Thursday, May 26, 2011

Consumption Austerity

MaxedOutMama has a post showing the connection between the amount of oil we use and the employment rate.

This is my attempt to enhance that connection.

First we'll start with the oil supplied.



The data is fairly noisy. Let's try to strip out the seasonal effects using the seasonal adjustment program provided by the Census.



That makes it much easier to see what is going on. We should probably not be encouraged that the seasonally adjusted peak was in September 2010. The economy may now be running on vapor. The data only goes to February 2011 but I seriously doubt that oil rising to $100 has improved the situation.

Now let's add employment to the mix.



Since at least 1981, there has been a very high correlation between oil used and employment. Correlation does not prove causation but I think it stands to reason that when people have jobs they are more likely to drive more (at the very least to commute to work).

Now let's show the data in a slightly different way.



In my opinion, the high price of oil is creating consumption austerity. I certainly have it. I'm less likely to leave the house and visit this country's many restaurants and strip malls when gasoline prices are high and I can't trust my nest egg to hold its value.

I'm told deficits saved the world. We'll just see how that works out long-term. Deficits (and QE2) are also propping up the price of oil. I turned bearish in 2004 based on our country's debt problems. Oil was under $50 per barrel. I'm at least as bearish now as I was then. Go figure.

This is not investment advice. I can't tell you what the price of oil will do in the future. There's a battle being fought between deflation and inflation. Inflation is currently winning but it was also winning in 2008. We know how that worked out.

It might be a good time to bet on continued consumption austerity though. I doubt we make it back to that red median trend line any time soon.


May 17, 2011
Goldman's Hatzius: The Next US Recession 'Is Years Away'

The next recession in the U.S. "is years away," the chief U.S. economist of the financial giant Goldman Sachs said Tuesday.

Just keep in mind the following.

May 12, 2011
Goldman sinks 4 pct on legal fears, downgrades

The deals came up again last month in a blistering, 650-page report on the financial crisis from the Senate's Permanent Subcommittee on Investigations. The report says that Goldman marketed four sets of the bonds to banks and other investors without telling them that the securities were very risky. It said Goldman secretly bet against the investors' positions and deceived the investors about its own positions to shift risk from its balance sheet to theirs.

If they are willing to do that to their own investors, then just imagine what they would be willing to tell the public in general.

Source Data:
EIA: Oil Supplied
St. Louis Fed: Civilian Employment
The X-12-ARIMA Seasonal Adjustment Program

23 comments:

MaxedOutMama said...

Mark-
A) GS traders have DSK ethics.
B) Nice work indeed, and yes, the economy IS running on vapor.

That peak you picked out in Sept 10? That's the second month of wage YoY drops, and that's why I predicted that we would have a very weak first half of 2011, but then we would pick up in the late spring, see another peak, and then lose in 2012. But now it looks like we don't have enough oomph to climb out again - we wiggle around and then slump.

Almost always US recessions start with fractional adjustments that are hard to see in the numbers, but if you look closely enough and calibrate with incomes, you can see it coming.

Stagflationary Mark said...

MOM,

Very few seem to entertain the thought that we could enter a recession with 9% unemployment. I'm not one of them.

If the past decade is any indicator, I think this economy can grant even our wildest dreams. Unfortunately, some might argue that a wild dream is simply a euphemism for nightmare. Sigh.

Almost always US recessions start with fractional adjustments that are hard to see in the numbers, but if you look closely enough and calibrate with incomes, you can see it coming.

November 19, 2007
Los Angeles and Long Beach Trade

Inbound traffic continues to deteriorate. Perhaps it is time to stick a fork in the consumer. I think we're done.

...

Our trade situation is improving (thanks to our dramatically weakened currency and possible recessionary inbound traffic).

I thought I was very pessimistic but hindsight shows that I was actually an optimist! Note how far the bottom fell out.

September 14, 2010
Seasonally Adjusted LA Area Port Traffic

As a side note, the desire to create those seasonally adjusted charts is what originally led me to the Census seasonal adjustment program.

mab said...

Stag,

http://blogs.wsj.com/economics/2011/05/23/nearly-half-of-americans-are-financially-fragile/

Per the above link, 50% of Americans couldn't come up with $2000 within a month.

http://www.businessinsider.com/american-dream-middle-class-2011-5#the-number-of-low-income-jobs-in-the-us-has-risen-steadily-over-the-past-30-years-and-they-now-account-for-41-percent-of-all-jobs-in-the-united-states-3

And according to the above link, 41% of American jobs are low paying jobs.

But dingbats like Jeremy Seigel never CONsider distribution. They only look at the aggregates when the CONclude that a rise in oil prices won't drastically affect the eCONomy. Morons and shills!

Economics is easy - 99.9% common sense. It only becomes difficult when eCONomists try to justify fraud.

Stagflationary Mark said...

mab,

Per the above link, 50% of Americans couldn't come up with $2000 within a month.

Every home owner should understand that $2,000 is nothing. Each year that roof gets one year older. They don't exactly last forever.

Of course, to the best of my knowledge the National Association of Realtors doesn't exactly offer a pamphlet on the long-term expenses of home ownership.

But dingbats like Jeremy Seigel never CONsider distribution. They only look at the aggregates when the CONclude that a rise in oil prices won't drastically affect the eCONomy. Morons and shills!

I felt the need to add emphasis. Go figure.

mab said...

I felt the need to add emphasis. Go figure.

Stag,

The latest piece of eCONomic fiction that bugs me to no end is the one where eCONomists and banksters claim that speculation can't possibly be distorting commodities markets.

What a crock. The speculative market in commodities now dwarfs the end user market. Anytime you let banksters run wild creating credit for non-economic purposes a bubble ensues. The policies of CONtrolled inflation and TBTF exaggerate the problem.

Thanks to the Fed, the tail (Wall St.) is wagging the dog (Main St.).

Stagflationary Mark said...

mab,

It really bugs me too. I hoarded plenty starting in 2004 and it was ultra low interest rates that enticed me to do it.

It is proof that there was at least some speculation. Me! All that is left is to debate the magnitude.

I was just one person out of 6.8 billion. Surely I was not alone. Further, imagine what I could have done with a billion dollars or more of someone else's money. I guarantee you that in 2004 I would have gone ALL in. I was willing to invest a third of my very own money after all. As we all know, the risk goes down considerably if you can bet OTHER people's money!

If you are right, you keep a hefty fee. If you are wrong, hey, it isn't your money. Win win.

mab said...

imagine what I could have done with a billion dollars or more of someone else's money.

Stag,

Here's something to keep in mind. Banks are speculating (through their FICC desks or by extending credit to hedge funds, etc.) with credit that is created out of thin air. It's nobody's money, but thanks to the Fed it largely becomes their money.

Under a gold standard, you couldn't forever create credit without also creating output. Under the Fed's Wall St. bailout standard, no such checks and balance exist.

The Fed's singular mandate exists for a reason - to ensure credit is used for productive purposes.

The Fed chose to ignore their mandate for a reason.
Cui bono?

p.s. Feel free to disagree with me. I'd really like to be convinced that my views are unwarranted.

Stagflationary Mark said...

mab,

The Fed's singular mandate exists for a reason - to ensure credit is used for productive purposes.

What if I mentioned Las Vegas real estate "production"?

No, I think that just makes your point. Never mind.

MaxedOutMama said...

Unfortunately I cannot be much of a contrary voice, except that the Fed has a dual mandate - price stability and maximum employment. I'd say they've handily achieved 100% failure. It's almost Casey Serin-like.

Whenever one thinks about throwing money from helicopters, one always should think first about Casey Serin. It profits the reckless the most while costing the responsible. For a while. Then after a while the reckless lose their shirts and the responsible lose their jobs. How sweet!

Stagflationary Mark said...

MaxedOutMama,

There is no price stability and maximum employment to go bust.

Sorry. I'm just always looking for any excuse to keep sharing that link, lol. Sigh.

MaxedOutMama said...

I do want to take issue about the gold standard.

Reckless granting of credit can always inflate the effective money supply, regardless. For example, there are strict controls on stocks used as collateral for bank loans because of an Earlier Unfortunate Incident. But oil, commodities, gold - whatever - can all be inflated if everyone accepts the collateral and is willing to lend on it, and it can go on almost ad infinitum as long as the buyers don't disappear, because lending is used to buy the speculative asset, and then the asset grows in value, so now each buyer can borrow more -----

Granted, it always ends badly. But for a while.... IMO, it ends when enough people feel rich and decide to spend some of their wealth.

mab said...

Stag,

Operationally, preventing deflation is a no-brainer. That said, I'm still a deflationist. The eCONo-political structure all but assures it.

The current system is CONtrolled by financial parasites that have no skin in the game. Yet their CONtrol over credit effectively gives them COntrol over even those with capital.

To an ever increasing degree, the current system allows for financial looting and welfare to prosper. Productive Gov't spending isn't allowed even though it is desperately needed. We can't have a productive Gov't competing with an extractive private sector!

It's very telling that we keep listening to the same eCONomists and financial crooks that caused the crisis!

p.s., It's not my nature to call for more Gov't, but after all the upward transfer of wealth and bailouts I just don't see any other alternative.

I think it's time to end the cruel ruse surrounding Gov't debt too! It no longer serves a purpose imo.

MaxedOutMama said...

Mark - yes, and oil price gains are purely due to supply and demand fundamentals that ONLY those who stand to make money off oil can see.

MaxedOutMama said...

Mark - My favorite part of that article:
Bernanke believes "the Fed's job is to protect the economy, not to protect individual asset prices," said William Dudley, chief economist for Goldman Sachs U.S. Economics Research.

Ah, it's a beauteous thing we have created. The gold men are experts in creating beauty.

mab said...

Unfortunately I cannot be much of a contrary voice, except that the Fed has a dual mandate - price stability and maximum employment.

MaxedOutMama,

First, allow me to (re)introduce myself: mab = Angry Saver.

Second, show me proof of the Fed's "dual" mandate.

Stagflationary Mark said...

MaxedOutMama,

A former chairman of Princeton University's economics department, Bernanke earned academic renown for his research on the Fed's role in causing the Depression.

There are lots of gems in that article worthy of mining! ;)

Stagflationary Mark said...

mab,

Operationally, preventing deflation is a no-brainer. That said, I'm still a deflationist. The eCONo-political structure all but assures it.

My latest post includes a chart of Japan's employment.

Stagflationary Mark said...

I'm off. I pulled an all-nighter and I'm spent! Literally, lol. Sigh.

nanute said...

You pulled an all nighter? I was going to suggest you two get a room. Never mind.

getyourselfconnected said...

Great work Mark and MOM.

Stagflationary Mark said...

nanute,

LOL!

September 27, 2006
The Onion: Nation Sickened By Sight Of Happy Young Couple

OAK PARK, IL—Though sharply divided on the war on terror and domestic controversies such as abortion, drugs, and gay marriage, Americans are in almost unanimous agreement over one issue: that Oak Park, IL couple Dave Petrun and Julie DeSimone are totally sickening.

MaxedOutMama said...

Mab - we are all angry, traumatized savers now!

As for the dual mandate, this WaPo article probably has as good and as brief an exposition as any.

It's contained in multiple acts, Congress never neglects to discuss it when confirming a Fed chief, and lalallala, never mind that those goals might be incompatible, those are Fed goals.

Just like our goal is to cut deficits and increase the stimulus.

I think your logic is constraining your beliefs on this. There is nothing wrong with your logic, but indeed, the Fed legally has a different mandate than most central banks.

The bottom line is that Congress wants to get reelected, and they want the Fed to make sure they are.

Charles Kiting said...

Unfortunately I cannot be much of a contrary voice, except that the Fed has a dual mandate - price stability and maximum employment.

This is what scares me about Bernanke.

I read Milton Friedman and I understood his point about printing more money. But I don't think Bernanke understood it. Friedman fully expected inflationary consequences, AND he said he'd print to replace the money after closing the insolvent banks. Instead, we get money printing but the bad banks remain open. Friedman's money printing idea was to solve the accounting problem of closing the bad banks; Bernanke's implementation of it exacerbates the problem instead of solving it if the worst banks remain open. If Bernanke's QE was going straight to the FDIC we wouldn't be in this predicament.