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This is an update to a post I did several years ago.

September 23, 2011
An Employment Trend that Has Not Failed





In hindsight, it has not been easy.

The following chart shows the natural log of financial activities employment divided by manufacturing employment. When using logs, constant exponential growth is seen as a straight line.


Click to enlarge.

This trend is in serious danger of failing. We're at the very bottom of the channel again. We last saw this heading into the dotcom bust. Before that we were heading into several recessions in the late 1970s. We also saw it as we were putting a man on the moon in 1969. Have we colonized the moon yet thanks to our ever growing prosperity? Or are we planning to put that off a few more years?

Do not lose hope. When Mr. FIRE Economy was asked about his recent under-performance relative to manufacturing (relative to the long-term trend) he exclaimed, "Give me recession or give me death!" To which Mr. Manufacturing Economy laughed with great hubris, "Don't be silly! Our new and improved Fed has permanently put an end to all recessions! It's common knowledge. Everyone knows it. It really is different this time!"

In all seriousness, note that the ratio tends to rise most during recessions as manufacturing employment plummets more than financial activities employment. Being at the very bottom of the channel therefore puts us in "great" position for another legendary rise in the ratio. If the trend holds over the long-term (think fully automated manufacturing employment), then it is only a matter of time.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the natural log of annual change in the CPI less food and energy. When using logs, exponential growth (or in this case, decay) is seen as a straight line.


Click to enlarge.

No matter how hard the Fed tries, it cannot seem to break through the top of the decaying trend channel. So what's the latest tactic? Taper! Good luck on that. Maybe it works. Maybe it doesn't.

As seen in the following chart, the Fed has had substantially more "success" with energy though. The chart shows the annual change in the CPI for energy (not the natural log).


Click to enlarge.

And when I say "success", I really mean "confidence building" chaos. Note that ZIRP has actually helped to calm things down a bit in recent years. Nothing stops chaos like nothing apparently. So here oil is, chugging along at the $100 level looking for forward guidance. Perhaps it wants to believe that the global economy is robust, but it just isn't all that sure. Or perhaps that's just me talking as a permabear? (Hint: Oil can't actually believe anything. It's just a liquid. I may be a permabear, but I'm not entirely crazy, lol. Sigh.)

November 22, 2002
Deflation: Making Sure "It" Doesn't Happen Here


You will note that Bernanke did not mention wages or salaries in that paragraph, nor anywhere else in his speech for that matter. Perhaps the Fed's ability to decrease the value of a dollar is at best like a blunt hammer, and not a surgical instrument.

It would also seem that our government is not all that determined to generate higher spending at a level that could guarantee positive inflation (much like Japan since their housing bust in the early 1990s). Perhaps $100 oil, massive debt relative to disposable personal income, and a congressional approval rating of just 12% has something to do with it. Go figure.


That was then, this is now.

I know not with what weapons Great Recession III will be fought, but Great Recession IV will be fought with sticks and stones. Sigh.

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2

The Fed isn't quite sure what threshold it should be using to determine when to raise interest rates. Can't say I blame them. I therefore thought I'd offer some free (deflationary) advice.

Furniture sales and new home sales go hand in hand. Right? So simply raise rates when furniture store sales (as a percentage of disposable personal income) reach "normal" levels again. What could be easier? Transparent. Clean. Consistent.


Click to enlarge.

Let's zoom in on that recent trend in red and try to estimate how long it will take to get back to normal.


Click to enlarge.

The solution is clear. Raise rates just this side of never. Be just like Japan!

See Also:
Trend Line Disclaimer
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the annual change in the 2-year moving average of retail sales (excluding food services). I'm going for a maximum smoothing approach to remove as much noise as possible (while still seeing the underlying trend).


Click to enlarge.

Good luck blaming the slow and steady growth rate decline (since 2012) on this winter's weather.

In May of 2012, I predicted that the next recession would hit on or before October 2014. Eight months to go. I see little reason to alter my opinion. At the rate we're going, it could be close enough for government work anyway. I truly hope I am wrong. Seriously.

If I am right (might not be of course), this is going to be a nasty recession. Why? Many seem to think a recession is impossible during ZIRP and that the Fed has saved us. What a confidence shaking wake-up call that would be.

I am especially amused by the party of 1999. Had we not thrown such a spectacular one (and hoarded for the Y2K bug that was a non-event), the recession may have happened right then and there. Praise be to celebratory can-kicking.

And lastly, rising interest rate environment my @$$.

This is not investment advice. As always, just ugly charts and opinions.

Source Data:
St. Louis Fed: Retail Sales: Total (Excluding Food Services)

The following chart shows annual nonstore retail sales as a fraction of total retail sales (excluding food services).


Click to enlarge.

The growth trend is extrapolated out to 2050. I'm simply showing what the future will look like if the current trend continues. If 10% causes shopping mall pain now (which it clearly does), then what would 20% do in just 17 more years? Or 40% just 17 years after that?

A 4.2% growth rate means that the thing growing doubles every 17 years. In this case, that thing is shopping mall pain.

If you get stung by a bee and every 17 seconds you get stung by twice as many, how many minutes will it take before you realize that you're standing on a bee hive? How's that for optimism?

The following chart shows retail employees as a fraction of all nonfarm employees.


Click to enlarge.

Although there has been recent illusionary relative strength brought on by misplaced faith in the Fed to heal all that ails us, I fully expect the downward trend in red to continue. Further, I do not expect the blue trend line to offer any meaningful support to halt the decline.

February 26, 2013
The Death of the American Mall and the Rebirth of Public Space


Our older less prosperous economy is divesting itself of older less prosperous malls? Shocking.



Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2

The following chart shows the US trade deficit with China divided by the price of crude oil (annualized billions of barrels).


Click to enlarge.

It shows the amount of oil China could buy if they were to use their entire trade surplus with us to do so. That's assuming the price of oil would not be driven even higher in response to increased purchases of course, which is no doubt a bad assumption.

The next chart plots the natural log so that constant exponential growth can be seen as a straight line.


Click to enlarge.

China "sent" us ever increasing amounts of stuff that we want, yet we do not seem to be returning the favor by sending them ever increasing amounts of the stuff that they want (barrels of oil). Note that I used "sent" instead of "sends." The next chart explains why. It shows the annual growth rate of imports from China.


Click to enlarge.

As seen in the chart, the nominal growth rate is just about dead now. The growth rate in the middle of the channel is roughly 0%, which oddly enough is what the Fed feels short-term interest rates should be over an "extended period."

ZIRP-a-Dee-Doo-Dah


For what it is worth, I am not even remotely bullish on China (nor have I been since starting this blog in 2007). I also don't believe that I will ever feel the need to bribe a border guard to let me on the last plane to China. You know, as a desperate attempt to protect my future standard of living and freedoms (Patriot Act notwithstanding). Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2
St. Louis Fed: Custom Chart #3

Click to enlarge.

The line in black shows real net corporate dividends.

The line in blue shows the real trade deficit (same scale).

The red line shows the exponential trend in real dividends from 1947:Q1 to 1987:Q1. Note the exponential trend failure (to the upside).

Will real dividends stay permanently elevated? Will profit margins stay permanently elevated? Can we be assured that the worst is behind us? Can we expect future growth in real dividends to match the growth we've seen since the early 1990s? I wouldn't answer a resounding yes to any of those questions. Call me skeptical, to put it mildly. Instead, I would ask the following question.


Put another way, it really helped the corporate bottom line to transition from "Made in USA" to "Made in ____." Mission accomplished. Now what? Persistently high oil prices (financial meltdowns notwithstanding)? Persistently stagnant wage growth? Persistently high unemployment? Increased rate of US (and/or global) financial meltdowns? In and out of ZIRP from here on out (if ever out)? Even more giant sucking sounds?

February 13, 2014
China auto market growth slows sharply in January



Other than corporate executives wishing to boost the value of their net worth and retire before the @#$% really hit(s) the fan, did anyone in power really think this through?

The Chinese drive more. We drive less out of necessity (as seen in annual vehicle miles traveled per capita that fell apart during the Great Recession and has yet to make any sort of recovery). That's our plan for a more prosperous America? Seriously?

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the annual change in the semiannual average of the producer price index for finished goods.


Click to enlarge.

1. Heckle the Fed for achieving long-term "stable price" certainty?

2. Heckle Jeremy Siegel for warning us that the Fed would raise rates well before 2014?

3. Heckle CNBC for warning us what the taper would do to interest rates?

4. Heckle Shadowstats for misguided hyperinflation theories?

So many many targets! So little time. I may be forced to resort to Sarcastic ZIRP Technology!



File:Minuteman III MIRV path.svg (Fastfission)

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart