Monday, December 21, 2009

Obama is about to become more popular. Then less

Since I've been throwing around predictions as freely as Joe Lieberman has been throwing around positions on health care legislation, here's one more. Obama's popularity ratings in recent polls has been around 48-49%. I predict he gets about a 5 point bump if health care reform passes both houses and he signs it into law. This will last about 15 minutes, then Obama's popularity will resume its downward slide, into the mid 40s, or perhaps even the low 40s. From there I'm not sure yet. I have him in the low to mid 40s in say mid-February, the next move in his popularity will depend on: (1) the strength of my predicted Obama Boom; and (2) how much credit Obama gets for the coming recovery in the job market. I'm not sure about how much credit he'll get for that, I'll have to think about it.

Sunday, December 20, 2009

Projected unemployment rates going forward.

I decided to predict job growth and thus unemployment rates going forward as the Obama Boom gains steam. The results were incredibly disappointing.

June 2010: 9.5%

December 2010: 8.7%

June 2011: 8.2%

December 2011: 7.7%

June 2012: 7.2%

December 2012: 7.1%

In other words, assuming I am right about the predicted Obama Boom, assuming it is of decent strength, and assuming it lasts uninterrupted until at least December 2012, three years, the unemployment rate in December 2012 will be around 7.1%. Although hugely better than the current 10%, 7.1% isn't exactly what we would call a Boom. That's how deep of a hole we are in as a result of 8 years of failed Bush policies, coupled with 8 years of total abdication of oversight responsibilities by Congress, including the last 2 years in which democrats had control of both houses of Congress. Nice work people.

My predictions on the general course of the economy since January 2009 have been good. Let's see if I can continue my recent economic forecasting, and put it to some good use. I am, of course, on record predicting an Obama Boom, starting about now, with job growth beginning before February. In this post, I decided to make some assumptions about the number of jobs created going forward and to crunch some numbers and thereby project the unemployment rate

In this post, I predict what the US unemployment rate is at various points in the future. The unemployment rate is of course a percentage, or a fraction, with the numerator being the number of unemployed people in the country and the denominator being the total work force (employed persons & unemployed persons who wish to work). The denominator does NOT count people not looking for work. So to take a simple example, if 10 people want work, and of the 10 9 are working and 1 is not, the unemployment rate is 10%. Thus in order to predict the unemployment rate, I must predict 2 things; (1) the number of net jobs created per month; and (2) the growth in the labor force. Predicting job growth is very hard, to say the least. Predicting labor force growth is quite easy in normal economic times. Coming out of a recession is the one time it is hard, and coming out of a deep recession it is especially hard.

The number of unemployed people are reduced each month by the number of net new jobs minus the growth in the labor force. That is, growth in the labor force tends to increase the unemployment rate, all other things (namely net job growth) being equal. For the mathematically inclined, number of people currently unemployed - (net new jobs created in December 2009 - growth in labor force in December 2009) = the number of people unemployed at the next report, in January 2010. To find the reported unemployment rate in January 2010, you take that new number of unemployed and divide it by the total labor force in January 2010.

That's how it works. I'm sure there's a simpler way to explain it to all of you, but I can't figure out how in a text format. I'm confident that if someone buys me a drink I can explain it better f2f.

As of December 1, 2009, according to the Bureau of Labor Statistics (the most commonly accepted and most comprehensive source), there are 15.375 million unemployed people, and the Labor Force is 153.9 million. Hence the 10% unemployment rate widely reported in the media. Note that these figures come from the current population survey.

http://www.bls.gov/

According to that survey, there are 138.5 million people working. 15.38 million unemployed + 138.5 million people working = 153.8 million for the total labor force. 15.38 million unemployed divided by 153.8 million total labor force = 10% unemployment. The total labor force does not perfectly equal the number of employed + the number of unemployed (as it should) due to rounding and other minor issues. Nevertheless, these are the numbers used by the bureau of labor statistics and reported on by the press.

According to the other major government employment survey, which attempts to accurately count the number of jobs, there are, as of December 1, 2009, 131 million non farm jobs, almost exactly. When you hear in the news that the economy created/destroyed X number of jobs in a given month, or year, that number is from this second survey. In the past, the number of jobs according to the second payroll survey has increased far faster than the number of jobs in the population survey. Thus the reported unemployment falls noticeably more slowly than the actual improvement which takes place in the job market. This is highly likely to happen in the coming Obama Boom. In any event, don't worry too much about this relatively minor statistical issue. If you read the rest of this post and the media reports in the coming months you'll understand my predictions (and, more importantly, what's going on in the labor market) just fine.


In general, when our economy is weak, growth in the labor force slows or even stops, as many people despair of finding a job, stop looking for work, and thus are no longer counted as part of the labor force (discouraged workers). As the economy recovers, the number of people in the labor force increases faster than usual, as formerly discouraged workers begin to look for work again. This will have a very significant impact on the size of the labor force as the economy recovers in 2010 and 2011. Alan Greenspan estimated recently that the Labor force under normal circumstances grows about 100,000 per month. This figure is consistent with what I have read elsewhere, and I accept it. The labor force did not increase at all in 2008 and 2009 due to the weak economy. Given that the labor force did not increase at all in 2008 or 2009, it thus has 2.4 million fewer workers than it would have if the economy had remained reasonably strong. (24 months (I'm assuming no growth for December 2009) multiplied by 100,000 per month). This is a huge, huge number! As many of these people happily trickle back into the labor force, the reported unemployment rate will drop far more slowly than it otherwise would as strong job growth resumes in 2010 (see my predictions, below). In short, this very unnatural pause in the growth of the labor force means that absent truly spectacular job growth, the reported unemployment rate will stay quite high for years to come.

I am, for simplicity, estimating 1/3 of this 2.4 million people are added back into the labor force each of the next 3 years. That's highly unlikely to happen so precisely, of course. Instead, more will reenter the labor force as time goes on and the economy improves, thus convincing people they can find work. However (a) I can't really make even an educated guess how it would break out; and (b) doing so would mean a lot of extra work for little extra gain in the accuracy of my predictions.

Accordingly, I assume for purposes of this post that the Labor force increases by 2 million per year for each of the next 3 years. This figure covers both the 1.2 million people that would normally be added to the labor force each year, plus the 800,000 per year for each of the next 3 years that are going to return to the labor force due to the stronger economy, as discussed above.

Two million people per year results in an average increase in the labor force of 166,666/month, for the next 3 years. This means that going forward if the economy gains 166,666 jobs in a given month the unemployment rate will stay the same (assuming no statistical fluctuations). If the economy gains 200,000 jobs per month for the entire year of 2010 (a halfway decent total, if a weak number at the start of an expansion), unemployment drops by only 400,000 people, a pathetic, godawful number for an entire YEAR early in a recovery. The unemployment rate would only drop by .4%, from 10% currently to 9.6%!!! Fortunately, I predict that job creation is going to be significantly stronger than 200,000 per month.

Note that I further assume that for the month of December 2009, there is no growth in the labor force and zero net jobs created. This assumption is merely for convenience.


Predicting how many jobs will be added per month, is of course very difficult. I could end up being way, way off. In addition, I predict a fairly smooth path to recovery. This is in fact unlikely to happen. Month to month, or even quarter-to-quarter, events are highly likely to unfold quite differently from how I predict. But over 6 month or year-long periods, my predictions may fairly be judged, as longer periods of time smooth out random fluctuations in both the economy and the federal statistics.

Here are my predictions, for all the world to see, and marvel at down the road:

January-June 2010: 275,000 jobs created per month.

Unemployment rate projection for June 2010: 9.5% (with 154.877 million people in the Labor Force and 14.73 million people still unemployed!) Since I don't expect as many people to rejoin the labor force earlier in the Obama Boom as I do later on, my REAL prediction for unemployment for June 2010 is 9.4%.

I note that this is an exceptionally daring prediction, FAR more optimistic than nearly every private forecaster. My reasons for being so optimistic about this time period are:

1) More of the federal stimulus money will be being spent;

2) Businesses cut far more jobs in 2009 that was justified by the drop in output/orders. I call these "panic job cuts." These will, I predict, begin to be quickly reversed, as corporate America already realizes that the risk of a second Great Depression has been more or less eliminated and will soon realize that the Obama Boom has begun.

3) Rock bottom interest rates have had even longer to work their way through the economy;

4) A boatload of temporary workers, more than 500,000, will be hired for the census, mostly during this time period;

5) I think that the jobs survey is currently underestimating the number of jobs being created, thus my 250,000 per month estimate is less of an increase over what is currently going on that is apparent;

6) I expect the serious problem of banks being unwilling to loan money to the small business sector, probably the number 1 headwind the economy faces, to begin to be solved towards the end of this 6 month period

7) I expect mortgage and car loans to get slightly easier (less hard) to get during this time period;

July-December 2010: 355,000 jobs created per month (!)

Unemployment rate projection for December 2010: 8.7% (with 155.877 million people in the Labor Force and 13.6 million still unemployed!)

Now the job machine has really turned on. This is also a daring prediction. Basically, I'm predicting a very strong recovery in 2010, with GDP growth probably above 4% and very possibly above 5%. This is of course in line with my other various posts predicting an Obama Boom, but is WAY WAY off of the consensus economic forecast of the people with the ultra fancy degrees and years of experience. Well, pardon my immodesty, but barring some huge external event, like a new big war, or oil going back over $150 a barrel and staying there, I'm RIGHT and the fancy PHDs that make good money trying to predict the economy are WRONG. What makes this fun, of course, is that time will answer this question. At the end of 2010, I'll either be right, plenty close enough to declare victory or, if the economy is much weaker than I expect, just dead wrong. And it'll be clear to all that read my blog and all those I talk to.

January -June 2011: 300,000 jobs created per month.

Unemployment rate prediction for June 2011: 8.2% (with 156.877 million people in the Labor force and 12.8 million people still unemployed.

I expect at least a mild slowdown from the previous 6 months because temporary census workers will be laid off starting late in 2010, the stimulus' effect will have largely been felt. On the other hand, by this time it will be crystal clear to all that the recovery is very real, and business investment and consumer spending could both propel upwards rather quickly.

I should add that trying to predict minor fluctuations a year out is, well, impossible. Predicting the macro trend of the economy is incredibly difficult, predicting minor changes within that trend is well-nigh impossible.

July-December 2011 255,000 jobs created per month.

Unemployment rate prediction for December 2011: 7.7% (with 157.877 million people in the Labor force and 12.27 million people still unemployed.

I expect monetary policy to tighten (interest rates increasing and the fed rapidly slowing the growth of the money supply and ending various extraordinary programs) beginning in about July 2010 and picking up speed through the end of 2010. The strong effects of these changes should begin to be felt in the July - December 2011 time frame.

January-June 2012 295,000 jobs created per month. The economy rebounds from a slight slowdown the previous 6 months, just in time to ensure Obama's reelection.


Unemployment rate prediction for June 2012: 7.2% (with 158.877 million people in the Labor force and 11.5 million people still unemployed.

This number is crucially important to Obama's reelection chances. If I'm way too optimistic here, and the actual unemployment number is over say 8.5%, he's in trouble. Over 9% he's toast. If, however, I'm right, and the unemployment rate is fairly close to 7.2%, and has been dropping for a long term, I think he'll win by more than 10 points.

July-December 2012 200,000 jobs created per month


Unemployment rate prediction for December 2012: 7.1% (with 159.877 million people in the Labor force and 11.3 million people still unemployed.

The economic hole we are in is SO DEEP that even after 3 years of pretty damn good growth in the number of jobs in America, the unemployment rate will still be 7.1%, a figure well above the average for the any decade since the 1930s. This is really not good.

Its of course possible that I'm not being optimistic enough. However, even a REALLY strong Obama Boom would still only bring the unemployment rate in December 2012 down to around 6%, still not full employment.

A final word of caution: Needless to say, my predictions after say June 2010 are merely guesses. But I have to make them in order to even take a stab at projecting/predicting the national unemployment rate in the future. And you wonder why economic forecasts are so very unreliable? The actual results are unlikely to be this smooth. But if I'm pretty close on each of these I will have done a spectacular job at predicting the recovery of the shattered job market. Conversely, if I'm way off, well I'll join the crowd.

Wednesday, December 16, 2009

Time listens to me

Time has named Ben Bernanke person of the year, just as I advocated. Glad someone out there is doing as flyingpinkunicorns suggests. Now if only congress and the president would listen to me, we'd all be much better off!

Tuesday, December 15, 2009

Ben Bernanke should be Time's person of the year

I call on Time to make Ben Bernanke the 2009 person of the year. Its not even close. Sorry Barack. More so than even Geithner, he has led a hugely aggressive, hugely creative and hugely successful effort to save the US and world economies from a second Great Depression, a fate which looked altogether too likely when 2009 began. This famous scholar of the Great Depression was and is bound and determined not to let another depression happen on his watch, and he has succeeded beyond almost everyones expectations, though not mine. As 2010 begins, the economy has, at a minimum, even if I'm WRONG on all of my predictions, clearly avoided a Great Depression, where unemployment rises well above 15%, perhaps even 20%, and mass bread lines form. And with a different less aggressive and determined Federal Reserve Chairman, that could have been our fate.

And, of course, as my loyal readers know, I believe that the economy is poised to begin a spectacular multi-year boom, which I have labelled the Obama Boom (because that is how the public will perceive it) although it really should be called the Bernanke boom. And with private debt considerably lower than before the Great Recession began in 2008, we are beginning 2010 on a sounder footing for a sustainable recovery than at any time in a great many years, probably since before the Vietnam buildup in 1966! Bernanke is in no small part the one man to thank for this wonderful scenario, and that's why he's my runaway choice for person of the year. In fact, if I were to pick person of the decade he would be a serious contender, and probably my pick, (Bin Ladin? W?) despite being only a minor player on the world stage until he succeeded Greenspan in 2006. Here's to W's one positive lasting legacy! When you sip champagne at 12:00 a.m. on 1/1/10, spare a thought for Ben the Great!

Saturday, December 12, 2009

I'm going to donate $100 to Sarah Palin if I'm wrong.

EDIT 12-14-09: I have decided that the terms of my promise were too lenient-- I will donate $100 to good old Sarah unless the economy creates at least 75,000 jobs in at least one of December, January 2010 or February 2010. The only caveat is that this wager may not be settled until the final revisions for these months come in, in the middle of 2010. I actually think that we may be well over 100,000/month by February, and I may win this little wager very easily.

The job market is going exactly as I predicted. If the economy doesn't add jobs in a month before March 2010 (that is, in at least one of December 2009, January 2010 or February 2010), I will donate $100 to Sarah Palin's PAC (absent, god forbid, some huge calamity that interrupts the normal ebb and flow of the economy).

http://www.sarahpac.com/

As I DESPISE Sarah Palin passionately, this will HURT! But I need to demonstrate to all of you how sure I am that not only is the recession well and truly over, but that we will have a strong recovery, that will have job growth and that that will happen beginning VERY soon! I recently predicted that the economy would begin gaining jobs in about February 2010. Looks like I wasn't optimistic enough!

Oh, and if there's only one positive month, and its just BARELY positive, that will be a cheap win, and I'll STILL donate the $100!

All of the political discourse these days is about how Obama's poll ratings are falling (they are), health care reform is mildly unpopular (it is), and the job market, though less bad, is still absolutely awful (it is). This last point, as I've been telling you for months, is about to change. Too bad it won't be in time to help Obama pull the mediocre health care reform effort over the finish line.

Its amazing that the conventional wisdom is so slow to adjust to events that are reasonably clear. The conventional wisdom is still that the job market may get worse through at least the first half of 2010 and in any event won't improve much. Well, either I'm right and the conventional wisdom is wrong, or Sarah Palin's getting $100 from yours truly.

Recent economic reports have been strong. Consumer confidence (according to the University of Michigan survey, highly regarded in this area) rose to 79.1, from 68.8. In March 2008, as the recession had just begun and Lehman Bros was still worth billions, it was 84.2. Consumer confidence is at a number which indicates a soft economy, but NOT one in recession. Consumer confidence, and perceptions, are catching up to reality. The recession is of course well and truly over and GDP is expanding quickly.

I don't have the time right now to do the research to compile an estimate of 4th quarter GDP (the 4th quarter does end on December 31), but the growth will be strong, at least 3%, and don't be shocked if its up over 4%. Inventories at businesses are up, which is usually BAD for growth, but right now indicates rapidly increasing business confidence (rapidly increasing from the sub-basement that is).

The early news on holiday sales is reasonably good. In fact, retail sales jumped 1.3% in November, a stunningly good number, if it were free from sizable distortions. It isn't, but its still a solid number, indicating strong growth in the overall economy, and of a piece with the improved consumer confidence numbers.

Between improving consumer confidence, downright decent retail sales, the fallen dollar (which has already helped exports), and fairly good import/export reports, businesses are rapidly becoming convinced that they need to stop shedding employees, and need to consider starting to add employees.

Stay tuned. In an upcoming post I'll make some predictions about how many jobs will be created on average every 6 months, and working from that will make an educated prediction on the unemployment rate over the next few years.

Monday, December 07, 2009

Obama will dedicate leftover monies from the bailout to deficit reduction and job creation

As you may have heard, the Treasury Department has announced that it now expects to recover a lot more of the money it lent out to banks and other financial institutions in the various bailouts than was previously announced. In fact, as of this moment, the Treasury expect to MAKE A SMALL PROFIT from the money lent to the banks.

www.nytimes.com/2009/12/07/business/07/tarp.htmp?_r=18&hp

In short, the bank bailouts worked, and worked spectacularly well, at saving the banking system, as I have been saying. Bernanke/Geithner/Paulson are, at least as of now, heroes for their post September 2008 actions. (Their role pre September 2008 is, happily, beyond the scope of this post).

There is a large amount of money currently available to the Treasury Department for additional bailouts. I don't know how much, as this amount hasn't been released, but it is likely over $100 billion, possibly way over. The huge majority of this money is very unlikely to be needed for additional bailouts. I therefore predict that Obama and Congress will soon agree to dedicate around half of this "found money" to deficit reduction, in order to sound concerned about the deficit/high levels of spending, and around half to a new stimulus package, labelled a job creation program. Its a political win-win, and reasonable economically. This new job creation package will likely focus on construction spending. This could happen quickly, perhaps even as soon as Obama's speech on the economy tomorrow night.

Folks, the bailouts worked, the economy is recovering, the economy is on the verge of creating new jobs, and a new road/highway/bridge/tunnel building program is about to begin (which program is perfectly reasonable, given the decrepit state of our nation's infrastructure). My predicted Obama Boom will be clear to all in a few short months. If you have money you're thinking about investing, for heaven's sake, MOVE. Stocks and houses will both be more expensive in a few months than they are now, stocks much more so. Buy now, before the market realizes that the Obama Boom has begun!

Thursday, December 03, 2009

The job market has already improved


The news on the labor market, and thus the overall economic recovery, is even better than I thought. The job market is only slightly ahead of where I expected it to be on its road to recovery, and is significantly further along than nearly anyone expected. I remain extremely optimistic about the coming Obama Boom, far FAR more optimistic than nearly every economic forecaster and talking head.

Here are two articles about the November employment report, released yesterday.

http://money.cnn.com/2009/12/04/news/economy/jobs_november/index.htm



http://www.nytimes.com/2009/12/05/business/economy/05jobs.html?_r=1&hpw

In November, the economy lost 11,000 jobs. (I note that this number is seasonally adjusted. This means that, for example, the economy ALWAYS gains a lot of jobs in November as retailers gear up for the Christmas shopping season. The 11,000 number is derived after the seasonal effect of increased November hiring is stripped out). Given that there are 130 million jobs in the US, 11,000 is a tiny, number, statistically. Basically, there was no net job loss in November. We always speak of NET job gain or job loss, because many tens of thousands of jobs are gained and lost in every month; jobs are created in the deepest of recessions, and lost in the strongest of booms. That churning always takes place. What matters from the perspective of the entire economy is the net of those numbers. And in November, the net was about zero, and the closest it has been to zero since late 2007.

The media focused on the unemployment rate dropping by 2 tenths of a percent. While this was surprising indeed, in my opinion the important number is the number of net new jobs, not the unemployment rate, which is, in my view, a more flawed statistic, for a variety of reasons that I'll explain by e-mail if someone asks.

Since the labor force grows by 130,000 per month, or thereabouts (immigration, more people turning 18-23 than are retiring) the economy needs to gain about that many jobs each month just for the unemployment rate to stay even. So if the economy loses 11,000 jobs and the unemployment rate drops, you have a statistical anomaly. The statistics are flawed enough that this sort of anomaly is well within the normal range of statistical background noise.

Back to the actual employment report. As the New York Times article above put it, the jobs report is the strongest since the recession began in late 2007. Since 11,000 jobs were LOST, least bad since late 2007 is a better way of putting it.

There were, however, significant positive indicators in last month's employment report. First, the number of jobs lost in September and October were both revised down, by a total of 159,000. In and of itself this is good news. The fact that both revisions were in the same direction is even more significant.

Second, the average work week increased from a record low of 33 hours in October to 33.2. This is highly significant, because in many cases businesses can work their existing employees harder before hiring new people. That number, still extremely low, is at least on the rise. In addition, increased hours means, in many cases, increased income, which means increased consumer spending. One month's increase in the average hourly work week is not very significant, but if this becomes a trend, it becomes highly significant, both because employers will be forced to hire more employees, and because of the aforementioned increase in consumer spending.

Third, the number of temporary workers increased by 52,000, the most in five years. In many cases, businesses hire temporary workers when they first need additional labor, and later, as conditions for their business continue to improve, they add permanent workers. The number of temporary workers is the proverbial canary in the mine-- temporary workers are, almost by definition, the first to be fired in a downturn and the first to be hired in an upturn. The 52,000 number is itself somewhat significant, but the trend, if it continues, is hugely significant.

In summary, this was a significantly less bad report than any in the last 24 months, and it gave tantalizing hints of possibly GOOD employment reports to come, starting soon. It is encouraging for my predictions of a very strong economic recovery.

What does this report mean going forward?

The first rule of interpreting government statistics (after being skeptical in general) is that one month does not a trend make. That must be kept in mind. It wouldn't surprise me overmuch if December and January's reports were less positive/more negative. You need at least 2 months, and preferably more, before you can begin drawing conclusions.

However, the other news I have seen recently gives me no reason to believe that the underlying labor market has become significantly less bad, and will continue to improve in the next few months and beyond. I have had absolutely no reason to question my great optimism about the vigor of the coming Obama Boom.

First, Challenger has reported that the number of job cuts slowed in November to the lowest rate in two years.

http://money.cnn.com/2009/12/02/news/economy/job_cuts/index.htm

This is consistent both with the November employment report (released two days later) and with what I have expected to see and am now seeing. Businesses have cut so very many workers that they are about done cutting headcount, unless demand (the overall economy) takes a sharp turn for the worse. Businesses, in my opinion, have already cut enough workers given the current demand for the goods & services. As that demand picks up, the number of new jobs created (not net new jobs, just new jobs) should increase sharply from the current low levels. This, of course, leads to the creation of net new jobs in the event that the numbers increase above job cuts.

Second, new filings for unemployment claims have also fallen recently, though to still fairly high levels. This number (correlating strongly with the number of jobs destroyed due to falling demand) dovetails with the above-mentioned Challenger report. Simply put, businesses are firing a lot fewer people, since they have already laid off so many due to the decline in demand. As soon as businesses realize that they need significantly more workers, which I still predict will occur this Winter, probably in February, the number of net new jobs should turn (and stay) positive. This will not be a jobless recovery. To borrow a phrase, net new jobs, and lots of them, are right around the corner.