Today's numbers show that the economy created only 120,000 new jobs in March. As I have written in this blog before, the economy is not going to start generating jobs at an impressive rate until broad money supply (M3) expands. M3 has been stagnant below 15 trillion since early in the recession, and has not shown meaningful growth over the last several months. Given the lag between monetary expansion and economic response, even if money supply starts to expand immediately, expect job creation to be slow for the remainder of the year.
Tomorrow I will buy a couple pounds of Rwandan Coffee. When I first went to Rwanda to manage an economic assessment of US government investments I took the opportunity to go to the farmer cooperative in Maraba that served as the pilot activity for organizing poor, small coffee farmers into cooperatives and helpling them improve their coffee quality. And of course we had coffee. I'm not normally a coffee snob, but Rwandan coffee is smooth, with an increasingly complex palate over the years, and it packs a nice kick! It still remains my coffee of choice. Fortunately I can get it if I look, from the trendy Bourbon Coffee in DC where I will go tomorrow and also in Cambridge MA where I will be in a couple weeks, to my hometown roaster Paramount Coffee in Lansing Michigan! Best of all, the economic analysis showed that by improving their coffee quality and using cooperatives to link with international buyers, coffee growers and their families were able to climb out of poverty. Over 80,000 Rwandans escaped the poverty trap because everyone likes a better cup of coffee!
Michigan has the dubious distinction of being inundated with political advertisements prior to the Republican primary next Tuesday. Mitt Romney is running a couple of TV ads saying that he will fund only those programs so critical that it is worth borrowing money from China to finance them. If the programs are so critical to the US, wouldn't a better plan be to finance them with US funds?
The continued improvement in initial unemployment claims, the good employment numbers from December, and a number of other indicators are showing an economy that is starting to grow again, with a possibility of growth picking up to a reasonable or even robust pace. The one fly in the ointment is the Fed, which continues to pursue policies that restrict growth in the broad money supply. With a semi-permanent decrease in velocity (the speed at which money circulates through the economy) due to restructured capital tiering for reserve requirements, what used to be reasonable increases in currency no longer translate into increases in the broader money supply (M3). Bank reluctance to lend adds additional downward pressure to velocity. Don't expect anything to change monetarily between now and the election. Prepare for growing pains along the way to a resumption of modest growth.
The four week moving average initial unemployment claims tantalizingly hit the 375,000 number associated with reasonable job creation. This is the best performance since the Great Recession. However the weekly number increased today. Any continued improvement in the job market will now start to make an impact on the overall economy. Will we see continued improvement? We should know by the end of January.
I was in downtown Lansing today, and it looked like a ghost town. A couple restaurants had no visible customers, one had just someone sweeping--even the library seemed relatively calm. And then there was The Peanut Shop! A double line, out the door! GO figure.
Unemployment claims came in with a strong showing today. Seasonally adjusted claims were 364,000, below the magic number of 375,000 that is associated with strong employment growth. More importantly, the 4-week average continues to show a year-over-year improvement of 30,000+. If that trends continues we should see a good first quarter of 2012--look for significant employment increases then. But don't expect a paved road: the Fed is still not allowing money supply (M3) to grow, and the economy will be muted until the Fed gets its act together.
My totally unscientific and subjective perception of consumers around mid-Michigan is that people are in the stores and the malls. Unlike last year, their carts have items in them and consumers have bags in their hands. I don't see much in the way of frills -- big screen TVs at low prices don't seem to attract much attention -- but maybe consumers are spending a little more on essentials and basic
Money supply M3 fell this week after rising for a couple weeks. A sustained recovery is not possible without sustained increases in the money supply. Unless Bernanke has a sudden change of heart and starts caring about the economy, look for a long period of sluggish growth. The current low growth won't affect the fourth quarter economy, but it will have effects down the road.
The economy had four good 'at bats' in November. It wasn't enough to score a run, but there are now runners in scoring position and with a good December we could at last begin to see some broad economic improvement.
What are the four good 'at bats'? Private-sector employment grew by 140,000 for the month--more like an infield single than a solid hit, but still a baserunner. Consumers had a good swing at the ball. Black Friday was better than last year for in-store retail sales, as were the Thanksgiving week and the Black Friday weekend, up 1.9% over last year; for November same-store retail sales rose 3.1%. Cyber Monday generated a 22% to 33% increase in on-line sales relative to last year. No extra bases, but consumers provided a solid hit in November. Unemployment did OK: the four week average of initial unemployment claims fell to under 400,000. This doesn't qualify as a hit of any kind, but we can credit the improvement of almost 38,000 fewer layoffs than the prior year as a base on balls. Money supply (M3) turned around in the second half of the month after a weak showing in October: at the end of the month M3 stood at 14.8 billion, with a 6% year-over-year growth rate in the last week of the month. Still, this is lower than at the beginning of October or at the beginning of the Great Recession. Let's call this a foul ball and see what the money supply does in December.
A few more hits and the fourth quarter could be the turnaround we all need.