Employment Impact Of Modern Recessions

Calculated Risk earlier today posted some interesting graphics comparing the job losses for recessions since the 30s.

Compared to all other recessions since the Great Depression, the one beginning in 2007-2008 has by far been the most devastating from an employment perspective, which is arguably the most important economic metric.

That said, judging the current recession versus the great depression, puts things in a very different perspective.

Forecasting a linear trend from the low of the current cycle through the data presented would argue for another 2-2.5 years before hitting the same number of jobs as we had in the prior peak.

However, as evidenced by the Great Depression data, the numbers can plunge again even after a positive trend presents itself. It took an additional 2.5 years to get to the same number of jobs after the second dip occurred around 1937 (which coincided with Fed changes as "hawks" pushed for higher rates to ward off inflation fears).

Daily Percentage Based Point & Figure Analysis - 2/17/2012

The S&P is within 1% of breaking multi-year highs. With Greece needing a win before the end of March, which it'll likely get in the form of another kick-the-can fiscal procedure shortly, I'd expect a significant break upward for the S&P similar to the set up seen already in the NASDAQ.

Meanwhile, both the DOW and NASDAQ have broken through to multi-year highs, with the NASDAQ up substantially over its April - June 2011 levels.

Seattle Housing Inventory Declines Dec - Jan

Seattle Bubble's got an interesting article about housing inventory. Based on their data, 2012 is the first year since at least 2000 where the monthly change in housing inventory has been negative from December to January.

This confirms more anecdotal evidence around the Seattle area with significant numbers of pending homes, but few new ones coming to market.

US Long Term Home Prices

Here are two views on the long term trend for US home prices. Many argue that the long term real home price change is between 0% and 2%.

Taking Shiller's annual home price index yearly data back to 1890, one view is to take the linear trend of the real prices and measure where we're at compared to where we "should" be based on this trend. However, the trend here is based on a substantially "negative" event near the beginning (the Great Depression) and a significant "positive" event in the more recent past (the 2000s bubble).

These two events could cause a shift in the underlying "real" trend in a positive manner. One way to remove that bias is to look at the impact is to remove those two periods. While this reduces the number of observances for the trend, if the observances removed are believed to be abnormal, this may be justified.

Hence, the second line uses the period from 1950 to 2000 to develop the trend. Interestingly, when forecast back to 1890, the forecast number is only 0.4% off from the actual.

So, what's this mean? Based purely on these two views of the long term trends in housing prices we find two similar, but slightly different, current states.

Under the normal long term linear trend the US Housing Index has been under where the trend would have us for the past two years, currently under by -6.3%. Using the more limited 1950-2000 data set, the 2011 level of 120.08 is still 4.1% over the trend.

S&P 500 w 200 Day Moving Average Percent Bands

Using a simple technical indicator method of choosing buy/sell opportunities on the S&P 500, purchasing when the index rises above 101% of the 200 day moving average and selling when it drops below 99% of the same, the last "BUY" signal occurred on 1/3/2012.

With today's close of 1347.05, the last purchase in would amount to a 5.48% increase.

S%P 500 with 200 Day Linear Trend Points

Consumer Price Index Inflation (excluding food and energy)

Judged based on the Consumer Price Index, removing the volatile food and energy components, core inflation has increased by nearly 1.3 percentage points in the past year. At 2.23%, annual inflation is now at a level not seen since October 2008.

This level could make it more difficult for the Fed to ease more, regardless of the changes to language around it's dual mandate.

Fun from XKCD.com

Daily Percentage Based Point & Figure Analysis

On a daily basis, the P&F chart clearly shows the S&P 500 to be hitting major resistance levels. I'd expect some significant pressure from this level. However, we're less than 2% away from breaching multi-year highs.

Meanwhile, the Dow Jones Industrial average has breached it's multi-year high (surpassing the April 2011 levels) and is at levels not seen since the beginning of the recession in 2008.

Rate of Unemployment vs Employment

Below are the unemployment and employment rates both viewed on a monthly basis. While there has been much ado about unemployment dropping (it has fallen 8 tenths of a point in the past year), the employment rate has maintained at a fairly steady state over the same time period (increasing 1 tenth of a point since January 2011).

Since the unemployment index drops those who are no longer seeking employment, this growing divide (falling unemployment with stagnant employment) could be a sign that the labor market isn't picking up so much as people are turning off from looking for new jobs.