  A pity, that, since it makes a nice counterpoint to the Challenger Job Cuts Report.
ADP is, of course, Automatic Data Processing, self described as "one of the world's largest providers of business outsourcing solutions".  Specifically, they do HR and payroll, putting them in an admirable position to get a sense of how many people are getting hired by employers.  They take that data and process it into a market-impressing calculation of how many new jobs have been created in the US nonfarm private business sector.
For July, the Econoday-surveyed analyts are anticipating a subdued 86,000 private sector job gain.  So, without further ado, let us turn to the July 2011 ADP National Employment Report for the details.  And the basic details are an expectations-beating 114,000 new nonfarm private business sector jobs.  That's 121,000 new jobs in the service-providing sector, 7000 jobs lost in the goods-producing sector, and 1000 jobs lost in the manufacturing sector.
So, yeah.  That's not so good.  Sure, it's a lot of jobs - 55,000 in "professional business services" and 48,000 in "education and healthcare"[1].  But it's declines in the jobs that make things.  That implies serious (and ongoing) manufacturing weakness, which is a potential long-term obstacle for GDP growth.
Most of the job growth came from small and medium businesses (58,000 and 47,000, respectively).  Only 9000 new jobs were created by large companies.
[1]  All right, all right.  I'll concede that more doctors, nurses, and teachers are probably a good thing for the long term economic growth of our nation.

Challenger, Gray & Christmas Job Cuts Report

Yep, it's that time of the month again.  The time in which we begin the run-up to Friday's Employment Situation report.  And that means we kick off the festivities with data from Challenger, Gray & Christmas - the outplacement consulting firm - about how many layoffs were announced in a given month.  Not how many happened in a given month (that's a different report), but how many companies have announced in a specific month for the future.
Clear as mud?  Good.
June would have been a disappointing month, except that the analysts don't really care about this report.  They have a tendency to just look at the First Time Jobless Claims and at the Employment Situation itself.  Still, June saw an 11.6% increase in announced layoffs, hitting an anticipated 41,432 total job cuts.  The government and non-profit sector continued to lead the pack with 10,176 announced layoffs (24.6% of the total).  Second place was claimed by the health care and products sector, with 3,729 announced layoffs (9% of the total) - the food sector almost tied for second, announcing 3,500 layoffs (8.4% of the total).  Restructuring took the lead slot in "job cut reasons" at 36.6% of the total, followed by cost-cutting (24.1%) and closing (18%).
Hitting the July report, we see a lot of potential bad news coming down the tubes.  There were 66,414 layoffs announced in July, a 60% increase from June.  38,100 (57%) came from five companies:  Merck, Borders, Cisco Systems, Lockheed Martin, and Boston Scientific.  As a result, Government and nonprofit slipped to third place in the "most announced layoffs" event, announcing only 9389 planned job cuts (or 14% of the total).  Pharmaceuticals led the pack with 13,493 planned layoffs (20.3%), followed closely by retail's 11,245 announced layoffs (16.9%).
Looking at "job cut reasons", closing took the lead with 18,127 (27.3%) of the planned layoffs, followed by cost-cutting at 13,171 (19.8%) planned layoffs, and by competition's 13,000 (19.6%) planned layoffs.
Employment prospects don't look amazingly good for the next few months.

Tuesday, August 2, 2011

World News Debt Ceiling Update!

United States
  • The Senate has passed the compromise deficit-cutting/debt ceiling-raising bill by a vote of 74 to 28.
  • President Obama has signed the compromise deficit-cutting/debt ceiling-raising bill into law, but reiterated his belief that it will be impossible for the US to "close the deficit with just spending cuts."
  • Fitch Ratings has announced that they will maintain their AAA rating on US sovereign debt for the short term, but warned that the US "must also confront tough choices on tax and spending against a weak economic backdrop if the budget deficit and government debt is to be cut to safer levels over the medium term."  S&P and Moody's have not yet weighed in on what action they plan to take, since the compromise did not meet the $4 trillion in cuts the agencies said would be required to guarantee a top rating.

Radiation! Parasites! Dirty Political Tricks! Racism! It's World News!

  • In "Really?  Why?" news, Admiral Mike Mullin said that in order for US troops to remain in Iraq as advisors beyond the year-end deadline for withdraw, they would require legal immunity.  Iraqi officials have, so far, rejected the idea.
  • TEPCO has reported that, as of yesterday, Geiger counters have registered their highest possible reading at the crippled Fukushima nuclear reactors.  The readings exceed 10 sieverts per hour, a level described as "fatal to humans".  To quote a not-particularly-comforting statement from Al Jazeera's reporter Aela Callan, "Authorities are working on the theory that it has come from those initial hydrogen explosions that we've seen at the plant in the days after the earthquake and tsunami.  It is now looking more likely that this area has been this radioactive since the earthquake and tsunami but no one realized until now."[1]
  • Speaking at a summer camp for the pro-Kremlin youth group Nashi, Prime Minister Vladimir Putin described the current US budget in harsh terms:  "They are living beyond their means and shifting a part of the weight of their problems to the world economy.  They are living like parasites off the global economy and their monopoly of the dollar."
United States
  • The Department of Health and Human Services issued a mandate adding most forms of preventative care services for women to the list of services that must be covered by insurance companies without a co-pay, under the Patient Protection and Affordable Care Act.  The additions go into effect beginning in August 2012.
  • The compromise debt bill passed the House of Representatives last night, despite whining and complaining[2] from both sides of the aisle.  It is scheduled to be voted on in the Senate at noon today and, if proposed, should be signed into law "shortly thereafter".
  • In "Pinto redux" news, Ford has recalled 1.2 million F-series pick-up trucks out of concern that road salt can corrode the straps holding the fuel tanks to the vehicle, allowing them to fall off and start fires.  All of the trucks, which are probably beloved of director Michael Bay, were built between 1997 and 2004.
  • In "genuinely amazing typo" news, Americans for Prosperity Wisconsin sent what can only be described as falsified mailers to registered Democrats in two Republican-held districts going through recall votes.  The mailers encourage the recipients to fill out an absentee ballot application and mail it in by August 11 (two days after the election in those districts) to an address that is owned by Wisconsin Family Action (another conservative group).  AFP Wisconsin director Matt Seaholm insists the date was a typo, that the group is not trying to mislead voters, and makes no comment about the incorrect address.[3]
  • In "terrifyingly and deliberately out of context" news, WBBM Chicago has been slammed by journalist and civil rights leaders for taking an African-American 4-year-old boy's statement out of context.  The video clip shows a freelance photographer working for WBBM asking the boy about a shooting in his neighborhood.  The boy stated "I'm not scared of nothing."  The photographer then asks "When you get older are you going to stay away from all these guns?"  The boy says "no" and the clip ends.  Sounds pretty horrible, right?  But the unaired portion of the clip then shows the photographer ask "You are?  Why do you want to do that?", to which the boy replies "I'm going to be the police!", putting an entirely different spin on the situation.[4]
[1]  I feel better now.  Don't you?
[2]  "Waaaah!  It doesn't do everything I want, and it does do things they want!  Waaaah!  Do not want!"
[3]  Presumably another typo.  Right?  What other possible explanation could there be?
[4]  A spin that lacks certain... implications.

Personal Income and Outlays

Join me now as I attempt to pull my attention away from the nailbiting race to default (15 hours, 30 minutes and counting) and look at something else that affects the economy.  In this case, Personal Income and Outlays.
This is a report that tells you exactly what it is - an examination of the change in individual income and spending, as well as an examination of one of many measures of inflation (the Personal Consumption Expenditures price index).  Why does the market pay attention to this report?  Well - and stop me if you've heard something like this before - personal outlays represent some 30% to 35% of GDP on average.  So, if consumer spending is increasing, it's a sign that GDP will improve.  And after the terrible Q1 final GDP figure, and the disappointing Q2 advance figures, we could use a sign that GDP will improve.
The May results were mixed.  Personal income rose 0.3%, but consumer spending was flat and the core PCE price index rose 0.3% as well.  Looking to June (and yes, this is a lagging indicator), the Econoday-surveyed analysts are expecting another month of mixed results.  They're calling for a 0.2% increase in personal income, a 0.1% increase in consumer spending, and a 0.1% increase in the core PCE price index.
It is probably no surprise that we turn to the Bureau of Economic Analysis for the actual results.  And those results are disappointing.  Personal income rose only 0.1%, missing expectations, with disposable personal income[1] rising 0.1% as well.  Personal consumption expenditures - also known as consumer spending - decreased 0.2% (also missing expectations).  On the other hand, the core PCE price index rose 0.1% - exactly in line with expectations.
Of course, it's really not a good sign when the only thing that doesn't miss expectations is inflation.
[1] Defined as "personal income less taxes".

Monday, August 1, 2011

World News! The "We May Not Hit The Debt Ceiling" Edition!

  • The EU and the IMF have begun their first review of Portugal's bailout, which will examine Portugal's efforts to meet the terms of the rescue package agreed to in May, and determine whether the next tranche of funds for that bailout will be released.
  • In "happy Ramadan" news, tanks are shelling the city of Hama for a second day, attempting to crush protests against Brutal Dictator (or, as he likes to say, "President") al-Assad.
United States
  • We have a (tentative) debt ceiling deal!  The plan, which still has to pass both the House and the Senate by tomorrow, plans to cut about $2.5 trillion from the budget deficit over the next 10 years.  This figure is, of course, about $1.5 trillion shy of the minimum amount the credit rating agencies wanted to see to guarantee that our sovereign debt rating wouldn't be cut.
  • If you're curious about the debt ceiling deal, Reuters has a summary.  The details include:
    • The President can raise the debt ceiling (by up to $2.4 trillion, according to the BBC) in three steps, and Congress cannot block the first two increases without a supermajority in both the House and Senate.
    • There will be roughly $2.4 trillion in spending cuts over the next 10 years, with $917 billion being approved when the deal passes and another $1.5 trillion being approved by the end of the year.
    • The first group of spending cuts would apply to discretionary programs that congress approves annually, and those programs would be capped each year for 10 years.  Roughly $350 billion would come from defense and other security spending, which currently accounts for more than half of all discretionary spending.
    • Automatic spending cuts will kick in if Congress does not observe the caps in coming years.
    • A 12-member congressional committee, 6 Democrats and 6 Republicans, will be created to locate the other $1.5 trillion in spending cuts.  They must complete their work by November 23, and the recommendations must be voted on by December 23.  If they cannot agree, automatic spending cuts will kick in.
    • The House and the Senate must vote on - but not necessarily pass - a balanced budget amendment to the Constitution.
  • Al Jazeera has an illuminating - and somewhat creepy - article about the "American Taliban".
  • It turns out that Apple has more operating cash on hand than the United States government, by $2.4 billion.  Think about that.
  • A rare - and completely intact - fossil thalattosaur skeleton has been found in the Tongass National Forest in Alaska.
  • US carmakers have agreed to new fuel efficiency standards proposed by the White House, standards that call for the average miles per gallon of cars and light trucks sold in the us to increase to 54.5 mpg by 2025.