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Economic Background Charts

Charts are updated when the data become available.
The Treasury yield and exchange-rate charts are updated at about 2:30pm Pacific Time (UCT-08:00) every weekday.   Treasury data are only available with a one-business-day lag.   The bank closure chart is updated when announced on Friday evenings.

Click on any chart to see a version of it with higher-contrast colors:

      Where are we in this recovery, and what can we expect going forward?

      To answer, we examine some key economic variables' behavior during recent recoveries. We can see patterns that are common across the recoveries, and we can see the magnitude of the current one compared to the others. Finally, we can get an impression of how far along we are toward a normal growth cycle.
      Economists agree that new unemployment insurance claims, reflecting the number of layoffs, starts improving (falling) before there's a noticeable rise in the GDP. The reduced layoffs are still layoffs, of course, so people are losing their jobs, but when the rate is declining they both presage and accelerate the overall rise in the economy.
      More generally, the Philadelphia Federal Reserve keeps a Leading Economic Index (LEI) which is a compilation of new claims and other leading indicators.
      Actual total payroll employment starts to rise sometime after the GDP starts to rise. Employers who just had to go through layoffs are not eager to re-hire until they're certain that the new workers are needed.
      These charts have been normalized; the data has been scaled so that different recoveries are easy to compare as a percentage change from the start of the downturn.

A comparison of economic variables during the recoveries that followed the five deepest recessions since 1950:

      I couldn't find data for the unemployment claims or LEI for the '58 recovery, but I've included it in those charts' legends so the four charts will be easy to compare.
      Here we see new unemployment claims, LEI, GDP, and total employment for the same five recoveries on the same time scale. The claims number is the four-week average of the seasonally adjusted claims. Claims data are refreshed every Thursday morning. LEI is updated monthly. GDP is quarterly with monthly announcements first of 'preliminary,' then 'adjusted,' then 'final' values. Employment data is released monthly.

Note how this 8-year comparison catches the way the end of the 2001 recovery stalls and becomes the start of the 2007 recession.

Longsplice Investments: Initial Claims

Longsplice Investments: Philadelphia FRB Leading Economic Indicator

Longsplice Investments: Recovery GDP

Longsplice Investments: Recovery Employment

      The recent recession was the deepest of the five in every aspect, and the recovery time looks likely to become the longest.
      GDP has been steadily improving, while the new unemployment claims and total employment slowly improved as well.
      Note that the previous longest recession ended in November. 2001 and featured what we then called the "Jobless Recovery," long and sloooooooow. Further, in the 2001 recession the GDP barely slipped at all, as recessions go, but the Employment was still badly hurt four years later.

      Overall the present data is encouraging, and becoming more so. Still, we could benefit from more stimulus spending. The obstruction in Congress that prevents fiscal stimulus is not helping. Fortunately the layoffs of state and local government employees has tapered off. GDP won't rise faster if the employment picture doesn't get better.
      On the one hand, the number of new jobs added is already comparable to the number added after the 2001 recession. On the other hand, the rate of adding jobs (slope of the line) is slow, comparable to the 'jobless' post-2001 recovery and much less than the rate of the prior three recoveries.

      The low level and rate of GDP growth is certainly disappointing now, but they carry some hope for an accelerating recovery. The rate of growth has not yet reached the average rate of growth since the 1950s. That implies that speeding up will likely not cause inflation or supply constraints. Related to that, note that if GDP had continued growing (thus no recession) then the GDP would be following that average line. Currently we are far below that. Hypothetically, we could grow faster than average, until we get back up to that average line, without inflation trouble.

      Just as employment is a lagging indicator, so is unemployment. Even though-- in fact sometimes especially because-- it lags, unemployment can be an interesting number to watch. It has been pretty steadily improving.
      U-3 is the technical name for the official unemployment percentage. It counts the fraction of the population which is unemployed but is actively looking for a job.

Longsplice Investments: U-3 unemployment

      U-6 is less often reported in the media. This counts all the unemployed people in the U-3 tally, plus those who are working part time but would prefer to be working full time, plus those who "have become discouraged", i.e., those who can see that there's no work there to make a job search worth the trouble. This is the broadest measure of unemployment, and it is quite a bit higher than the headline number.
      U-6 arguably gives the best picture of the potential workers who don't have earnings to spend, and are thus a part of aggregate consumer demand (purchasing power) which is missing now compared to the last period of full employment.
      The U-6 data has only been gathered since 1994, so it only catches two full recessions and the tail of the one before that.

Longsplice Investments: U-6 unemployment

      As implied above, one way to view unemployment is the missing consumer spending power compared to a fully healthy economy. Recently the BLS has measured and published the aggregate weekly payroll earnings of all employees. This is basically the same as the aggregate spending power of all working consumers. It appears to be a good concurrent indicator, and has the benefit of being available with less of a lag than the GDP estimates.
      Good news: it is rising steadily, and is well above the levels of the end of the recession. Sadly, since this stat is new, the data is only available for this most recent recession and current recovery. I've put it in the same format as the recession-comparison charts above so that the time scale will be the same. I'll keep looking for an alternate source for the data for the prior recessions.

Longsplice Investments: Total Payroll Earnings

      Recoveries, like recessions, are self-reinforcing (positive feedback). More workers means more consumers with more money. More consumer spending means need for more new workers, who will once again have money to spare. And so it goes.

Data come from the US Department of Commerce Bureau of Labor Statistics (Employment, Unemployment, Payroll) and Bureau of Economic Analysis (GDP), Federal Reserve Bank of Philadelphia (LEI), and the US Department of Labor Employment and Training Administration (Claims).

      You might well think this is an old irrelevant topic, but no. There is still a lot of stress at the working-class end of the economy-- the base of our pyramid-- and the companies that serve them. Six banks have failed in the first half of 2015. Five were small, one was medium-size. Two more were closed in October 2015, one small and one tiny.

Update: It's not over 'til it's over. In 2016 there were small bank failures in Wisconsin, Tennessee, Pennsylvania, Georgia, and Arkansas.

Two more banks have been closed in January 2017, in New Jersey and Illinois, for a total cost to the FDIC of about $80 million, and a little one in March. In late April a big bank was closed, costing the FDIC fund just short of a billion dollars, and pushing the total since the crash above $90 billion. Another failed in early May for another $100 million.

Longsplice Investments: FDIC Bank Closures

      The big jump in total cost in July 2008 was from Indy Mac. The rate of new failures and the total cost of those failures is leveling off. Let's hope that lasts. There were no FDIC bank closures in 2005 or 2006.

Longsplice Investments: Yield Curve

Longsplice Investments: Dollar vs. Major Currencies

The inflation charts are updated monthly, near mid-month, after the BLS announces new data.

      These charts show US Urban Consumer Price Inflation (CPI-U), the most commonly used measure of inflation.  CPI-U is known as "Headline" inflation, while CPI-U excluding Food & Energy (xF&E, thus CPI-U xF&E), is called "Core" inflation.

      Food & Energy are excluded because they are volatile, meaning that those prices change a lot while the prices of most other consumer goods change much more slowly.  They are volatile, but the volatility does not always average to zero over just a few years..  After the recession-induced huge drop in energy costs in the past year, the Food & Energy component average is very near zero.  Over the four prior years, though, Food and Energy prices were rising on average nearly 1% year-to-year.  During that period it made no sense to simply omit that completely from Core, effectively treating the Food and Energy inflation as if it was zero;   it would have been smarter to compensate for the volatility by smoothing (running average) the price changes.

Longsplice Investments: CPI-U Effect of Rising Food & Energy

      Here CPI-U, CPI-U xF&E, and Food & Energy are the same as above.  In addition, there is a smoothed curve of Food & Energy, and a new total of Core inflation plus smoothed Food & Energy.

Longsplice Investments: CPI-U with Smoothed Food & Energy

      Longsplice Investments charts may be reproduced and redistributed in any print or electronic form provided that each chart is unmodified and "www.LongspliceInvest.com" on each chart is legible.  Use on any medium that supports hypertext links (for example, the web) must include a link to "www.LongspliceInvest.com".

Some useful charts from other sites:

Courtesy of GoForex:

Courtesy of Doug Short, DShort.com:
DShort Four Bad Bears

This document last modified Friday, 19-May-2017 17:36:56 EDT

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