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In the last couple of months, momentum has been building in just about every precursor for stronger job growth.  Real retail sales, real GDP, pesonal income and spending, and just this morning a dramatic drop in initial jobless claims to 406,000 - the lowest since July 2008 - all suggest that last month's gain of 169,000 jobs was just the foreshadowing of bigger and more sustained job growth next year.

If you can handle some actual data and not just selected secondhand punditry, I've got graphs and facts galore in support of a positive outlook for the economy generally, and job growth specifically, below.

I.  Real retail sales

Over a year ago I identified real (inflation-adjusted) retail sales as the "Holy Grail," i.e., the best single leading indicator for job growth. With Monday's retail sales and yesterday's inflation reports, we can update the graph comparing real retail sales and jobs.

First, here are the absolute numbers (note in this first graph I am using private jobs rather than full payrolls to take out the census distortions):

As of October, real retail sales have made up more than half of their losses during the Great Recession.

Here are the year over year percentage comparisons as they looked over half a year ago when I first posted them here:

Here is what they look like now:

The relationship is holding up quite well.

In 4 of the last 7 months, real retail sales have been up over 6% on a year-over-year basis.  Based on 65 years' worth of data, this translates into, <span style="font-style:italic;">at minimum,</span> 2% (or about 2.5 million jobs) year over year job growth, sometime soon.  Whether "soon" is more like 6 months or 24 months is impossible to tell, but the trend is unequivocally positive.

II.  Real GDP

One of the best short-term precursors to job growth (besides real retail sales) is GDP growth. Generally it takes 2% YoY GDP growth to generate job growth, so normalizing for that, there is a very clear relationship.  

Here is what it looked like nearly a year ago:

and here is what it looks like now:

Again, the relationship is holding up quite well, and suggests further job growth in the months ahead.

III.  The Real Personal Savings Rate

Among the best longer-term precursors of job growth is the "real personal savings rate." To update this overview, first let's look at real, i.e., inflation-adjusted, saving. As you can see from this first graph, it is at the highest level in at least half a century:

Now let's take this same data and translate it into the real, inflation-adjusted, savings rate.

This too briefly was at half-century highs at the very bottom of the recession. Since then the savings rate has declined, but is still in the higher range for the last several decades.

Now let's take the real personal savings rate (blue) and compare it with real GDP (red). Here is the relationship between 1959 and 1984:

and here is the same relationship from 1984 to the present (note: this is before this morning's data):

The relationship isn't perfect, but the lagged correlation is clear. A substantial change in the real personal savings rate is mirrored by a similar substantial change in real GDP about 6 to 18 months later. The logic of this isn't hard to follow: increased savings serve as the "tinder" that ignites subsequent spending. Once the spending starts, an economic boom begins. When the savings rate declines substantially, the fuel available for subsequent spending declines, and so does spending itself, with a lag.

Since (1) the real personal savings rate leads real GDP; and (2) real GDP leads employment; let's put those two together and show the real personal savings rate (blue) and employment (red).

First, here is 1959 to 1984:

and here is 1984 to the present:

In summary, the real personal savings rate is a very good precursor for employment in a range of 18 to 30 months later. We are now 17 months past the June 2009 peak. This relationship predicts further increases in YoY job growth beginning about now and continuing in 2011.

IV.  Initial Jobless Claims
Needless to say, I am very encouraged by this morning's drop in initial jobless claims to 407,000 (the best since July 2008), and the decline in the 4 week average to 436,000. Here is a trendline I drew on Monday comparing initial jobless claims with employment in the recoveries from the last two severe recessions:

This suggests that at a monthly average of 440,000 initial jobless claims a week, the average monthly payrolls gain is about 175,000 to 200,000, and gradually increases as initial jobless claims decrease. But there is an awful lot of variance, so that until such time as jobless claims drop below 360,000, even excepting a few outliers, any given month may give a number as low as ~75,000 or as high as ~350,000.

BTW, a similar point has been made by Ian Sheperdson of High Frequency Economics, who notes an intriguing rule of thumb: Each 10,000 drop in Weekly Jobless Claims sustained for a month is consistent with payroll growth rising by 25,000. (h/t Barry Ritholtz).

 In conclusion, between real retail sales, declining jobless claims, a positive revision in GDP, and a wellspring of fuel in the real personal savings rate, almost all engines are "GO" for a takeoff in robust job growth into next year. Let's hope this morning's blowout upside surprise of initial jobless claims is only the beginning.

Happy Thanksgiving!

Originally posted to New Deal democrat on Wed Nov 24, 2010 at 07:40 AM PST.

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Comment Preferences

  •  Thanks! (6+ / 0-)

    I am grateful that we have Obama in office. The incident with Korea would likely have roused others to attack N. Korea!

    Obama's economy is picking up. I would still love to see the states get another smaller round of stimulus to get through the next year. That would so prime the pump to keep us on the right path.

    ~a little change goes a long way~

    by missliberties on Wed Nov 24, 2010 at 07:43:48 AM PST

  •  Great data (1+ / 0-)
    Recommended by:
    mll

    For real GDP growth, those are the newest upwards-revised numbers, right?

  •  Pretty graphs (1+ / 0-)
    Recommended by:
    lakehillsliberal

    do not feed or employ people. It is the reality on the ground that is important and trust me, that is not looking good in any real and meaningful way.

    My thoughts go out to those who will not be having a good Thanksgiving for one reason or another.

    Just because they give you a seat at the table doesn't mean that they want to feed you.

    by stevej on Wed Nov 24, 2010 at 07:50:31 AM PST

  •  and (0+ / 0-)
    of course you fail to report the other data today.

    New U.S. single-family home sales fell unexpectedly in October and prices dropped to a seven-year low, a government report showed on Wednesday, pointing sustained weakness in the housing market following the end of a home-buyer tax credit.

    The Commerce Department said sales dropped 8.1 percent to a 283,000

    and

    The Commerce Department also reported durable goods orders down 3.3 percent, the largest decline since January 2009, after surging by 5 percent in September. They had been expected to be flat in October.

    Even excluding transportation, orders dropped 2.7 percent, the biggest fall since March 2009, after a 1.3 percent increase in September

    which shows things arent getting much better

    The child has grown, the dream is gone. I have become comfortably numb.

    by dark daze on Wed Nov 24, 2010 at 07:51:31 AM PST

    •  Nice try, but not good enough (6+ / 0-)

      New home sales are where they've been for the last 4 months. They haven't really changed materially in the last year and a half.  Not really higher, not really lower.

      Durable goods is a notoriously volatile series.  This month came in about 1.5% lower than expected.  And last month was revised higher -- by 1.5%.

      "When the going gets tough, the tough get 'too big to fail'."

      by New Deal democrat on Wed Nov 24, 2010 at 07:54:42 AM PST

      [ Parent ]

      •  oh please (0+ / 0-)

        nice try is those bullshit employment numbers, unadjusted the numbers are just as bad as ever at 455,ooo or more.

        as for housing, existing homes sales have tanked also, along with the foreclosure crisis looming, broke states, and desperate Europe, and on and on and on.  Yet ou keep trying to sell the happy days are here agion Bullshit.  You do a great disservice to people selling this sanke oil.

        People should not being taken on new debt and so forth, 2011 could be avery very rough ride, especially with republicans back in the game.

        The child has grown, the dream is gone. I have become comfortably numb.

        by dark daze on Wed Nov 24, 2010 at 07:59:17 AM PST

        [ Parent ]

        •  Nice try again (5+ / 0-)
          Recommended by:
          jj32, Pozzo, LookingUp, randomfacts, Deep Texan

          The "foreclosure tsunami" much touted round here never happened.

          Existing home sales are also neither improving nor getting worse, they have been bouncing along the bottom for nearly two years as well.

          Don't try that cherry-picking NSA number bullshit with me.  It hasn't worked before (see summer, 2009) and it won't work now.

          "When the going gets tough, the tough get 'too big to fail'."

          by New Deal democrat on Wed Nov 24, 2010 at 08:01:45 AM PST

          [ Parent ]

          •  right cause you fail to open your eyes (0+ / 0-)

            you take certain bullshit goverment numbers as gospel, and ones you dont like you just push away and ignore.

            Ridiculous. If you have to take you happy pills to get through they day, go for it, just save us the bullshit that things are gonna get better here anytime soon.    

            As for the foreclosure tsunami never happening, LOL,, where the hell you been these last few years, it happened.  Its is so bad in fact that banks are in big as trouble for screwing up the paper work so badly. Just another headwind coming down on us.

            My god,  how can anyone take you seriously when you say shit like that,  "Foreclosure tsunami never happened".. LOL  my god.

            The child has grown, the dream is gone. I have become comfortably numb.

            by dark daze on Wed Nov 24, 2010 at 08:06:19 AM PST

            [ Parent ]

          •  as for existing home sales (0+ / 0-)

            Existing home sales declined in October, as fewer people decided to buy a new place to live. The number of existing homes sold last month fell 2.2 percent from September, according to the National Association of Realtors. Compared to 12 months ago, existing home sales are off 25.9 percent, more evidence that the housing crisis has not yet reached bottom.

             so much for your bullshit that they to are flat

            The child has grown, the dream is gone. I have become comfortably numb.

            by dark daze on Wed Nov 24, 2010 at 08:07:40 AM PST

            [ Parent ]

        •  NDD (4+ / 0-)

          has never said the happy days are here again.  He has always said that the recovery would be a tough one, and job creation would be sluggish.  Which is why he has always said that we needed more stimulus, particularly to offset the layoffs by state and local governments.

          However, he also been far more accurate than others here about the future direction of the economy, who 3 months ago were proclaiming breathlessly that the double dip was coming.

          In fact I have lost count of the number of things that were going to bring the economy to collapse.  First it was Kuwait, then Greece, now its Ireland and the robo signer scandal.

          The truth is none of these things panned out in anyway close to advertised.  None of them were significant enough to bring out the double dip recession that we have been assured is coming.

          The bitter truth of deep inequality has been disguised by an era of cheap imported goods and the anyone-can-make-it celebrity myth - Polly Toynbee

          by fladem on Wed Nov 24, 2010 at 08:21:07 AM PST

          [ Parent ]

          •  and you (0+ / 0-)

            and you think we are out of the woods?  You think especially with a republicna congress, good times for average americans is just a day away?

            My god.  Cancer doesnt kill you in a day either, just because it hasnt , doesnt mean it wont.

            The child has grown, the dream is gone. I have become comfortably numb.

            by dark daze on Wed Nov 24, 2010 at 08:24:18 AM PST

            [ Parent ]

            •  I think the chances (3+ / 0-)
              Recommended by:
              Pozzo, Fury, Deep Texan

              of a double dip in 2011 are very low.  I also think the chances of fast job growth aren't great, but may surprise.

              I also wish that I used some of the diaries that have appeared here as a buy signal, since usually whenever they write about something collapsing, that asset usually goes up.

              The bitter truth of deep inequality has been disguised by an era of cheap imported goods and the anyone-can-make-it celebrity myth - Polly Toynbee

              by fladem on Wed Nov 24, 2010 at 08:45:35 AM PST

              [ Parent ]

              •  We have two economies, for those that have made (0+ / 0-)

                it through, things will be fine.  For those of us caught in the vortex of this recession, we are cooked and done, we have lost our jobs, we will lose our homes and we have been voted off the island.  It is a bigger portion than it used to be but still we had to be sacrificed so that the economy could reset and corporations could post huge profits.  We were the dirt  on which the new reality is being built.   To those of us about to drown, we understand that the rest of the country has more important things to do.  Happy days are here again!!!!!

                "New TSA slogan: can't see London, can't see France, unless we see your underpants."

                by lakehillsliberal on Wed Nov 24, 2010 at 01:06:58 PM PST

                [ Parent ]

          •  That's why I included graphs from 6-12 months ago (3+ / 0-)
            Recommended by:
            Fury, zbbrox, Deep Texan

            So there could be no doubt that the relationship continued this year.  "This time it's different" was as usual not correct.

            And yet, in the face of clear evidence that is literally right in front of their eyes, they deny it.

            Confirmation bias is a very powerful force.

            "When the going gets tough, the tough get 'too big to fail'."

            by New Deal democrat on Wed Nov 24, 2010 at 08:30:23 AM PST

            [ Parent ]

            •  oh my god (0+ / 0-)

              it is different,  If this was the typical cyclical recession, we would be seeing a massive explosion in the GDP,  job coming back by the truckload by now, and the fed would have to worry about an overheating economy.  WE see NONE of that.

              The child has grown, the dream is gone. I have become comfortably numb.

              by dark daze on Wed Nov 24, 2010 at 08:34:14 AM PST

              [ Parent ]

              •  I don't think NDD denied... (3+ / 0-)
                Recommended by:
                Pozzo, New Deal democrat, Deep Texan

                ...the recession was not a "typical cyclical recession". What he denied was that the atypical nature of the recession means that all the leading indicators that have been tracking very well for the last two years must be thrown out the window and will diverge. Because they haven't. The leading indicators have continued to mirror employment, and so there is as of yet no real reason to believe they won't continue to do so.

  •  IIRC (1+ / 0-)
    Recommended by:
    goinsouth

    We were hearing the same from you and the rest of the partisan economy-touters a year ago.  What happened to all that robust growth we were going to experience over the last year that you told us about then?

    American business is about maximizing shareholder value. You basically don't want workers. ~Allen Sinai

    by ActivistGuy on Wed Nov 24, 2010 at 07:52:20 AM PST

    •  You mean, the 1.1 private million jobs gained? (9+ / 0-)

      The economy up over 3%?

      Industrial production up strongly?

      Retail sales up strongly?

      Rail traffic up strongly?

      Air travel up strongly?

      Hotel usage up strongly?

      Sales tax receipts up strongly?

      You mean, THAT strong growth?  Why yes, that would be the growth you've seen this year.

      It would have been stronger had Congress not foolishly refused to re-up aid to the states in the summer.  State and local governments have laid off 300,000 people this year, and that has held down the total number of jobs added.

      "When the going gets tough, the tough get 'too big to fail'."

      by New Deal democrat on Wed Nov 24, 2010 at 07:58:10 AM PST

      [ Parent ]

      •  yup (0+ / 0-)

        1.1 million jobs created but we need how many each month just to deal with the new people entering the job market?

        Don't fight global warming. Iceberg water is going to make us all rich!

        by jbou on Wed Nov 24, 2010 at 08:02:59 AM PST

        [ Parent ]

        •  About the same. (5+ / 0-)

          The population grows by about 1% a year.  Private job growth this year has been about 1%.  It looks to me like it is about to pick up.

          The economy has been better than 2009 --  Just not good enough.  We need to see sustained GDP growth of 4% or 5%, and not 3%, to make a big dent in the unemployoment rate.

          "When the going gets tough, the tough get 'too big to fail'."

          by New Deal democrat on Wed Nov 24, 2010 at 08:06:24 AM PST

          [ Parent ]

          •  yes... (2+ / 0-)
            Recommended by:
            Fury, New Deal democrat

            the economy is better than it was in 2009, but 2009 really really really sucked and we have not yet begun to rehire a good chunk of people who were laid off between 2008 and 2009. So we are on the same page. The President and the Democrats failed to pass a big enough stimulus package to grow the economy at a proper rate?

            Don't fight global warming. Iceberg water is going to make us all rich!

            by jbou on Wed Nov 24, 2010 at 08:11:44 AM PST

            [ Parent ]

            •  Yes, we are on the same page. n/t (1+ / 0-)
              Recommended by:
              jbou

              "When the going gets tough, the tough get 'too big to fail'."

              by New Deal democrat on Wed Nov 24, 2010 at 08:13:29 AM PST

              [ Parent ]

              •  your optimism is well documented... (0+ / 0-)

                and it drives some folks nuts because the economy has not grown the way the optimists predicted. If the folks in the optimistic camp would just throw us realists a bone we would gladly work with your all and admit any growth is better than 2009 and we all need to push the Democrats to spend money and stop all this nonsense talk about deficits.

                Don't fight global warming. Iceberg water is going to make us all rich!

                by jbou on Wed Nov 24, 2010 at 08:20:34 AM PST

                [ Parent ]

                •  You are right about some things (3+ / 0-)
                  Recommended by:
                  lakehillsliberal, zbbrox, Deep Texan

                  The summer slowdown really kicked the recovery in the TSA-gropable parts.  While a few things were foreseeable, a few (like the BP spill) weren't.

                  Additionally, I think we all believed the Congress wouldn't really toss the states to the wolves, but they did.

                  >>we all need to push the Democrats to spend money and stop all this nonsense talk about deficits.<<</p>

                  Agreed.

                  "When the going gets tough, the tough get 'too big to fail'."

                  by New Deal democrat on Wed Nov 24, 2010 at 08:24:33 AM PST

                  [ Parent ]

                  •  and I am going to state it publicly (1+ / 0-)
                    Recommended by:
                    lilnev

                    Folks, New Deal Democrat may be a bit too optimistic, but he is in our camp and we need to not be so bitter and mean when engaging the folks who have been too optimistic. We all wanted jobs and strong economic growth and we didn't get it. We need to work on pushing the leaders in the right direction. Stop all the bitter told you so's and lets work on what we can do going forward.

                    Don't fight global warming. Iceberg water is going to make us all rich!

                    by jbou on Wed Nov 24, 2010 at 08:29:09 AM PST

                    [ Parent ]

                    •  When was NDD (1+ / 0-)
                      Recommended by:
                      Deep Texan

                      too optimistic.  He has always said the recovery would be sluggish.  

                      The realists here - and I don't know who that is - have been flat wrong about most of what has happened over the last year.

                      The bitter truth of deep inequality has been disguised by an era of cheap imported goods and the anyone-can-make-it celebrity myth - Polly Toynbee

                      by fladem on Wed Nov 24, 2010 at 09:16:01 AM PST

                      [ Parent ]

                      •  I wouldn't call them realists (1+ / 0-)
                        Recommended by:
                        New Deal democrat

                        That's an undeserved compliment.

                        I would call them pessimists.  

                        They may consider themselves "realists" but in my view they are cherry-picking pessimists.  

                        The economy is getting better.  Slowly.

                        Everyone, with the possible exception of the Republican Party leadership, wants it to get better more quickly. We can disagree about the means by which economic improvement may be accelerated, but to blindly ignore positive economic news -- even if it's only slightly positive -- is not "realism."

                        It's pessimism.

          •  And in Q2 and Q3 (3+ / 0-)
            Recommended by:
            Pozzo, Deep Texan, Marmaduke2

            we didn't get that growth because imports exploded.

            Globalization is the real issue here, and the one thing that may prevent job creation.

            But today's number is a good number.

            The bitter truth of deep inequality has been disguised by an era of cheap imported goods and the anyone-can-make-it celebrity myth - Polly Toynbee

            by fladem on Wed Nov 24, 2010 at 08:22:57 AM PST

            [ Parent ]

      •  and all those things that are up... (0+ / 0-)

        is a good thing, but the numbers were bound to go up because we were in such a sever downturn. What dot he numbers look like compared to when the economy was humming along? What is your plan to deal with the folks who have run out of unemployment and still don't have a job? What is the plan to deal with the fact that our economy may have permanently  contracted and needs more than just the Fed easing on the banks to see growth like we used to have?

        Don't fight global warming. Iceberg water is going to make us all rich!

        by jbou on Wed Nov 24, 2010 at 08:09:38 AM PST

        [ Parent ]

      •  3% (0+ / 0-)

        where do you get these bullshit numbers?

        http://www.bea.gov/...

        Lsst quarter 2.5% real gdp

        quarter before that 1.7%

        The child has grown, the dream is gone. I have become comfortably numb.

        by dark daze on Wed Nov 24, 2010 at 08:20:11 AM PST

        [ Parent ]

      •  What is the breakdown of those new jobs, (0+ / 0-)

        that is, what percentage would be waitress, healthcare, bartender. And as an aggregate, for the jobs they are replacing, are they paying 100% of what was replaced or 150%, or 60%.

        I know the figures for the Bush years were that almost 80% of his "new jobs" were in the bottom end of the earning range, so that it was a bunch of, say $12/hr jobs replacing $18/hr jobs.

        Though I'm sure people preferred the $12 to $0, the "new jobs" didn't really do a lot to lift people.

        Until we break the corporate virtual monopoly on what we hear and see, we keep losing, don't matter what we do.

        by Jim P on Wed Nov 24, 2010 at 08:39:22 AM PST

        [ Parent ]

  •  And watch Republicans do their best (8+ / 0-)

    to destroy the little that has been accomplished

    "Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity." --M. L. King "You can't fix stupid" --Ron White

    by zenbassoon on Wed Nov 24, 2010 at 07:53:12 AM PST

  •  Of course (1+ / 0-)
    Recommended by:
    dark daze

    I would be astounded if there was not some "uptick" in the numbers given the volume of government deficit spending (i.e. spending borrowed money). And that is what we have seen - though it has been a long time coming.

    The deficit is running about $120 billion a month right now - which is 2/3 of consumer spending in your first graph. Or to put it another way, deficit spending each month is over 4 times WalMart's sales each month. 4 TIMES! And on top of that we have interest rates at pretty much record lows (more cheap fuel).

    So are things looking better, no doubt, as long as you don't ask what is fueling it (more debt). It's akin to losing your job, and being able to live like before by running up the balance on the credit card - and somehow being amazed that it is possible - which it is until it isn't.

    The real question that needs answering, and the jury is definitely out on this one, is what happens when "austerity" hits, as it must. (You can't deficit spend $120 billion a month forever.)

    We know many states will have big problems come 2011. We know a lot of municipalities are facing big problems as well. So far at least the growth rate is not sufficient to counteract these.

    With the whole world printing money (US and China, with Europe soon to follow) we can easily get the illusion of real growth. But always remember to ask if what is fueling it is sustainable.

    Overall the things that caused the recession have NOT been dealt with:
    a) Real estate prices still to high,
    b) Ultra low interest rates
    c) Large trade deficit
    d) Sick banks
    e) China peg.

    "If they can't deal with the Internet, they should shut it off." Mike Lazaridis of RIM

    by taonow on Wed Nov 24, 2010 at 08:08:41 AM PST

    •  "Austerity" is not inevitable. (0+ / 0-)

      You can, in fact, deficit-spend 120 billion a month forever if your GDP rises sufficiently that the ratio between your debt and your GDP falls consistently.

      And, more to the point, if GDP is rising, you don't need to make spending cuts to close your deficit--increased revenue does it.

      There's only one thing as a country we really need to spend less on, and that's health care.

      •  Well (0+ / 0-)

        since the deficit to GDP is now around 10%, yup as long as you get the economy growing at 10% you can keep it up. Not much chance of that though is there.

        Also need to spend less on health care, defense, prisons, imported oil ..... A whole raft of structural changes are required, few if any have been started.

        "If they can't deal with the Internet, they should shut it off." Mike Lazaridis of RIM

        by taonow on Wed Nov 24, 2010 at 10:44:24 AM PST

        [ Parent ]

        •  That's not entirely how that works. (0+ / 0-)

          Deficit to GDP is 10% right now. If GDP grows 5%, next year the deficit to GDP ratio shrinks to about 9.5%. The debt-to-GDP still rises of course, and absent other factors would for another dozen years before beginning to fall.

          But, of course, we are not absent other factors. If GDP grows 5%, revenues will also likely grow. If expenditures grow at a small but steady rate and GDP grows at a slightly quicker rate, the deficit will close in nominal terms as well as in comparison to GDP, meaning the debt-to-GDP ratio will improve much faster.

          And while we may "need" those structural changes you mention for the good of the country, or simply to stop wasting money, we don't really "need" most of them to simply achieve a sustainable deficit. The only serious long-term issue that constitutes a real spending threat is Health Care.

      •  "we really need to spend less on" (1+ / 0-)
        Recommended by:
        zbbrox

        I would say the military.  I tried the NYT budget-balancing toy, and found it really easy, if I put most tax rates back to 90s levels and scaled down the military.  We do overpay for our health care, I agree.  (Though I also think, what should we be spending that on that's more important than health care?  We just need to do it in a way that's fairer, more rational, and less wasteful, e.g. single payer).

        I'm special. Everyone is.

        by lilnev on Wed Nov 24, 2010 at 11:29:27 AM PST

        [ Parent ]

        •  The thing about the deficit... (0+ / 0-)

          ...is that most of it is transient--i.e., short-to-middle-term. It's skyrocketed because of tax cuts (which obviously aren't a spending issue), because of wars (that are winding down, albeit slowly), because of falling revenue in the recession (again, not a spending issue), because in a recession the safety net gets strained and spends more money (on unemployment, food stamps, etc), and because of stimulus, bailouts, etc. (a rather smaller part than most people realize.)

          The upshot of this is that most of our deficit problems have a limited--if longer than we'd like--time horizon. One day the recession will end and war spending will drop and taxes will go up if necessary.

          If we have a recovery and don't make any more huge mistakes (Bush tax cuts, wars, etc.) the defense budget simply won't bankrupt us. The only thing that will is health care, because unlike all those other issues, health care will never go away and it will actually get exponentially worse over time.

          And on one level, you're absolutely right--it's much better we spend money on medicine than murder. So if we can reduce the military budget and pump some of that into Medicare, great. The problem is that the health care cost spiral is essentially infinite--the "deal", as it stands, is that once you get on Medicare we will pretty much spend an endless sum of money on your health. With ever-more prolific tests and treatments (not to mention an aging population) that promise will become ever-more expensive to keep.

          Eventually we will have to draw a line. And there's no other issue that, from a budget perspective, poses anything like that problem that this does.

  •  Savings rate... (2+ / 0-)
    Recommended by:
    buddabelly, New Deal democrat

    At first I thought the spike in the savings rate might be people either reducing their credit debt (or the lack of access to credit), but on second glance it looks on-track with past savings.

    It's interesting to see how savings among the consuming class works like a hydraulic accumulator--it stores up energy (savings) and then dump most of it into the economy to generate a boom.  Good for the economy until the accumulator depletes, then it's recession time until we store enough economic energy for another growth run.

    Transfer that thought over to taxation.  Personal savings of the wealthy is essentially a gigantic accumulator.  If highly cyclic savings (meaning 'perennially broke') is sound policy for the masses, then the same principle should apply to our vaunted "job creators".  Taxation is stimulus because it discharges the accumulator and squirts money into the economy.

    It would seem that, since the savings at the top end of the economy is a vastly more powerful accumulator, constantly discharging this energy source in a controlled manner via sound tax policy would temper the boom-and-bust nature of our economy.

    Someone tell me where I'm full of shit here.

    •  Not quite, but close. (1+ / 0-)
      Recommended by:
      DaveinBremerton

      Government spending creates money.  It also adds aggregate demand, which is the "pressure" in our hydraulic analogy.  Taxes destroy money.  So a government deficit adds pressure, which we need more of right now.

      "Desired savings" took a big jump, as people saw their assets lose value, their credit contract, their income less secure.  But everyone's income is someone else's spending; we can't all save at the same time, it has to balance with dis-saving somewhere.  Usually the Fed would adjust interest rates to make dis-saving more attractive, and saving less so.  But rates are at zero, and we still have excess desired savings.  Ideally the federal govt would dis-save enough to meet the savings desires of the private sector;  the govt is not financially constrained (sovereign, with a floating fiat currency, it can never be unable to pay its obligations).  With all this austerity nonsense, we're not doing that;  instead we're forcing a subset of households into dis-saving by destroying their income (mass unemployment).  The accounting identity, savings = dis-savings, must be satisfied somehow.

      Taxes, even on the rich, reduce "pressure", aggregate demand, and reduced taxes would increase it.  Just not by as much, because wealthy people have a high savings rate (more technically, a high marginal rate -- the extra dollar you give them will mostly be saved, and thus not contribute pressure).  A payroll tax holiday would be effective stimulus; extending high-end cuts would be only marginally stimulative, and bad for long-range goals of a more equitable society.

      I'm special. Everyone is.

      by lilnev on Wed Nov 24, 2010 at 11:49:42 AM PST

      [ Parent ]

      •  If aggregate demand is the "sum of all demands" (0+ / 0-)

        Then it would seem that a large pool of somewhat prosperous spenders would be more stimulative than a small pool of uber-prosperous spenders.

        It would also seem that wealth that is sequestered out of the economy is wealth that has entropied--it isn't doing anything toward generating aggregate demand and it won't until it is put back into the economy.

        If sequestered wealth is essentially useless wealth, then what is worse, keeping it sequestered or pushing it out into the economy via taxation and destroying part of it in the process?

        If strategies such as payroll tax holidays produce aggregate demand, and if the resulting spending tends to move money away from the spenders toward the savers, then don't such strategies just slowly make the economy less liquid?

        Absent taxation, I don't see a mechanism for moving a nearly equal amount of money away from the savers and toward the spenders, which would seem necessary to maintain the health of the system.

        If you don't mind explaining, I'm curious how all this works.

  •  A good number (2+ / 0-)
    Recommended by:
    GussieFN, New Deal democrat

    My concern about the economy remains focused on the relationship between productivity, demand, and globalization.  In 2009 Productivity exploded, and about half of the decline in employment was a result of decreased demand, the other half was the result of increasing productivity.  As a result unit costs have fallen considerably over the last 18 months - which explains why corporate profits have gone up despite slack demand.

    In Q2 productivity growth clearly slowed.  If consumer confidence increases, then the increased demand must be met in once of two ways:

    1.  Increased hiring
    1.  Increased imports

    Unfortunately, Q2 and Q3 GDP numbers indicated that much of the demand was being filled by imports - which took about 2% of GDP off both quarters.  However, the new claims numbers suggest there is enough demand for domestic labor that we could see declines in unemployment - though the durable goods numbers are disturbing.
    Big Picture, increasing worker productivity should INCREASE the demand for labor.  As a result, I believe there will be a period of surprisingly fast growth.  When this is occur I don't know - though I suspect we need to work through more of the housing problems until first.
    If it doesn't, it means that the forces of globalization are so deflationary that our traditional means of understanding the economy are inadequate.
    Great work as always.  

    The bitter truth of deep inequality has been disguised by an era of cheap imported goods and the anyone-can-make-it celebrity myth - Polly Toynbee

    by fladem on Wed Nov 24, 2010 at 08:13:13 AM PST

  •  Your diary does bear out (3+ / 0-)
    Recommended by:
    Fury, New Deal democrat, lilnev

    that the economy outside of the real estate sector is improving.  The real concern over the next 12 months is going to be real estate, both residential and commericial. New home sales took another dive last month, and the supply of new homes, even though it's at historic lows, is at 9 months at the current rate of sales.  We can't expect much from home construction for the near term.  The real question is whether the growth we will see in 2011 will be strong enough to produce enough jobs to bring the unemployment rate down more than a few ticks.  

    "Do I have any regrets about the hard votes I took?" No. Not at all...and I never will. --Mary Jo Kilroy

    by Kurt from CMH on Wed Nov 24, 2010 at 08:32:41 AM PST

    •  New home sales (5+ / 0-)

      First of all, one year ago you had people buying houses to beat the initial expiration of the $8000 credit.  So the YoY comparison in this case is misleading.

      If you look at the data from a 2 or 3 or 5 year perspective, home sales have been bouncing along the bottom for almost 2 years.

      In many of the hard-hit areas, home prices are at 25 year lows.  And interest rates to pay the mortgage on those prices are at 50 year lows.

      There are locales (e.g.,Phoenix) where if a young couple is willing to give up their expensive smart phones for a couple of years, that same amount of money will make their mortgage payment.

      Lower prices in those locales are attracting buyers.  There is a reasonable chance of a significant increase in new home sales by next summer.

      "When the going gets tough, the tough get 'too big to fail'."

      by New Deal democrat on Wed Nov 24, 2010 at 08:42:37 AM PST

      [ Parent ]

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