Thursday, July 2, 2009

Green Shoots?

Maybe, maybe not.

We have one REALLY BIG green shoot locally: one of the houses across the street finally sold - after nearly a year - and a young couple is moving in. (Oddly, the real estate agent never put up a "sold" sign despite all of the signs - survey stakes and inspections - that it was taken. That is either poor marketing of a successful agent or a serious case of not wanting to anger the sales gods.) The other one keeps getting lookers but no takers.

The other big news was the release of the June unemployment data, which allows us to add the first NEW data point to an infamous graph showing projected quarterly average unemployment rates. Below is an update of the graph I showed last month to correct some major misconceptions about what the economy was doing - and was going to keep doing - before Obama took office.

Click to get a full-size view.

Consistent with the flat trend in new jobless claims, we seem to have a second derivative consistent with zero. That is what the lower of the two pink lines tracks. That is an improvement over the large positive second derivative - indicating an acceleration into a depression - that was the case during the fall of last year before the initial steps were taken by the Fed and the Bush administration (drawing all sorts of grief for Bush and the lame-duck Congress) to turn it around.

Thank God that Bush didn't act like the Hoover wing of his party wanted.

So, is the slope of the "new jobless claims" data zero or negative? Is the break shown by the June unemployment data real or a statistical fluctuation? That we will not know for months, certainly not until we see if there are any significant changes in July once "stimulus" money starts to flow in the new fiscal year. Given all of the delays in getting the Stim Bill passed and then incorporated into state budgets, I didn't expect significant spending by states until well after July 1.

Locally, there are several "shovel ready" highway projects (plans and permits all in place) that are just going out to bid. One is drawing fire from idiots who think it is wasteful to build a particular project earlier than planned just to put people to work. (They must want a 4000 Dow and 15% unemployment.) In addition, most of the jobs that will be shed by local and state government were ended in June as the fiscal year drew to a close. If that sort of action was common nationwide, that may explain part of the bump up in the June job loss data (which had a big chunk from government layoffs) that has thrown the markets into a tizzy today.

This could be a good tizzy. If the Dow gets below 8000 or into the mid 7000s, it may be a great time to put some Roth IRA money into the market early. Even if we have a "stagnant" recovery like I have seen in the past (like the days of stagflation only without the inflation) we should see the GDP pick up. Remember, unemployment is a lagging indicator!

One thing is for sure: the second derivative wasn't negative back in December as the Obama economic transition team had assumed in constructing the blue graph. I wonder what the reaction of the economy would have been in January if they had shown the upper of the two pink lines as the "without" model. Actually, we don't need to wonder. It likely would have been much worse than the March collapse of the stock market as the situation became clearer to investors.

PS -
This new figure has a "credit" on it as well as a minor tweak of the green line described in my earlier article. This is the figure to borrow if you want to include my analysis showing the true starting point Obama had to work with.

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