2004 Democratic Primary

[Swing low, sweet chariot. Comin' for to carry me home.]

To ALL (especially newcomers to this thread),

This thread is designed to provide a time sequence of economic activity as we head toward Nov 2004.  To that purpose, I try to list the same set of economic reports each month in order to be able to track a given report over a number of months, thus comparing apples to apples.  These lists are displayed on the opening post of this thread, which I keep updated.  The listed reports include leading, concurrent, and trailing indicators.

I also add new posts giving links to reports AS THEY COME OUT...meaning, if I miss a report because I wasn’t visiting the forum on a given day, then it means I will NOT be posting a link for that report.  

I very rarely post news that is more than a day old.  As a matter of fact, I don’t believe I have ever posted a link to a news item that was older than the previous day.  If they are not on cnnfn.com’s front page, I simply do not have the time to go searching for them.

BUT…even though I may miss posting a link to a report, I ALWAYS GO BACK AND BACK FILL the opening thread in order to avoid gaps in coverage.

There is other info (stock market, inflation, etc) that I do NOT list because they are either too volatile (stocks) or are not in dispute (inflation at 40 year low).

---

And from time to time, I will also give my opinion to the real meaning of a report.  For instance, the 8.2% Q3 GDP growth was headlined as “Consumer spending gives Q3 big boost”, but you had to dig a little deeper to find that business spending increased at TWICE the rate of consumer spending.  And for over a year consumer spending has held up the economy and economists have been waiting for business spending to rebound.  That is exactly what began to happen to business spending in Q2 (+7.3%) and accelerated in Q3 (+14%), and it should come as no surprise that job growth soon followed.  Business spending is the key to job growth and the revival of business spending was the headline, IMO.

---

I also give my opinion as to which leading indices to watch, which is why the ECRI – US Weekly Leading Index is the first item on the opening post.  Not only does this index have the BEST track record of predicting recessions and recoveries, it is also about as close as you can get to watching economic activity in real-time.

Whereas the Q3 (July-Sept) GDP report didn’t come out until Oct 30th, the ECRI index as flashing a 20-year high in late July, TWO WHOLE MONTHS before the GDP report came out confirming the 20-year high.

 

[Swing low, sweet chariot. Comin' for to carry me home.]

Weekly Leading Index Rises  

NEW YORK, Nov 26 (Reuters) - A leading index of the U.S. economy climbed higher in the latest week, suggesting the torrid pace of recovery will not moderate significantly any time soon, a report showed on Wednesday.

The Economic Cycle Research Institute, an independent forecasting group, said its leading index rose to 131.6 in the week ended Nov. 21, compared with a downwardly revised reading of 130.7 for the previous week. The leading index is composed of seven major indicators, all of which showed improvement except for stock prices.

The index's growth rate, an annualized rate for the four-week moving average that evens out weekly fluctuations, grew to 12.0 percent from 11.0 percent in the previous week.

"This index is saying we know there's going to be some moderation, but maybe we have to moderate our expectations for that moderation," said ECRI managing director Lakshman Achuthan.

http://businesscycle.com/showstory.php?storyID=599

 

[JNB]

 Mr Fresh, it is one thing to parrot what the Wall Street Journal prints, it is quite another to get into the details on why the eocnomy is acting the way it is. THis "recovery" is unlike the previous recoveries that came after the 73-74 reccesion, the 82 reccesion and the 91 recession. All of these recoveries started with savings rates around 10%, P/Es on the stock markets in the high single digits, and they were marked by a peak in intrest rates. This "recovery" is opposite. The 2001 reccesion was marked by intrest rates going lower, not peaking, it was marked by auto sales going higher, not lower, and real estate that continued at a artificlaly strong pace due to artifically low intresrt rates, another contrast to the previous recessions.

  The fiscal stimulus given to the economy by artificlaly low intrest rates that sparked a record amount of re finance activity, the $400 a child "tax rebate" and sky high debt levels has resulted in the good numbers that we see today. The question is, is this sustainable. While nothing is ever a perfect repeat, history being used as a guide says its not.

[Filuwaúrdjan]

Jefferson was a member of the Democratic-Republican party which is usually regarded as an ancestor of the Democratic Party which was founded by Andrew Jackson.

[Swing low, sweet chariot. Comin' for to carry me home.]

<<This "recovery" is unlike the previous recoveries...[x, y, and z] has resulted in the good numbers that we see today.  The question is, is this sustainable. While nothing is ever a perfect repeat, history being used as a guide says its not.>>

First you say that this recovery is unlike previous recoveries...then you try to use history as a guide to say it can't last?  Don't you see any contradiction between the two statements?

Possible contradictions aside, can you please give us your predictions on GDP and Unemployment through Nov 2004.  Once Nov 2004 rolls around, we'll be able to use the "history" of your predictions in order to determine if your economic analysis is worth listening to in the future.

[JNB]

 No contradictions at all, this recovery does not resmble the previous recoveries that ushered in periods of healthy growth, as I went over the differences in my post.

  As for how this will impact the election next year, the economy I believe will slow down next year, but not enough to go into a recession, but back to the slower pace of growth seen in 2002 as the consumers will no longer be able to get anything more out of re-fi their homes. So that said, I do not believe the economy will be bad enough to impact the re election prospects of Bush.

  Even if the economy is a little worse than expected, as 1972 has shown, one does not need a good economy to be re elected, and if the Democratic primary becomes a circular firing squad and Dean gets the nomination, Bush could win a 40 state re election.

[M]

Absolutely true. Its the Dems who have forgotten this. His ideals of listening to the democratic will of the people above all and the dignity of man are now espoused by- prepare yourself- the Neocons!

[Michael Z]

Absolutely true. Its the Dems who have forgotten this. His ideals of listening to the democratic will of the people above all and the dignity of man are now espoused by- prepare yourself- the Neocons!

Instead of arrogantly claiming that something just "is", perhaps you wish to evaluate exactly how and why this is the case?

[agcatter]

If the Dems nominate Dean then game over before it even really gets started.  No way this country elects Howard Dean after what happened 9-11.  I have no idea what the Democrats think they're doing.

[Swing low, sweet chariot. Comin' for to carry me home.]

<<the economy I believe will slow down next year, but not enough to go into a recession, but back to the slower pace of growth seen in 2002>>

GDP growth average 2.5% in 2002.  So are you putting yourself on record stating 2004's growth will be in the 2.5% ballpark?

---

<<No contradictions at all, this recovery does not resmble the previous recoveries that ushered in periods of healthy growth, as I went over the differences in my post.>>

It also doesn't represent any recoveries that have failed, either.

The recession was the mildest recession on record (which is why consumer spending never faltered) and followed the longest expansion on record....both the mildness of the recession and the length of the 90's boom were unprecedent in "history", yet both occurred.  

This recovery also has:
--the highest productivity growth in 50 years
--the lowest interest rates (which are set by the market and therefore are hardly "artificially" low) in 40 years
--the lowest inflation in 35 years
--the highest GDP growth in 20 years

That combination was NOT present in 75, 83, or 92....so in many aspects, the US economy is in a better situation.

US corporations are also extremely healthy and recording record profits...that was certainly NOT the case in 75, 83, or 92.

[M]

Wait a sec- I didn't use the word is one time in that post. Is this like the Knights who say Nee? Oh! I said is. Oh! I said is Again!

The reason why it is is that most Neocons are in fact former liberals, who broke w/ the party following Vietnam and the Dems abandonment of patriotism and the ideals of the expansion of democracy, a-la Wilson.

[JNB]

   A few things. For one, corporate profits are still below where they were even in 97,  as for productivity, the numbers reflect more a combination of hedonistic accounting methods put in place at the BLS during the Clinton admin and a runaway expansion of the M3 money supply. As for intrest rates, they are set on the short term end by the FED and on the long term end, the 10 year bond yeild that determines the rate for long term bond has been about 1% lower than it should have been because of Japanese central bank intervention, buying US tresuries non stop in a efforts to prevent the yen from getting strong against the dollar.

  As for inflation, inflation is another metric that was changed by the BLS during the Clinton admin, but for basic needs such as housing and medical care, inflation is though the roof.

   Lastly do you want to know why the recession was so mild, because of the artificlaly low intrest rates that enabled many homeowners to re-fi their homes up to 3 times in the last 3 years, this was also certainly a factor not present in the last recession. Again, put down the WSJ, turn off Larry Kudlow and learn about fundamental economics, not spin. The debt burden corporation now experience in relation to their assets is far higher now than it was when the recove4ries from the previous 3 recessions began.

  Like I said, I am not anti Bush, nor do I blame Bush for most of the current economic problems, but I can not tolerate spin that is all glitz and no substance that parrots rags like the WSJ, a rag that is just as biased as the other rag, the NYT is. If one wants to get a better picture of economics, read the Financial Times and the Econiomist, both UK publications.

[Swing low, sweet chariot. Comin' for to carry me home.]

<<corporate profits are still below where they were even in 97>>

Of course, you failed to mention that 1997 was the peak for corporate profits for the last business cycle.  We're only two years into this recovery, so a better comparison is 1993.

---

<<as for productivity, the numbers reflect more a combination of hedonistic accounting methods put in place at the BLS during the Clinton admin and a runaway expansion of the M3 money supply.>>

This is easy to debunk....Q3 GDP increased by 8.2% (annualized), yet the number of workers increased only 0.2% (annualized) and the number of hours worked was roughly flat.

So, how does a 0.2% increase in workers working a constant number of hours produce 8.2% more goods and services?  

Let's do a little math...8.2% increase in product - 0.2% increase in effort = 8.0% increase in productivity.  

And what was the official productivity number for Q3?...8.1%, compared to my quick calculation of 8.0%.

It doesn't take a genius to figure at that when you have roughly the same number of workers working roughly the same number of hours, any increase in production is due to increased productivity!

---

<<As for interest rates, they are set on the short term end by the FED and on the long term end, the 10 year bond yield that determines the rate for long term bond has been about 1% lower than it should have been because of Japanese central bank intervention>>

Yes, the Fed Reserve does set overnight lending rates, BUT you have to be a BANK in order to barrow from the Fed Reserve!

For businesses and individuals, rates are set on the open market and maturity terms range from 3 months to 10 years....So, for anyone other than banks, short term and long term rates are set on the open market...just as I said.

---

<<the rate for long term bond has been about 1% lower than it should have been because of Japanese central bank intervention, buying US tresuries non stop in a efforts to prevent the yen from getting strong against the dollar.>>

You have it backwards!  You're right that strong demand (buying) for US treasuries decreases US interest rates.  But a drop in US interest rates makes the dollar LESS VALUABLE (and the yen more valuable) because those holding dollars get less of a return on their dollar denominations compared to other denominations.

Therefore, if the Japs wanted to prevent the yen from getting strong against the dollar, they would want to raise US rates in comparison with Japanese rates, thus offering better return for US denominated assets.

Finally, the exchange markets are far too big for central banks to impact the rate of exchange.  Central bank intervention is just a way to communicate policy direction.

---

<<As for inflation, inflation is another metric that was changed by the BLS during the Clinton admin, but for basic needs such as housing and medical care, inflation is though the roof.>>

Housing:  More Americans own homes than ever before because low interest rates makes buying a house MORE affordable, even though the price of homes are increase at 10%!  Also, housing starts are increasing at a 18 year high because more and more American can AFFORD buying a home.

Medical care:  Yes the costs are going through the roof, and without those increases, the US would probably have a NEGATIVE rate of inflation.

---

<<The debt burden corporation now experience in relation to their assets is far higher now than it was when the recove4ries from the previous 3 recessions began.>>

If you read a little deeper, you'd know that the Business Debt-Service Burden (Net Interest/Pre-Tax Profits) is MUCH lower today than it was in '83 or '91 (I don't have figures for '74.)  So the coverage of interest payments by profits is now much higher than at any time in the 80's or early 90's.

---

<<Again, put down the WSJ, turn off Larry Kudlow and learn about fundamental economics, not spin.>>

Are you now trying to pass yourself off as being physic?!  If so, I wouldn't quit your day job.  LOL!

Is 2.5% your prediction on 2004 GDP?  Also, what is your reading on 2003Q4 and the unemployment rate in Nov 2004?

My predictions are for 2003Q4-2004Q3 GDP growth to average >4% and the unemployment rate to be in the area of 5.3%-5.7% in Nov 2004 with 2.5M-4.5M jobs created between now and then.

[NorthernDog]

I just read Al Gore's screed printed in USA TOday by Moveon.Org and he seems to have moved to the left (even more than 2000).  If Dean is nominated he will support him to ingratiate himself with Dean's supporters.  When Dean loses Gore will try to capture his supporters for his run in 2008.

[Filuwaúrdjan]

Jefferson was never a member of the GOP so don't say he was.

[JNB]

 Jmc and Mr Fresh, again, look in greater detail not the spin. As for debt service burden figures, where do you get your figures. Companies like GM and IBM have looming problems with their pension plans that they didnt have in the early 90s. As for real estate, thanks to Clinton era changes that dramaticlaly increased the size and scope of GSE such as FNM and FRE, more people who have questionable credit quality own homes, and that has the potential to be a time bomb.

  As for productivity numbers, look at them in relation to the runaway growth the M3 money supply has had untill late August of this year. Much of the productivity gains is due more to runaway M3 money supply growth than anything in the real world, along with the "adjustments" the BLS made in the 90s.

   As for Japanese central bank, what I say stands, the BOJ intervention to prevent the dollar from sinking against the Yen involved buying tresuries, and the BOJ holdings of US tresuries increased by about $200 billion in the last two years, and that does not even inclue the amount of tresuries BOJ proxies such as the Japanese Postal Pension system has done. Again, Japanese, Chinese and to a lessor extent other Asian countries buying of tresuries have pushed intrest rates to a artificlaly low level in order to keep their currecnies depressed against the dollar(in Chinas case, to maintain the Yuans peg to the dollar).  As the US federal budget gap will remain large in the next few years combined with the massive trade gap, there is going to be a far larger supply of 10 year bonds, and a bigger supply means higher yeilds.

  In any event, somthing will give, will it be by Nov 04, probably not, but the US can not maintain the trade deficits and expect intrest rates to remain low and the dollars value not to sink any further.

  As for the bond market, the shorter term instruments are indeed set by the FED.  The 3 months and one year and even 2 year debt insturments are very much so set by the FED, as the FEDs overnight rate is the benchmart that influences short term debt insturments.

  In any event, mo matter where you get your information, though again it seems much like the "information" one would read in t he WSJ, it is not all peaches and cream out there, the economy has moved soley because of the stimulus given to it by tax cuts/rebates and more importantly to the consumer, the massive number of home re-fis. As home re-fis have wound down, and as next year the consumer will not have nearly as impressive as a $400 a child "tax rebate", again I restate, the consumer will be harder pressed to maintain their pace of spending. As for business spending,  reading teh most recent Beige book, it confirmed what I have read elsewhere, a large amount of the business spending is related to the financial and construction indutsry, and they have largely driven the economy.

[JNB]

 Lastly, the real estate prices have risen far in excess of inflation, and even the median monthly payments have risen in excess of inflation despite the fact that intrest rates have sunk in the last 3 years, historically this is not sustainable. Also, along with FNM and FRE enabling very high risk consumers to buy homes, it looks very much so like intrest rates on home loans have bottomed out, so one of the prime drivers of the real estate bubble, and one has to look at it as a bubble is slowly being taken away.

  Like I said, I dont have a crystal ball, I just have the past as a guide, and unlike you, I see many warning signs, you derride it as gloom and doom, I take the authentic conservative view and I prefer honestly and reality. The way the economy has sustained itself in the last 3 years is not sustainable long term. A combination of the stimulus given by the FED loweing its rates 13 times, the long term rates going down(casuing real estate to accelerate its activity and a record shattering re-fi boom) and a record increase of govrenmnet spending, 2 rounds of large tax cuts can not sustain itself forever. Consumers need to increase their amount of savings, large corporations such as GM and IBM need to get more financially solvent considering their looming pension problems, the trade gap needs to narrow dramatically over the long term. The dramatica increase in the M3 money supply has made the numbers seem far better than they would have bene otherwise, but that spigot is slowly drawing to a close.  

  Will the day of that all of this has to be dealt with come before Nov 2004, probably not, but the fact that this recovery does not have any of the factors that previous recoveries had, and I repeat, intrest rates going lower, DOW stocks haveing a low P/E, personal savings rates around 10%, real estate coming off a period of slow or even no growth below inflation and so on, is cause for concern.

[Beet]

Given the U.S. annual inflation rate of 2%, the 1% federal funds rate actually represents a negative real interest rate. This is the same situation as existed in the late 1970s and for a brief period I believe in 1992-93. Anyone care to explain this?

[Swing low, sweet chariot. Comin' for to carry me home.]

 Like I said, I dont have a crystal ball

In other words, you're so much of a coward, you can't even give us your gloom and doom predictions because you know they would testify against you in a matter of months...LOL!

All you want to do is stand on the sidelines and toss genades by trying to spread your fear and self-doubt to others.

"Whoever watches the wind will not plant; whoever looks at the clouds will not reap. " (Ecclesiastes 11:4)

...so it is with you.

---

I will not debate with you any longer until you find  enough courage to give us your predictions.

[JNB]

 If you did not notice, I said I expect 2004 economic numbers to resemble 2002 numbers, slow growth, once the dual stimulus of tax rebates and the home re-fis run their course. That is my prediction, and if you did not notice that a few replays ago, then that is your problem. During things like calling me a coward and throwing in the LOLs is your porblem, not mine.

[Swing low, sweet chariot. Comin' for to carry me home.]

Yes, you did say "2002" but mentioned no numbers.  That's why I wanted confirmation of 2.5% so that there is no confusion.

So, just for the record, are you saying that 2004 GDP growth will be in the ballpark of 2.5%, just like it was in 2002?

Also, what is your prediction for the current quarter (2003Q4); and unemployment and numbers of jobs created leading into the election.

Here are my numbers, why don't you just counter and give your opposing numbers?

GDP 2003Q4-2004Q3:  >4% (average)
Unemployment rate Nov 2004:  5.3-5.7%
Job Growth next 12 months:  2.5-4.5M

[JNB]

 My guess, around 2% growth in 2004, job growth 500K to 1 million, unemployment rate 5.8%-6.3%. I have no idea where you come up with job growth figures of up to 4.5 million, not even in the late 90s was job growth that good, not even in the mid 60s when the economy was at its peak in all areas that job growth adjusted for todays numbers was that good.

  There are hopes then there is cold hard reality. Cold hard reality is rooted in facts and history, hopes are based on the best case scenario and peoples dreams. For you numbers to become fact, the re-fi boom needs to be maintained, the intresr rates on long term bonds needs to go down, because as I mentioned on a couple of my posts, much of the business spending is related to housing activity, either on the construction or financial end.

[Ryan]

I just read Al Gore's screed printed in USA TOday by Moveon.Org and he seems to have moved to the left (even more than 2000).  If Dean is nominated he will support him to ingratiate himself with Dean's supporters.  When Dean loses Gore will try to capture his supporters for his run in 2008.

To live up to his self appointed elder statesman role he would have to be front and center in supporting the candidate whoever it is.

[Swing low, sweet chariot. Comin' for to carry me home.]

My guess, around 2% growth in 2004, job growth 500K to 1 million, unemployment rate 5.8%-6.3%.

I see you bought yourself some time by not giving us your opinion on 2003Q4...LOL!

Anyway, here's the comparison of the predictions:

                                                   jmfcst           jnb
GDP Growth 2004                         ---            2.0%
GDP Growth 2003Q4-2004Q3    >4.0%         ---
Job Growth 2004 (?)                     ---           0.5-1.0M
Job Growth 11/03-election        2.5-4.5M       ---
UnEmp 2004 (?)                            ---           5.8-6.3%
UnEmp Election Day                  5.3-5.7%       ----

[JNB]

 Must this be a competition? As for the post a few posts back that quotes a bible verse, I myself prefer His Holiness Pope Leo XIII encyclical on economics called Rerum Novarm.