Friday, November 27, 2009

Another V-Sign: Manufacturing Overtime Hours

Scott Grannis writes about another V-sign of the economic recovery: the rebound in real personal consumption expenditures:

The turnaround has nothing to do with cash-for-clunkers, since that washed out of the numbers by the end of October (i.e., some spending was accelerated, followed by some payback). On balance, real spending increased in 5 out of the six months ending October, and it rose at a 2.6% annualized rate in the four months following the likely end of the recession in June.

Scott concludes:

Things could be a lot better, to be sure, but there are things to be thankful for this Thanksgiving. One year ago we were standing on the edge of a fearsome abyss, while today we are arguing about how fast the economy is going to grow.

MP: Another V-sign of economic recovery is the turnaround in overtime hours for manufacturing workers (see chart above). The 23.1% increase over the last seven months, from 2.6 hours in March to 3.2 hours in October, is the largest 7-month percentage increase in manufacturing overtime hours since 1983 following the 1982 recession.

See related from today's Wall Street Journal "
Overtime Creeps Back Before Jobs," which starts by saying that "Overtime is returning at many manufacturers, boosting workers' battered wages and helping companies increase output during a period of uncertain growth."


At 11/28/2009 3:33 AM, Blogger PeakTrader said...

Signs of economic problems began in 2006:

July '06 - Home prices hit an all-time high.

August '06 - Home prices nationwide post first decline in 10 years, and gas prices now average $3 a gallon - staying there for multiple weeks (later rose above $4).

April 2 '07 - New Century Financial, the nation's largest subprime mortgage lender, files for bankruptcy.

July 17 '07 - Investors are told two Bear Stearns hedge funds, heavy into mortgage-backed securities, are now worth nothing.

Aug. 10 '07 - The Federal Reserve injects $38 billion into the banking system as fears of a freeze-up in the credit markets mount.

Aug. 22 '07 - Countrywide Financial, a big mortgage lender, sells $2 billion in stock to Bank of America to raise cash as borrowers default on subprime mortgages.

Sept. 7 '07 - The country loses jobs for first time in 4 years.

Sept. 18 '07 - Fed cuts interest rates for first rate cut in 4 years.

Oct. 19 '07 - Dow hits all time high of 14,198.

Nov '07. - Home prices fall by over 2% from the month before, the biggest drop since 1987.

Feb. 3 '08 - Lawmakers approve the economic stimulus plan, sending $168 billion in cash to consumers in an attempt to revive the economy.

March 16 '08 - Bear Stearns, a storied Wall Street investment bank, collapses.

June '08 - Gas prices cross $4 for first time ever.

July 11 '08 - California bank IndyMac fails, customers line up to withdraw money.

Sept. 7 '08 - U.S. government seizes control of Fannie Mae and Freddie Mac, the nation's largest home mortgage lenders.

Sept. 14 '08 - Bank of America buys investment bank 94 year-old Merrill Lynch.

Sept. 15 '08 - Lehman Brothers, another big Wall Street bank, goes bust, leaving just two investment banks standing.

Sept. 16 '08 - Federal government takes over American International Group, one of the world's largest insurance firms, in an $85 billion deal.

Sept. 25 '08 - The government seizes Washington Mutual, the nation's largest savings and loan. Sells bank to J.P. Morgan.

September '08 - Economy sheds the most jobs in five years, total losses for 2008 hit 760,000.

Oct. 3 '08 - Lawmakers pass $700 billion Wall Street bailout.

Oct. 10 '08 - Dow falls as low as 7,884, a 44% drop in one year, and millions of American's watch their retirement savings disappear.

At 11/28/2009 7:06 AM, Blogger juandos said...

Interesting time line PeakTrader and quite informative also...

I see the 'not so invisible heavy handed federal government intrusion in most of your time line...

Gannis's comment:"When you consider the world as a closed economic system, it's a mathematical fact that total world spending can only be equal to total income—we can only spend to the degree that we earn, and we can only consume to the degree that we produce"...

Gosh! Wouldn't that be great if that were the way it was?

Something else from the Grannis posting that I'm seriously skeptical about at least for this country: "This recovery will likely be a little different from past recoveries, however, since the recession was precipitated by a major shock to confidence"...

What I'm wondering about is how much of the problem would've happened if there hadn't been a Clinton Administration enhanced CRA?

At 11/28/2009 2:53 PM, Anonymous English Bob said...

Yeah, if YOU are getting overtime you're giddy.

If employers are giving overtime it means they are acknowledging increased demand as TEMPORARY, otherwise they'd be pulling on more permanent employees.

Get this through people's thick skulls: every 40 hours of overtime is one foregone full time job with benefits. This is one reason why labour unions are so onerous. Hiring is costly and overtime gives firms labour flexibility. So voluntary overtime choices by a firm are a BAD signal for hiring, not a good one, unless their HR pipeline is empty which is doubtful.

Anecdotes of overtime and sales pushes are just that, anecdotes. These follow seasonal fluctuations. This Christmas might be better than last year, but that's not saying much. Everything is at a deep discount.

If you haven't been paying attention, Dubai World is illiquid and possibly insolvent. That portends the coming earthquake of commercial real estate and financial ruin. Here you are fiddling while Rome is burning just to support
preconceived notions of recovery- dancing in the graveyard.

Peak Trader's chronology tells us what happens when we ignore big flashing lights and sirens of warnings while having a great time driving drunk at 160kph in the Durango 95 with the wireless blaring. It will not be pretty.

There will be no V. This will be a flat bottomed U.

At 11/28/2009 7:00 PM, Anonymous Dr. T said...

Overtime is going up so quickly because even with increased demand, businesses are reluctant to hire more employees. That's a bad sign.

At 11/28/2009 7:31 PM, Blogger PeakTrader said...

Thanks Juandos. Here's a related article:

Friday, Nov. 06, 2009
U.S. productivity soars 9.5 percent

U.S. companies increased their output in the third quarter even as they slashed working hours, driving productivity up at a 9.5 percent annual rate in the quarter, the Labor Department estimated Thursday.

Unit labor costs - a key measure of inflation - dropped at a 5.2 percent annual rate in the quarter.

Productivity is output divided by hours worked. Output rose 4 percent annualized, while hours worked plunged 5 percent. Real hourly compensation increased at a 0.2 percent annual rate.

With productivity high and real compensation low, companies captured the lion's share of the benefits of higher productivity in the form of profits. Inflationary pressures remained very low.

The huge increase in productivity explains why the U.S. economy could grow at a 3.5 percent annual rate in the third quarter even as jobs were being lost at a rapid pace.

But some economists believe companies have squeezed just about all the extra work they can out of their remaining work force and that more hours of work will have to be put in if output is to increase much more.

In the second quarter, productivity increased at an upwardly revised 6.9 percent annual rate. Unit labor costs fell a revised 6.1 percent in the second quarter.

In manufacturing, the gains were more impressive, with productivity surging at a record 13.6 percent annual rate. Unit labor costs in manufacturing fell 7.1 percent.

Productivity, a concept that's simple in theory but elusive in practice, is output divided by hours worked. Productivity gains are the key to higher living standards, higher wages, increased profits and low inflation.

After undergoing a productivity boom in the late 1990s, productivity slowed heading into the recession, rising 1.8 percent in 2007 and 2008.


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