Mixed Up Numbers

We have had a number of economic statistics this week all of which seem to be muddied by the weather or unusual trends that make it difficult to tell what’s going on.

For the last few Thursdays I have been warning you not to take the weekly new claims for unemployment assistance data too seriously. Unfortunately last week I allowed myself to slip a bit and make the nutty suggestion that the drop to 383,000 was unlikely to be reversed. It was. Oh well such is life in the fast lane. This week’s 410,000 demonstrates the bumpiness of the claims data and sent everyone scurrying for explanations. The best most folks could come up with was to resort, once again, to the bad weather and slow reporting from outlying parts of the country. That may well have something to do with it. Looking at the data over the last two months, it has ranged all over the lot, and while a downward trend seems to be there, it has ben swamped regularly.

So I have decided to adopt a simpler approach.

The jobs market continues to suck.

This view is supported by the almost total absence of new job generation. New job addition to payrolls has averaged 83,000 in recent months which, while better than nothing, is derisory. At that rate our unemployment problem will persist for a decade. That is intolerable and unbelievably damaging to the nation’s long term health. The longer we fail to come to grips with unemployment the more our national skills inventory erodes, the greater the social costs we suffer, and the spill over effects into things like consumption, real estate sales, savings and so on pile up.

Not that you could tell we have an unemployment problem by listening to the debates in Washington. There debt hysteria has taken such hold we no longer have serious economic policy, we have something more akin to a teenage mania. Policy makers have taken leave of their senses and are now somewhere disconnected from the rest of us talking amongst themselves about a problem they created a long time ago as if it were brand new.

Accountability, honesty, and responsibility are not in abundant evidence in Congress at the best of times. Now they are on the endangered species list. A list, by the way, that will no longer be kept once the Republicans cut the budget for it. The idea seems to be that when everyone is stupid no one stands out as being so.

Meanwhile back in the real world: last month’s inflation figures have also been released and provide ammunition for everyone. The inflation panic crowd will look at the headline 0.4% as being quite a jump and probably a portent of things to come. They will, no doubt, bang the austerity and higher interest rate drum even more stridently. The rest of us, being the cool calm folks we are, will look past the headline figure and focus on the fact that food and fuel prices drove a good part of the increase. We will look at the “core” number, which was a more benign 0.2%, and argue that inflation is not an imminent threat. Looking at the last year inflation is not a problem by either measure. While the core rate rose at e very low 1.0%, the more volatile total rate only rose 1.6% despite the energy component rising by 7.3%. Since the Fed has a target of around 2.0% that last twelve months suggests we have ample room to maintain an eased approach. Of course that’s not very easy since we have been bumping along the bottom for a while now with no latitude except for the much maligned quantitative easing that the hawks, in their frenzy, want to reverse.

One last comment on inflation: in a separate report the government announced that average hourly wages fell at a 0.1% rate in January. This means that for the past twelve months wages have risen a paltry 0.2%. For comparison – not that I am trying to make a point – corporate profits rose by over 26% during the twelve months ended last September. Hmmm.

One last muddled view: manufacturing.

The much touted Philadelphia Fed index of activity in its district hit a seven year high in recent weeks. that’s the good news. On the down side is the national report on manufacturing output that slid 0.1% in January. This latter figure was something of a shock since the consensus view was that manufacturing is in rude health and was expected to register a 0.4% gain. The surprise sent the analysts resorting to the bad weather explanation. This time they may have a better case. For instance utility output has swung about wildly lately as bad weather ramped up demand, December’s usage was very high, so when January settled back a bit towards normal levels it dragged output down. Looking inside the numbers tells me that manufacturing is still growing and that the January data was distorted a little. As one example: output of business equipment grew 0.9% in January, not very different from the 1.0% in December. And surveys of factory managers tell the same story: higher demand and growing activity.

So what do we make of all this confusion?

Basically that the economy is growing, but that it isn’t generating jobs. Of course we knew that already.

Oh, and Congress doesn’t care. It has gone off chasing ghosts.