Today's U.S. Economic Data

February 26, 2009

New jobless claims are a gauge of the layoff rate and therefore a leading indicator of future consumer spending and GDP growth.  What took almost five months for the layoff rate to climb about 100K from 440K on average in the four weeks to September 6th to 543K on average in the four weeks to January 24th was replicated within just four weeks as such advanced by a further 96K to 639K per week over the four weeks to February 21st.  The trend remains upward, printing at 667K last week. Normalizing historic levels to the current bigger-sized U.S. labor market, new claims would need to increase nearly 300K additionally to reach the peak in the 1981-2 recession, which was associated with an eventual post-world war high unemployment rate of 10.8%.  The difference between then and now is not as wide as that fact suggests, however, because of greater under-employment (working fewer hours than desired, working for less pay than before, self-employment and no longer searching for work).  Including these technicalities, joblessness is probably already in double digits.

Durable goods orders and the core subset of non-defense orders excluding aircraft each fell over 5.0% and more than twice as sharply as expected in January.  Total orders dropped around 43% at an annualized rate in the three months between October and January.  When private consumption turns lower, business spending declines much more sharply, and firms scale back labor resources, too.

The monthly levels of existing and new home sales were each 6.5% lower than anticipated.  New home sales, out today, dropped 10.2% between December and January and by 48% from a year earlier.  Existing home sales fell by 5.3% on month and 8.6% on year.  The housing market — prices, sales, and construction — must stabilize before one can begin to contemplate an end to this crisis and the shape of the ensuing business cycle upswing.  Until there is such stability, policymakers will be responding to a moving target, and what was an adequate reaction yesterday will be not quite so adequate today and insufficient by tomorrow.  Just as a bottom in the U.S. housing market is a necessary condition for ending the U.S. recession, a bottom in the U.S. economy must occur for other parts of the global economy to recover, too.  Furthermore, before recovery can commence anywhere, the rate of economic decline has to stop accelerating and then stop altogether. Markets often anticipate real economic upturns but by months, not years, and investors will want to sense structural, not just cyclical, progress.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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