Around the Globe Weekend Edition October 12-13


Number of the Week: Housing Affordability Hits Four-Year Low – Real Time Economics – WSJ.

Housing Affordbability Index


After we resolve the debt “crisis,” the country must face more economic headwinds.  Unless the labor market improves, consumer demand will remain weak.  Or is it unless consumer demand improves, the labor market will remain weak?  No one seems to know anything except to keep the magic money machine running:

Fed Balance Sheet vs. SP500 10.2013


China’s September exports in surprise slump.

China’s September export growth in surprise slide | Reuters.

China Exports Unexpectedly Drop – Bloomberg.

China’s Exports Unexpectedly Shrink –

China Exports Through Sept 2013

When the mainstream media writes that it is “surprised” by data,  what it is really saying is that the data is not conforming to its narrative.  China experienced an economic slowdown in the Spring as officials attempted to tighten the money supply in response to frothy conditions.  Sometime in June, they realized that this policy was crushing industrial output so they printed some yuan and injected it into the banking system.  The growth in money supply seemed to do its job with exports rising for two months straight, so the mainstream media declared China to be recovering and moved onto the next crisis.  Meanwhile, China is learning that the marginal gains in economic growth from additional credit creation are rapidly shrinking spurring officials to plot their next move.

From Thursday’s Edition:

U.S. retailers’ sales rise in September, but shoppers stay cautious | Reuters.

September Retail Sales Were Tepid –

US Retail Sales YoY

US retail sales grew at a sluggish pace in September.  Considering the health of the labor market, these results are unsurprising and do not bode well for the future.  Retail sales have seemingly turned over and are growing at the slowest pace since the beginning of the recovery.  You can see for yourself what happened the last two times the retail sales pace slowed on the chart above.

From Wednesday’s Edition:

Puerto Rico Yields Above Venezuela’s in Worst Rout: Muni Credit – Bloomberg.

U.S. Treasury Said to Have No Puerto Rico Assistance Plan – Bloomberg.

MUB 10.09.2013

The Puerto Rican debt crisis is similar in form to the Eurocrisis. Ultralow rates have induced Puerto Rico to issue too much debt rather than cutting back on expenses. Furthermore, the dollar is too strong a currency for Puerto Rico, which renders the commonwealth noncompetitive on world markets.   You can say the same thing about Greece, Italy, Spain, Cyprus or even France.  There is no way to bail out a state or territory if it gets into trouble, which is similar to the relationship between the Eurozone countries and the ECB.  Saving Puerto Rico would require an act of Congress, and that does not seem likely at the present juncture.

From Tuesday’s Edition:

Japan Current-Account Surplus Plunges to Record August Low – Bloomberg.

Japan has suffered from the effects of a strong yen for over a decade.  This strength has spurred Japan, Inc. to offshore more factories over the years.  The truth is that there is not a large Japanese export sector anymore.  Exports have been range bound since the end of the Great Recession:

Japanese Exports

Meanwhile, lower export levels together with decreasing income from foreign investments have pushed the Japanese current account to historical lows.  Note the downward trend:

Japanese Current Account Balance

Japan is set to join the ranks of debtor nations in 2014.  Good luck selling 10 year bonds with sub-1% yields when that happens.


From Monday’s Edition:

Workers Stay Put, Curbing Jobs Engine –

The writer has created a false argument here.  Basically, he is telling the reader that the labor market is sending out mixed signals.  Jobless claims are hitting post-recession lows amid stable job creation in the economy, but people are not leaving their present jobs for better opportunities.

Actually, the data is quite consistent and points to a weak jobs that will remain so indefinitely.  Let’s examine the data.  First, note that low unemployment claims merely indicate that people have stopped being fired.  This is an important indicator foretelling the end of a recession, but not as useful once it does.  Also, check for yourself what happens after unemployment claims bottom out as highlighted in red:

Four Week Average Initial Claims through 09.27.2013

Next, the United States must create 200,000 jobs a month just to employ all of the new workers joining the workforce every month.  As you can see, post-recession job creation performance has been abysmal with the red line on top indicating healthy growth and the red line on the bottom showing where we really are:

Nonfarm Payrolls Through August 2013

Not enough jobs are being created and those that are are of very low quality:

2103 Full vs. Part Time Jobs

The fact that workers are not moving around is consistent with all of other labor market data:

Historical Data Chart

Job vacancies are about a fifth to a third lower than the last two recoveries.  There is simply less opportunity available in the new normal.


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