17 States Still Project Budget Deficits (It Will Get Much Worse); Moving Targets and the Slowing Global Economy

State economies have partially recovered from the depths of 2009 and early 2010, but 17 states still project deficits. Moreover, there are no rainy day funds or untapped revenue sources, and some "temporary" tax hikes are set to expire. California is $13 billion in the hole but that is a huge improvement compared to the $40 billion hole previously.

Yahoo!Finance reports State revenue rises, but not enough to offset cuts
Twenty-nine states are spending less from their general funds today than they did before the recession, according to a recent joint survey from the National Governors Association and the National Association of State Budget Officers.

More than 30 states have raised taxes since the recession began, but some of those increases were temporary and are expiring soon, as in Arizona. With the economy slowly reviving and unemployment rates dipping, many governors and lawmakers say they don't want to jeopardize the recovery by raising taxes again.

But tax revenue is not expected to grow enough to make up for the impact of four years of dismal economic times. Rainy-day funds, internal transfers and other one-time sources have largely been tapped, so governors and lawmakers must look for new places to cut spending.

Changes to public employee retirement benefits and sweeping reforms to health care programs such as Medicaid are among the most likely targets.

At least 17 states project budget gaps for the next fiscal year, while a handful need to balance budgets in the remaining six months of the current budget year. The revenue of all 50 states combined remains $21 billion below 2008 levels, according to the National Governors Association-NASBO report.

Budget gaps in states projecting shortfalls in the 2012-13 fiscal year are estimated to total $40 billion. By comparison, California alone closed a deficit of $42 billion in 2009, during the worst of recession.

Democratic Gov. Jerry Brown and state lawmakers have fewer options to close the $13 billion shortfall that is projected over the next 18 months.

In December, Brown ordered $1 billion in midyear spending reductions to public schools, universities and social services because tax revenue did not meet projections. The state has given school districts the option of slicing another seven days from the current school year, now 175 days long. That already is five days shorter than before the recession.

Low-income seniors and the disabled will get less in-home care when the reductions start in January. School advocates warn that an estimated 1 million students will have trouble getting to class with a drop in home-to-school transportation funding.

"The cut to transportation is absolutely devastating," said Steve Henderson, a lobbyist for the California School Employees Association. "What that means is a lot of low-income and rural kids will not have the ability to get to school."

Brown has proposed a 2012 ballot initiative to raise $7 billion annually through 2016 by boosting income taxes on individuals making $250,000 or more a year and increasing the state sales tax by a half-cent. He also has submitted a plan to the Legislature to revamp public employee pensions.

Washington state is considering similar cuts to cope with its shortfall, including shortening its school year, eliminating medical programs for 55,000 low-income residents and letting some low- and moderate-risk offenders out of prison early.

Missouri is reducing funding for elementary and secondary education to close a mid-year budget deficit tied to tornado recovery. North Carolina Gov. Beverly Perdue, a Democrat, is warning of thousands of teacher layoffs next fall because federal aid to local school districts is running out.

Moving Targets and the Slowing Global Economy

Things look better than the depths of the recession, but there are two major problems

  1. Moving Targets
  2. Slowing Global Economy

Unlike 2011, the US will not be immune from slowing global economy, especially in the Eurozone and China. Europe will enter a massive recession and there will be spillover effects. I expect an outright recession in the US, but more certainly a profit recession.

In turn, this will mean states will face moving targets and revenues will not meet expectations, just as is happening in Europe right now.

Worse yet, there are no rainy day funds anywhere, and many feel states have already cut services to the bone. This time around, don't expect much help from Congress. It's simply not coming.

Finally, with the stock market flat in 2011, it's safe to assume state pension plans are deeper in the hole than a year ago. Most pension plan assumptions have expectations of 8% or 8.5% growth. It did not happen in 2011, and I expect 2012 to be much worse.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


Taking A Peek At 2012.


Everyone worth his/her salt is making projection about the 2012. There is almost unanimity in the blogosphere that Euro is going to crash and we will see a repeat of 2008/9. So everyone is bearish biased in varying degree. Doomsday drummers like ZH, Mish, Prechter  et all are having a field day predicting the coming demise of Eurozone and return of the civilization to the stone age. We are encouraged to buy guns, bullets and canned foods. In the mean time, readership surges, ad-revenue and subscriptions come pouring in. They or their sister companies sell bonds by the bucket and deposit the much maligned fiat currency in the same TBTF banks on which they heap scorn every day. Not a bad business model, eh?

Yes, the OECD nations have piled up Trillions upon Trillions of dollars of debt and they will find it more and more difficult to service those debts and sustain them. But it is not going to be one straight line down from here. Trading in the stock market is different from fundamental macro economic analysis. Just look at Japan. It has over 200% of debt to GDP ratio and yet the yen is stronger than ever. How do you explain that? If Greek drachma was in existence, I am sure it would have been severely weaker today as a result of the debt problem of Greece.  Then how come JPY is stronger despite Japan having the highest debt in the advanced world? Just shows that there is no straight answer and things are much more complicated than ZH can explain.

How do you explain then that the commercials are net long EURO is a massive way since Sept 2011? These are the big guns that move the market. They are building up the position slowly and will possibly continue to build up long positions. People like ZH, Mish and Prechter just help them, either willingly or unwillingly, to divert attention from the slow and steady built up of their long position, so that the retail continue to sell.

The following is a weekly chart of EURO.
If you compare these two charts, you will note that while EURO was going up from Jan 2011 till end of April 2011, the commercials were building up short positions.The commercials went long from September and Euro has reached its lowest of 2011. Basically the same point where it started the year. So what has changed if I may ask? Why are these people screaming end of EURO?

Also note that there is no immediate relation between price movement of EURO and long or short position of the commercials. But ultimately, price follows the action of the commercials and that is a long term play.
I am not implying that EURO will start going up from tomorrow as a trend change. All I am saying is that the end of the world does not appear to be in the calendar of 2012.

Look at what the commercials are doing with the SPX index futures. This is different from ES.
Compare this with the weekly chart of SPX.

Commercials were net short of SPX from January 2011 till 1st week of August 2011 while SPX went up. They were net long between Mid-August 2011 till Mid-October 2011 when the markets went down. So the commercials are way ahead of the curve. Now they are short again from end of October. So we can be sure that a down turn is coming. May not be tomorrow. But when that down turn comes, just know that it has been planned months and months in advance. That the coming downturn has got nothing to do with whatever nonsense ZH, Mish or Prechter is saying.

This is what I call being unbiased. Trading  is serious business and modern economics is far more complex. So let us separate BS from trading. Hope this last post of 2011 will help explain my methods and approach to the market. Thank you for following me in Twitter (@BBFinanceblog). Please retweet to your family and friends and visit http://bbfinance.blogspot.com/ to profit from the world of finance.

Once again, wish you a very happy New Year.

The Great Ricardian Equivalence Debate of 2011: Do Mainstream Economists Agree on Anything?

Krugman started it, in response to Lucas. Everyone piles on. Plutocracy Files has the list of links. (Plus don't miss Nick Rowe's, which includes a long comment thread.)

Here's what wows me: all these world-classical economists are accusing each other of contradicting "textbook economics," and circling through extraordinary contortions in their efforts to reconcile that school of economics with some version of reality.

There is no consensus. None.

Every one of these folks is bought into classical assumptions, or at least into the Keynesian/classical "synthesis" that's embodied in the IS-LM model (a model that was created explicitly to render Keynes classical, i.e. without the the Keynes, and was later disavowed by its own creator, John Hicks, as nothing more than a "classroom gadget").

And they're all trying to do intergenerational macro in their heads, as a bunch of stylized and simplified thought experiments.

I just finished re-reading Lucretius, and the methodological similarities are striking.

Given that several of the world's most notable "textbook" economists can't agree on how to define what in physics would be the equivalent of angular momentum, some of us have to wonder if the whole discipline as taught today offers any useful macro-level insight or modeling utility at all.

I think it's significant that an authoritative MMT voice has yet to weigh in (I think they all probably think it's silly -- or would be if it didn't reveal such dysfunction), aside from a passing shot by Mike Norman.

Cross-posted at Asymptosis.

Making Sense Of 2011

This article originally appeared in the Daily Capitalist.

This is the time of year when you are supposed to look back and make sense of what happened during the year and make predictions about the new year. A futile task if there ever was one. 

How can anyone make sense of a world where:

  • California prohibits the production or sale of beer to which caffeine has been added (They want drunks to fall asleep at the wheel?).
  • Katy Perry and Russell Brand are getting divorced (Boy, didn't see that coming).
  • Cheetah, the famed comedian, dies at age 80 (Some controversy about he being the "real" Cheetah).
  • Words like "amazing," "baby bump," "shared sacrifice," "occupy," "blowback," "man cave," "ginormous" "the new normal" are banished (Just when I was thinking about building me a man cave).
  • We are bombarded with coronal mass ejections—solar flares (see Harold Camping, below).
  • Harold Camping retires in confusion over his faulty Rapture forecasts (Poor Harold; he should try econometrics).
  • The Rugby World Cup boosted host country New Zealand's GDP (It must have been the additional beer consumption).
  • Brazilian shoppers boost U.S. holiday spending because things are cheap here (They have inflation and higher taxes—Bernanke and Obama, take note).

These data are just too confusing for me. 

I've said enough about the economy this year and I'm fairly content with my calls. I don't do those predictions for the new year any more. I did a 2010 forecast, and 12 out of the 15 forecasts were correct (not nos. 12, 13,and 14). My Megatrends article in 2009 is also pretty good, but I think I would like to re-write it to change some things in hindsight.

But here is what really interests me about 2011: Looking back in time since the Crash of '08, I am impressed by how closely our depression has hewn to classic depression models, especially the Great Depression of the 30s and 40s where there was so much government meddling in the economy. (I urge anyone to read Murray Rothbard's America's Great Depression for the best analysis.) For example, we continue to experience the following indicia of a depression:

The classic credit crunch/liquidity freeze. It was "solved" but only for Wall Street and the big corporations. Not much has trickled down to the masses. The Fed opened the money sluices in 2009 and stood as a lender of last resort to the commercial paper market and opened up the discount window to all comers (not only the Primary Dealers, but also the money market funds and others). But the LRBs (local and regional banks) are something else. Their loan books are still lean (they are looking to new, riskier investments to pump up earnings). What is interesting is not that there is a lack of money for lenders to lend, but loan demand is weak. If you read the reports from the National Federation of Independent Businesses, small businesses (<500 employees) aren't borrowing. They aren't willing to take on debt because of uncertainty about the future of the economy and the future of government policies.

High level of unemployment. This has been persistent and is not yielding to classic Keynesian fiscal stimulus nostrums—not that they have ever worked. The reasons for this are complex, but it has mostly to do with capital destruction. And that has to do with the concept of deleveraging/liquidation of malinvested projects. I believe we still have a long way to go before we can say that there will be enough real capital formed to restart the economy and create jobs. Real capital is not something that can be printed; it must be earned and saved. Let me put it another way: if there were sufficient real capital, we would be in recovery and unemployment would be much lower.

Declining prices. We have been having "inflation" in the Austrian economic theory sense (money supply expansion), but official price inflation measures have been modest and are now declining. If you look at the charts on True (Austrian) Money Supply, we have seen money supply expansion for most of this year and it has resulted in what most economists interpret as economic growth. What they are seeing for the most part is money steroids-induced growth. When the money goes away, the activity goes away.

Deleveraging/Liquidation of Malinvestment. We see persistent declining prices in major asset classes (real estate) because of the continuing deleveraging/liquidation of malinvestments. This is most obvious in the housing markets where prices continue to decline. There is also another factor and that is the oncoming worldwide economic recession has reduced demand for commodities and those prices are declining (See the PPI). To complicate matters, the current economic good news is a head fake, mostly an artifact of an increasing money supply. The effect of monetary stimulation is wearing off and economic activity is starting to decline (almost all measures of manufacturing and industrial activity in the U.S. are declining, but that is another article, soon). 

Contracting money supply (deflation). Money supply may be contracting again. I believe this will result in further economic stagnation, a decline in the stock markets, an acceleration of declining prices and wages, and more quantitative easing. I am not suggesting that QE creates positive economic effects, but after the current money supply expansion wears off (the above noted head fake), a decline in money supply will indicate reduced economic activity. The government and the Fed, as well as the central banks of the major economies, will fight this with every tool they have.

Failed fiscal stimulus. We don't need to say much anymore about this as we see our president on the stump in a rather desperate attempt to pump us up in the hope that talking about the subject will create jobs. Conventional wisdom still beats this drum in favor of more spending and more debt. But that won't fly with the Republicans, at least before the election. 

A resurgence of gold as an investment asset. Massive government debt and Fed money supply expansion has created an unstable future, a weak dollar, and a demand for gold and silver. We have seen major banks and hedge funds jump on the gold train, something that they never have considered before. As DoctoRx has written many times, gold and silver have been overhyped, but still remains an important investment in view of long-term economic risks. As readers know, he suggests waiting on the sidelines for a while longer. Much of gold's price depends on the status of the dollar, U.S. economic performance, U.S. debt levels, Fed policies, general commodities prices, and  instability in the rest of the world. Unlike FDR, citizens have the right to own gold and protect themselves against long-term degradation of their assets.

In other words, no matter how much the Fed and the Administration try to flog the economy, nothing has really worked. As much as Bernanke boasted about being able to prevent another depression, he and the Bush-Obama Administrations have done everything they could to make things worse. And the classic indicators of a depression are still playing out and reminding us of the inefficacy and incompetence of conventional economic wisdom.

What will 2012 bring? I don't exactly know, but I think it will be continued economic stagnation and perhaps even negative GDP, continued high unemployment, and more quantitative easing. (I will discuss this soon.) What will really be important in 2012 is the Presidential and Congressional elections. If the Republicans take hold of the presidency and Congress, then in 2013 we can hope Obamacare will be repealed, spending will be seriously cut, and some of the more egregious new regulations will be eliminated. I don't have a lot of faith in the Republicans to achieve real reform, but I think they will know why they were voted in and that they will have only 3 years to attack some of our fundamental problems (spending, debt, entitlements). If Obamacare manages to take hold, then I don't have much hope for America's long-term prospects.

Stocks Bull Market Relief Rally Sends Dow to 5.5% Gain for 2011 Before Dividend Income

The DJIA closed an extremely volatile 2011 up 5.5% at 12,217 (11,577) before dividend income is taken into account, which in terms of the indices is about the minimum return one should expect from long-term stock market investing, so as to beat Inflation. Now before readers start stating a string of indices that failed to end the year in positive territory i.e. showed significant divergence to the DJIA. In which respect the Dow has always been my primary stock index for analysis and trading for the past 25 years, and highlights the mistake many analysts tend to make which is to play pick and mix with stock indices, such as the perma-bear's who jump from index to index, whichever with the benefit of hindsight supports the bear point of view, which at this point would have many opting for the european stock markets, China's SSE (-21%) or for a really big 'ouch' factor India's BSE (-24%), though it is unlikely the bear trends in any of these markets would have actually been capitalised upon since most are only being mentioned with the benefit of hindsight.

Guest Post: A Future View Of Post-Bubbledemic America

Submitted by Ben Tanosborn

A future view of post-bubbledemic America

Balancing the budget in 2032 is going to be a rather easy, mechanical task for future American politicians.  A constitutional amendment requiring balanced budgets will be enacted by then, and Congress will only need to tackle projected deficits by adjusting variable pension and Medicare rates – for those retired – which will have replaced the current models for Social Security and Medicare.  And if worst comes to worst, there will be room for additional cuts from the budget of an already octomated military which by then will lack any hegemonic designs as other major world powers claim their legitimate stakes and defend their grounds. 

That’s my prognostication as we close 2011, a year of much turmoil around the world, and one with a hopeful spark for change in the United States of America, as Wall Street’s macabre face slowly becomes unveiled.

It will be the younger generations’ payback to the current generations for leaving them with an inherited debt approaching then twice the gross national product; a debt they will only be able to amortize on the backs of the retired population… the people who thought nothing of creating this burden for them, their children and their grandchildren.  Such prediction does assume capitalism, in whatever form, remains in our midst; a likely occurrence, as “owners” of the current system will enforce it from the top down via the capitalists’ police force: the nation’s military. But that remains a questionable, not a sure thing.

As I see it, we are still in for a decade of social and economic turmoil in a nation of proud yet disposed people, with much economic juggling continuing to be performed by never-learn politicians as we march to do battle with a few more economic bubbles.  Our capitalist and prolific economic motherland will birth a few more bubbles before bubble-hysterectomy is finally forced on her; a little too late, I am afraid, with only symbolic significance and little else.  The housing bubble, only partially deflated during the past four years, will continue to lose air and new bubble-twins will make their entrance in the form of state and municipal debt which cannot be repaid; not to forget the ugliest sibling of all yet to be birthed: government guarantees on student loans which, as they become uncollectible, will sooner or later become part of America’s national debt.

This projected educational debt through guarantees, legislatively imposed on the taxpayers by a deranged, lobby-connected, pseudo-democratic system, has bestowed incredible wealth on both for-profit and non-profit businesses and institutions, at a cost to taxpayers likely to add yet another trillion dollars to an already unmanageable debt.  They will become cashable-guarantees from the federal government which have had a double negative effect: first, by hiding the true unemployment and underemployment rate, as it allowed millions of unemployed and “professional” students, to attend both traditional and for-profit sham schools, where skills/knowledge acquired – if such took place – will be in most instances irrelevant to society since there won’t be any jobs or positions for them as they attain their certificates, diplomas or designations.

Could it be that the United States is entering a brand new era when the discussion switches from “illegal immigration” to “brain-drain and American migration”?  Will our best and brightest people find hope and refuge in other shores… those of Brazil, parts of Asia and new Liberia’s in Africa?  Will future American ex-pats be sending money to feed and care for their impoverished old back in the States?  That picture may not be so unreal, certainly not outrageous; by the time Americans come to de-celebrate the centennial of the Great Depression… just a score from now.

Whether it takes a decade or a score, the term “economic stimulus” will finally disappear from the lexicon of fully developed, mature economies such as the United States; and the people in those nations will be forced to live within their current productive means.  And that productive citizenry will not consider it amoral to have their elders pay for the debt they inherited from them.  When you think of it… it does seem equitable and fair.

A sad but realistic outlook as 2011 comes to an end in an America of many past accomplishments… now confronting an uncertain and gloomy future.

The road ahead: bull & bear case

As 2011 draws to a close and we 2012 dawns, it's time to consider the bull and bear cases for the stock market and risky assets. I had already outlined my bull case for the market on December 19 (see The bull case for stocks). The bull case consists of:
  • The coordinated central bank liquidity injection of November 30 has taken a Lehman-like event off the table.
  • In the US, the Fed does QE3 in the 1H, which would send asset prices flying.
  • In Europe, the ECB is already engaged in a form of QE though the back door using LTRO, which should heal banking balance sheets over time.
Go and read my previous post, there is little more to be said.


The bear case for stocks
From a macro viewpoint, the three regions to watch are Europe, the US and China and the emerging markets. The market was focused on the possibility of a European banking crisis during much of 2011. No, the bear case for stocks in 2012 does not rest with Europe. I believe that market's focus will shift from Europe to the other regions of the world in 2012.


Europe: From heart attack to cancer
The ECB's LTRO program, which offered banks unlimited liquidity for up to three years, has virtually eliminated the possibility of a banking failure. In addition, coordinated central bank intervention that offered unlimited USD liquidity also showed that central bankers around the world are well aware of the risks of a Lehman/Creditanstalt credit event and have taken steps to address the problem. Nevertheless, problems remain and all Draghi & Company has done is bought time for the politicians to address the long term issues.

What is the market saying about Europe? Scott Grannis wrote in his PIIGS Update that conditions in the bond market are normalizing, though far from ideal. The ECB's balance sheet expansion does not appear to be leading the eurozone down the hyperinflation path, but problems remain. In other words, Europe has gone from avoiding the imminent heart attack to a lingering but treatable cancer. We will have to watch and see how the politicians address the longer term problems of the competitiveness disparity between North and South, as well as the debt situation of the PIIGS. No doubt, we will continue to have crises and summits, but the risk of a catastrophe is lower than it was in 2011.


A US recession in 2012?
One thing that investors shouldn't forget that stock prices depend on fundamentals, i.e. earnings, growth outlook, interest rates, etc. An American recession would affect the outlook for earnings and therefore depress stock prices as a result. The question for the bears is, "Will the US experience a recession in 2012?"

Certainly, a recession would not be out of the question here. This post from Pragmatic Capital shows that the US was in recession 18.3% of the time in the 2000-2011 period and a whopping 30% of the time if you consider the 1855-2011 time span. The likes of ECRI and John Hussman have been trumpeting their recession forecasts for the American economy. On the other hand, recent economic releases have largely been coming in ahead of expectations, which point to an economy with subpar growth, but no signs of a slowdown.

Should the US experience a recession, the S+P 500 could easily fall to the 900-1000 level, though it is unlikely to revisit the post-Lehman panic low of 666.


Watch out for China
I believe that the bear case for stocks rests largely with China and the emerging markets. I wrote on December 13 to watch for the China is slowing stories to emerge (see A "China is slowing" scare?). Whether China slows to a hard landing, i.e. sub-5% growth, or not is less relevant to the markets as the scenario of the markets starting to discount the possibility of a Chinese hard landing.

Since I wrote that post, the scare stories are starting to appear. Consider:
I could go on, but you get the idea. More worrying is the fact that other analysts are starting to pile on, not just the China is slowing story, but the prospect of slowing growth in the emerging markets. As an example, Stephen Roach recently penned an article entitled Why India is riskier than China.

I wrote here that the stock indices in India and China are not behaving well. I believe that the biggest risk for the stock markets is a rising level of risk aversion as investors price in the increasing likelihood of a slowing growth from the emerging market economies.


Listen to the markets
In the end, I stand with the bears on the recession, or economic slowdown, call. Commodity prices remain in a downtrend, which is a signal of slowing global demand for raw materials.


The CRB Index is liquidity weighted, which means that it is more energy heavy. As you can see below, oil prices have been behaving relatively well lately.


We can get a even better picture of global commodity demand from the Continuous Commodity Index, which is the CRB Index on an equal weighted basis. The picture of the CCI looks even worse than the CRB as it has undercut its October lows and remains in a well-defined downtrend.


As well, you can tell a lot about short-term direction by the way the market responds to news. In the past couple of weeks, we saw a couple of important signs that much of the good news is priced into stocks. The first occasion occurred when the market sold off in the aftermath of a better than expected LTRO at €489 billion. The second was when it sold off again when Italy sold six-month bills at yields that were roughly half of what they were in November.

When the markets go down on good news, the bulls should be wary. In addition, signs of a global slowdown are on the horizon.

That's why I stand with the bears.


Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.


Schedule for Week of Jan 1, 2012

Earlier:
Summary for Week Ending December 30th

Happy New Year! The key report for this week will be the December employment report to be released on Friday, Jan 6th. Other key reports include the ISM manufacturing index on Tuesday, vehicle sales on Wednesday, and the ISM non-manufacturing (service) index on Thursday.

Note: Reis is expected to release their Q4 Office, Mall and Apartment vacancy rate reports this week. Last quarter Reis reported falling vacancy rates for apartments, rising vacancy rates for regional malls, and a slight decline in the office vacancy rate.

----- Monday, Jan 2nd -----

All US markets will be closed in observance of the New Year's holiday.

----- Tuesday, Jan 3rd -----

10:00 AM: Construction Spending for November. The consensus is for a 0.5% increase in construction spending.

ISM PMI10:00 AM ET: ISM Manufacturing Index for December.

Here is a long term graph of the ISM manufacturing index. The consensus is for a slight increase to 53.2 from 52.7 in November.

2:00 PM: FOMC Minutes, Meeting of December 13, 2010.

----- Wednesday, Jan 4th -----

7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been especially weak all year, although this doesn't include cash buyers.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for November. The consensus is for a 1.9% decline in orders.

All day: Light vehicle sales for December. Light vehicle sales are expected to be unchanged at 13.6 million (Seasonally Adjusted Annual Rate).

Vehicle SalesThis graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the November sales rate.

Growth in auto sales should make a strong positive contribution to Q4 GDP. Sales in Q3 averaged 12.45 million SAAR, and so far (October and November) sales have averaged 13.42 million SAAR in Q4, an increase of 7.6% over Q3.

Edmunds is forecasting:
[A] projected Seasonally Adjusted Annual Rate (SAAR) of 13.4 million units, forecasts Edmunds.com ... The sales pace is a slight dip from the 13.6 million SAAR recorded last month.
And TrueCar is forecasting:
The December 2011 forecast translates into a Seasonally Adjusted Annualized Rate (SAAR) of 13.5 million new car sales
----- Thursday, Jan 5th -----

8:15 AM: The ADP Employment Report for December. This report is for private payrolls only (no government). The consensus is for 160,000 payroll jobs added in November, down from the 206,000 reported in November.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a decline to 375,000 from 381,000 last week. Last week was the lowest level for the 4-week average of weekly claims since mid-2008.

ISM Non-Manufacturing Index 10:00 AM: ISM non-Manufacturing Index for December. The consensus is for an increase to 53.4 from 52.0 in November. Note: Above 50 indicates expansion, below 50 contraction.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

----- Friday, Jan 6th -----

Payroll Jobs per Month8:30 AM: Employment Report for December. The consensus is for an increase of 150,000 non-farm payroll jobs in December, up from the 120,000 jobs added in November.

The consensus is for the unemployment rate to increase slightly to 8.7% in December from 8.6% in November.

This second employment graph shows the percentage of payroll jobs lost during post WWII recessions through November.

Percent Job Losses During RecessionsThrough the first eleven months of 2011, the economy has added 1.448 million total non-farm jobs or just 131 thousand per month. This is a better pace of payroll job creation than last year, but the economy still has 6.2 million fewer payroll jobs than at the beginning of the 2007 recession. The economy has added 1.711 million private sector jobs this year, or about 156 thousand per month.


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