Posts Tagged ‘chris isidore’

Taking their chances on the wall of debt

29 July 2011

This morning’s surprise news is that, after last night’s fiasco in which House Speaker John Boehner could not round up enough votes for his own deficit reduction plan, 10-year Treasury bond prices are not only not down, they’re actually up, by a good bit. Interest rates on Treasuries, which move in the opposite direction as T-bond prices, are down 10 basis points to 2.84% (as of 11:14 a.m.). What gives?

Well, for one, the bond market may not have been expecting much from Boehner. The media had already been saying that he’s a much-weakened House Speaker, after watching his failure to rein in his Tea Party faithless. And any House Republican plan would likely be dead on arrival in the Senate anyway.

Another possibility is that as it becomes more likely that the government bumps up against the current debt ceiling on Aug. 2, that counterintuitively, T-bonds might actually be seen as safer, as Chris Isidore writes in CNNMoney. Why? Because the single biggest actor on the U.S. economic stage, the federal government, would be officially dysfunctional, even more so than it is now. Today through Aug. 1, at least, the government can meet all of its financial obligations. If Aug. 2 is indeed D-Day, then on Aug. 2 the government becomes a deadbeat, at least to somebody. And quite likely, it would not be T-bondholders. This assumes that (1) the government would still be allowed to issue more debt in order to pay off its maturing debt and (2) the Treasury would prioritize the interest on that maturing debt above its other obligations. As notes on NPR this morning, most commentators seem to agree that it is in the national interest to not stiff any of our bondholders, as an actual default would surely cause interest rates to skyrocket. If Aug. 2 is the beginning of Treasury triage time, then the government would more likely stiff someone else, like government employees (please please start with members of Congress!) and government claimants who lack political clout (i.e., not seniors or the military). This creates a lot of chaos, as people don’t know when they’ll be paid, which makes them less likely to spend or repay money and creates pressure on credit markets. In sum, the market reaction may just be the usual “flight to safety” that occurs when markets think conditions are about to get worse and also more chaotic. This would be consistent with the beating that stocks have been taking lately.

It may also be that the bond market is reacting to other news, like the dreadful GDP figures that just came out today. Real GDP in the second quarter grew just 1.3% (worse than the consensus forecast of 1.8%), and first quarter growth was revised drastically downward to 0.4% (from 1.9%). These numbers are “growth recession” territory (where the economy grows but not fast enough to generate enough jobs to keep unemployment from rising), consistent with the rise in unemployment (from 9.0% to 9.2%) over the last few months. As with the debt-ceiling brinkmanship, these new signs of economic weakness are a plausible reason to pull money out of stocks and put it into Treasury bonds.

But why Treasury bonds, you ask, and not another safe haven? The simple answer seems to be that there are woefully few alternatives. As Isidore puts it:

‘U.S. Treasuries are such a massive market — about $9.8 trillion — that they dwarf the markets of other so-called “safe havens” such as gold, top-rated corporate debt or the bonds of other countries with AAA ratings.’

So worldwide investors still like their chances on the wall of debt that is U.S. Treasuries.

P.S. Richard Thompson’s duet partner here is not Linda Thompson, but Christine Collister.

Keep on working

8 November 2010

Some thoughts on last Friday’s BLS employment report, otherwise known as “the good one”:

The employment report is pretty good news indeed, especially as regards job creation in the private sector.  151,000 jobs were created overall (in the private and government sectors combined), about twice as many as market analysts had projected.  The increases in the length of the workweek and in overtime hours are also welcome news, as these are considered leading economic indicators.  (This is because companies often cut the hours of their workers during a recession and extend the hours of their workers in the early stages of a recovery rather than take on the overhead costs of hiring new workers.  As the recovery gains steam, they’ll actually hire new workers.)

Alas, the increase in employment, though much larger than expected, is still not large enough to reduce the unemployment rate, still at 9.6%.  The increase in employment was offset by new entrants into the labor force, not all of whom found work. All of this happened without any big changes in the labor force participation rate or the more comprehensive U-6 unemployment rate, which is still around 17%.

The increase in weekly paychecks is particularly good news, as Chris Isidore of CNN/Money notes.  Isidore points out that the increase comes not so much from higher hourly wages as from longer workweeks.  He mentions that 318,000 fewer workers are involuntarily working part-time instead of full-time jobs, compared with last month, and that is a big positive deal for a lot of people.

However, the increase in average weekly hours is not all that big; 318,000 is not that big a number compared with total employment (131 million).  The 1.8% month-to-month increase in average weekly hours was the largest in 26 years, as Isidore notes, but that too is less of a big deal than it might seem.  It’s an increase from 33.7 hours to 34.3 hours.  If you’re rounding to whole numbers, as I like to do to keep things less “statsy,” you’d miss the increase entirely.

A number worth trumpeting, as Isidore does, is the 3.5% year-to-year increase in average weekly wages, from September 2009 to September 2010. That’s especially good considering that inflation over the same span was about 1%, which means a 2.5% increase in real weekly wages.  A real wage increase of that magnitude was normal once upon a time (1947-72 and the second half of the 1990s), but for most of the past 40 years real wages have grown very slowly or hardly at all.  We’ll take it.