Jan. 23 (Bloomberg) -- A decline in unemployment and pickup in manufacturing point to accelerating U.S. growth. Some economists say the numbers may not be as good as they look.
One reason: the severity of the economy's plunge in late 2008 and early 2009 after Lehman Brothers Holdings Inc. collapsed threw a wrench into models used to smooth the data for seasonal changes, according to analysts at Goldman Sachs Group Inc. and Nomura Securities International Inc.
"The impact of the financial crisis does seem to have affected seasonal factors for several indicators," Andrew Tilton, a senior economist at Goldman Sachs, said in a telephone interview from New York. It "might tend to make things look a little better in the early winter and look a little worse in the spring time."
Most economic data are adjusted for seasonal changes to facilitate month-to-month comparisons. Without those changes, for example, construction would always pick up in the summer, when the weather is milder, and decline in the winter.
The adjustment process is unable to distinguish between a one-time shock, like Lehman's demise, and a recurring issue that would need to be smoothed away. For that reason, the mechanism gives some data a leg up from about September through about March before turning negative the rest of the year.
The economy contracted at an average 7.8 percent annual pace from October 2008 through March 2009, the worst back-to- back quarters in the post World War II era. The 18-month recession ended in June 2009.
The adjustment process "has been knocked out of whack by the financial crisis," Ellen Zentner, a senior U.S. economist at Nomura in New York, said in a telephone interview. "The model ends up adjusting for a growth pattern that isn't there. The sudden drop-off in economic activity in late 2008 is not a pattern, it doesn't happen late every year. It was a one-off event."
In effect, the models are over-compensating...trying to make sense of the big collapse of '08-'09 by treating it as though it were a seasonal adjustment issue. If the winter weather were so severe as to cause such a big drop-off, the machines reason, we must move the bar lower next year. Then, even a modest improvement will look spectacular.
But Goldman's economists estimate that unemployment will average 8.5% this year - almost unchanged from last year. That is not a recovery. And we have to wonder...what will power the 'recovery' analysts believe they seem coming?
Not household spending. Households don't have any money to spend. What then?
Nothing. There will be no recovery. Instead, the US economy is in the process of zombification and ossification...
...which is what happens when the feds refuse to allow dead-men industries to die.
Ottmar Issing, of the European Central Bank, is on the case:
"The problem of 'too big to fail' is that it has made society - more precisely, the taxpayer - hostage to the survival of individual financial institutions....the taxpayers' billions committed to rescue supposedly systemic institutions has dealt a big blow to confidence in the free market system...and has in turn become a threat to free societies."
Well, yes. Now, the game is rigged. The fix is in. The zombies are dealt the aces. The rest of us get a bum hand.
But wait...didn't the US government make a profit from its loans to the banks? Didn't the banks pay back the money? Didn't taxpayers come out ahead?
Oh dear reader, please stop...we can't stop laughing. We're afraid we might pull a muscle.
Imagine a bartender. He realizes that his customers have been handing out IOUs all over town - including to him. And he also knows his customers can't pay. People are beginning to wonder....they're beginning to discount the IOUs. A crisis is coming...
What does he do? He lends the customers more money and buys the IOUs from the other merchants! Naturally, the value of the IOUs goes back up. Because now, holders know they'll get their money. Even the value of the IOUs owned by the bartender go up. Wonder of wonders, he has even made a profit on the deal!
Happy days are here again.
Which reminds us of Hemingway's conversation between Bill Gorton and Mike Campbell.
Bill asks; "How did you go bankrupt?"
Mike answers: "Two ways. Gradually. Then, suddenly."
We're still in the 'gradually' phase. Stay tuned.
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*** Will no one rise to the defense of Captain Francesco Schettino? No? Then we will!
The poor man is calumnied as a pusillanimous incompetent. Just because he hit a rock. Heck, anyone with a ship that big could hit a rock. And the rock wasn't s'posed to be there!
This incompetence charge is completely baseless. He had even tested almost the exact same route under almost the exact same conditions back in August. He sailed through the straits without a scratch. It was perfectly reasonable for him to conclude that the passage was safe. Perhaps someone put the rock there, just to catch him out.
And then comes the charge that ignored the fact that his ship was taking on water...and abandoned ship before all the passengers were off. Well, yes, but who wouldn't? As to the first part of that complaint, how could he know the ship was sinking until it actually began to sink? And then, once it was determined that she was going down, what was the point of hanging around? There were perfectly able seamen to assist; and those passengers who had survived the collision and the sinking proved that they were perfectly capable of getting out on their own. Besides, the idea that the captain goes down with the ship is out of date. Now, we are in a new age. Now, failed captains get a bonus...and a retirement package.
In the old days, ship owners - like bank owners - were real capitalists. If the ship went down, the owners could lose everything. So, they required managers - captains - who were fully committed to bringing the vessel home safely. And if the ship sank, they were supposed to sink with it.
The same was true of engineers during the Roman era. If they built a bridge that fell down, the people who paid for it were out a considerable amount of money. So the engineers were required to stand under the bridge when the scaffold was taken away. If the bridge failed, the engineer was toast.
Bankers, too, were expected - until well into the 20th century - to suffer their own mistakes. If a bank failed. A banker was ruined.
But those days are clearly gone. Now, the losses are felt by insurance companies and mutual fund investors...and who gives a damn about them? So, why should the captain go down? He should be treated like a bank manager...or the CEO of a large public company. He shouldn't go down a hero. He should go up, a zombie.
*** Wintry weather finally arrived in Baltimore on Saturday. The ground is coated with snow, now giving way to slush and water.
"Be sure to drive slowly...you know, the roads are slippery when it is icy..." warned our 90-year-old mother.
"Mom, I got my driver's license in 1965. I'm familiar with ice and snow..."
"Well, my brother got his license in 1945 or maybe in 1946. I'm so old I remember so many things that happened. And so many things that probably never happened. He had just come back from the war. I don't think they made him take a driving test, because he had been driving tank for three years.
"He just went to renew his driving license yesterday."
"Isn't he 95? I didn't think they'd let you renew a license at that age."
"Well, they do in the state of Virginia. He passed the eye test. So they gave him a license that expires when he will be 105. He asked the clerk if they could give him a longer one, because he didn't want to have to come back so soon. I think they just laughed at him.
"But I talked to him on the phone and I told him the same thing I'm telling you. The roads are slippery. Be careful. You're not driving a tank."
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.