Paper Money - A US Real Estate Bubble Blog

Follow The Leader: Index of Leading Economic Indicators November 2008

Posted: 18 Dec 2008 09:56 AM CST

Today's results of the Conference Board's Leading Economic Indicators continue to indicate troubled times ahead declining 0.4% from October and declining 3.70% compared to November 2007, leaving the index at 99.0.

It's important to note that a year-over-year decline greater than 1.5% has ONLY preceded EVERY recession that has occurred in the last 59 years so the 11 consecutive and significant year-over-year declines strongly suggests that overall the components of the index are indicating that recession is upon us.

Unemployment Mashup – MA vs. RI November 2008

Posted: 18 Dec 2008 09:46 AM CST

As I had noted in my prior posts, historically it has been very unusual for there to be more than a 1.5% difference (either more or less) between the unemployment rates if Massachusetts and Rhode Island.

Lately though, we are seeing a historically unusual spread between Rhode Island's high and accelerating rate and Massachusetts' far lower but rising rate.

In fact, the current 3.7% spread now significantly exceeds all spreads seen in at least 40 years.
This indicates that either Rhode Island's current rate would need to fall dramatically or the Massachusetts rate would need to increase sharply…. My sense, especially in light of the financial turmoil seen since September, is that Mass will be the one playing catch-up.

Today's state and regional unemployment report shows that, in November, the Rhode Island unemployment rate rose again to 9.6% while the Massachusetts rate jumped to 5.9%.

In November, Massachusetts experienced the largest year-over-year gain since the recessionary environment that followed the tech-led dot-com bust forcing the spread between Rhode Island and Mass to shrink slightly for the first time, to 3.7%, indicating that Mass may finally have reached a point of explosive unemployment growth that will ensue over the next several months.

Mid-Cycle Meltdown?: Jobless Claims December 18 2008

Posted: 18 Dec 2008 09:29 AM CST

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted "initial" unemployment claims declined 21,000 to 554,000 from last week's revised 575,000 claims while "continued" claims declined 47,000 resulting in an "insured" unemployment rate of 3.3%.

It's very important to understand that today's report continues to reflect employment weakness that is strongly consistent with past severe recessionary episodes and that this signal is now so strong and sustained that a significant contraction in the economy is fundamentally certain.

Historically, unemployment claims both "initial" and "continued" (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

I have added a chart to the lineup which shows "population adjusted" continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit but as you can see, the pattern is still indicating that recession has arrived.

The following chart (click for larger version) shows "initial" and "continued" claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.

NOTE: The charts below plot a "monthly" average NOT a 4 week moving average so the latest monthly results should be considered preliminary until the complete monthly results are settled by the fourth week of each following month.

As you can see, acceleration to claims generally precedes recessions.

Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).

In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a "flattening" period of employment and subsequently followed by even further declines to unemployment as growth accelerated.

This flattening period demarks the "mid-cycle slowdown" where for various reasons growth has generally slowed but then resumed with even stronger growth.

Until recently, one could make the case that we were again experiencing simply a mid-cycle slowdown but now that now those hopes are long gone.

Adding a little more data shows that in the early 2000s we experienced a period of economic growth unlike the past several post-recession periods.

Look at the following chart (click for larger version) showing "initial" and "continued" unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.

The most notable feature of the post-"dot com" recession era that is, unlike other recent post-recession eras, job growth has been very weak, not succeeding to reach trend growth as had minimally accomplished in the past.

Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.

It is now completely clear that the potential "mid-cycle" slowdown that appeared to be shaping up recently, had been traded for a less severe downturn in the aftermath of the "dot-com" recession, and now has we have fully entered, instead, a mid-cycle meltdown.