The mainstream media is very excited about today’s jobs numbers even though they are about 12% behind where at this point in the last recovery indicated by the red circle above. Initial claims declined 9,000 to 323,000 while ADP claims that 176,000 jobs were added in August. Bloomberg tells us that, “Fewer Americans than forecast filed applications for unemployment benefits last week, indicating the labor market is improving.” The WSJ issues similar “analysis:”
The dual reports point to a steadily improving labor market ahead of Friday’s much-anticipated nonfarm employment report for August and a Sept. 17-18 policy meeting of the Federal Reserve.
For the last year, the cheerleaders have been telling us that the labor market is improving, and, paradoxically, it has yet to improve. Labor demand continues to be tepid, so incomes are still 8% off their peaks from 2007. What is most telling is that productivity rose 2.5% in the second quarter, but incomes remained flat. As long as demand for labor remains weak, there will be no income increases leading to more of the New Normal. When discussing the labor market, this is the only chart that matters:
Here is some more cheerleading, or perhaps just wishful thinking, from the WSJ:
Car dealers had a very good August. That may signal the U.S. economy is finally getting dealt a better hand.
Read the headline above. During the last two recoveries, increasing auto sales were an indicator that the U.S. economy was indeed “shifting gear.” This post-recession period is different from the others, but the mainstream media continues to follow the old script despite the fact that the totality of the evidence points to more of the same: modest growth between 1% and 2% that does little to alleviate the reduction of incomes since 2007.
The rising stock market does not reflect the country’s economic strength, but rather inflation caused by the Fed’s money printing, and the same dynamic has made the housing market appear healthy due to the very same easy money. The auto market is not indicative of strength presaging the economy “shifting gears.” Rather, it’s the money printing, as we covered yesterday in Around the Globe 09.04.2013 :
- A record 84.5 percent of people acquiring cars in the second quarter financed the deals with loans or leases, Experian said on Tuesday. That is up from 79.7 percent in 2008.
- The shifts came as average credit scores for new car loans from all lenders fell for the fourth consecutive year.
- U.S. banks made 36 percent of their car loans to subprime borrowers in the second quarter, up from 34 percent a year earlier, according to data from Experian.
- On nearly 20 percent of new car loans, lenders take the additional risks of allowing borrowers six to seven years to repay.
- Total U.S. outstanding auto loans rose to nearly $751 billion, up 10 percent from a year earlier.
Jobs numbers improved, auto sales surged and PMIs for both services and manufacturing rose last month. If you concentrate on just those figures, which are endlessly hyped in the media, you must conclude that American GDP growth is strengthening. The big picture still shows more of the same, the New Normal. Consumer confidence fell in August, and this number has not remotely approached its 2007 peak as illustrated in the chart above.
New factory orders also sank 2.6%, which is in line with shrinking business investment. As usual, some numbers show growth while others point to a looming recession. While I do not believe that a recession is in the cards, neither is a strengthening economy.
Earlier in the year, we covered the funny numbers emanating from the Tesoro in Spain in this post:
I predicted the 2013 budget deficit for Spain of 8% with the potential for 10%. The naysayers told me that I was crazy, so let’s check in with our amigos in Spain and see if they will be able to meet this year’s 6.5% target.
Spain has a deficit of €45bn throughout the first seven months of 2013. Those numbers yield a €6.4bn per month deficit spending pace leading to a deficit of at least €77bn. This number is 7.7% of the Spanish GDP of approximately €1tr. It does not include arrears to suppliers and provincial governments, or any other trick.
At the present rate of deficit spending, Spain should cross the 100% debt to GDP ratio sometime in early 2014 just like we said in February. I hate to say I told you so…