America's Jobs Act Disappoints And Look At UK Producer Prices Over 6% And 16% Respectively!

On the 8th of September we saw two central banks behave pretty much as expected by announcing unchanged policy with the European Central Bank moving itself away from further interest-rate rises. However what was less expected was the rant at the Press Conference of the ECB by its President Jean Claude Trichet! If you think of Kevin Keegan and his famous interview where he lost it when discussing Alex Ferguson then hopefully you get the idea. I think that we can safely conclude that Mr. Trichet does not take criticism well. I would put a link up but Reuters who provided one then took it away (under pressure?).

The number has come to represent America's stuttering and struggling economic recovery and here from the Department of Labor. In the week ending September 3, the advance figure for seasonally adjusted initial claims was 414,000, an increase of 2,000 from the previous week's revised figure of 412,000. The 4-week moving average was 414,750, an increase of 3,750 from the previous week's revised average of 411,000. So these numbers continue to disappoint as we saw yet another 400k plus figure which now makes it 21 out of the last 22 weeks that this has been true. The more recent trend is poor too as the 4 week average is ticking higher again.

This phrase refers to the fact that the maximum term for the various unemployment benefit payments ( they vary as some are Federal based and some are state based) is 99 weeks. As the recession has long exceeded 99 weeks then more and more people use up their full allocation and find themselves in the grim position of receiving no more benefits. In the figures provided yesterday we got further insight into this. States reported 3,060,622 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending August 20, a decrease of 57,420 from the prior week. There were 4,507,669 claimants in the comparable week in 2010. This is not the only programme and the total of 99′ers this week alone was 78,451 if we use the two main programmes.

I have to confess that looking at the numbers for unemployment claims puts me in a frame of mind where I would like to approve of something labelled as “America's Jobs Act”. However one also needs to look at the detail. This was somewhat missing from a speech full of political hyperbole but if we look beyond that we see a package estimated by Bloomberg news as being 447 billion US dollars. If we look for some detail this breaks down into two main efforts which involve on the one and payroll tax cuts and on the other more infrastructure spending. These moves are familiar and readers who are equally familiar with the unfolding Solyndra scandal will be hoping that such a mistake is not repeated. What happened there was that the US government loaned some 528 million dollars to a solar panel manufacturer which a week ago went into chapter 11 bankruptcy. So rather than the “first class infrastructure” promised by President Obama in his speech last night the US taxpayer has seen its money wasted in a manner that also looks somewhat fraudulent.

So in spite of the fact that I read the speech wanting to approve of it there are issues with its concept. In one way there is a similar theme to the QE issue in that we had the Recovery Act of February 2009 which promised some 787 billion dollars of fiscal stimulus and we had the extra fiscal stimulus of late last year. So we come back to if something works so well why do we keep needing more of it? Also it seems that we need new efforts more and more quickly which is a disturbing and worrying trend. Also as I pointed out on twitter when this came out what happened to the apparent consensus that something needed to be done about the deficit? It was only last month we had the debt ceiling debacle and charade! We seem to have returned to spending today and deficit cuts tomorrow in yet another version of kicking the can down the road.It is put like this on the White House fact sheet. To ensure that the American Jobs Act is fully paid for the President will call on the Joint Committee to come up with additional deficit reduction necessary to pay for the Act and still meet its deficit target One section I can outright support as I noticed that 49 billion dollars of the plan is to go to the Emergency Unemployment Compensation programme. I hope that it helps to prevent more people becoming 99′ers. Also reducing payroll taxes if we put to one side the deficit issue is worth a go I think although from a UK point of view it immediately makes me think of the implication of the fact that in recent times we have been raising some of ours.

This morning the UK Office for National Statistics produced these numbers. Output price ‘factory gate' annual inflation for all manufactured products rose 6.1 per cent in August 2011. Input price annual inflation rose 16.2 per cent in August, compared with a rise of 18.3 per cent in the year to July. If we look at these then the output figure is troubling as it remains well above all our consumer price indices and therefore implies rises to come in them as it is a measure which operates at an earlier stage in the price chain. If we look at the detail the stongest component in August was chemical and pharmaceutical products which rose by 1% in the month.Also looking at the detail in the report I noticed that jewellery prices rose which made me wonder if the rise in the price of gold was having an impact, if so possible inflation fears may be helping to feed inflation in an unintended and self-fulfilling consequence. Whilst there was a welcome fall in input price inflation to 16.2% in August we also have to remember that it is still 16.2%! The dip here was mostly caused by a fall in the oil price, falls in the cost of home produced food and some imported parts and components.

As so often we see that there is considerable inflation at both the input and output stage of the UK economy. Whilst there is a welcome dip in input inflation I notice that the oil price is remaining firmer than one would expect with the current economic slowdown in the US and Europe. As I type this the price of a barrel of Brent crude oil is US $114.50. Mind you with Chinese industrial production up by 13.5% on an annual basis maybe the failure of oil and commodities prices has a much simpler explanation! I will return to this subject in future updates but for now would be interested in readers views on whether the economic consensus in the “first world” is looking at itself too much and the rest of the world too little? If we take these producer price figures and add them to our industrial and manufacturing output figures I discussed yesterday we are back to my long running theme of stagflation which shows no real signs of abating much. I opened 2011 with the view that we could see both inflation and deflation this year and we are indeed seeing signs of both.

The producer price series has been subject to some manipulation by the ONS. They did this in the autumn of last year. My full analysis and references to previous articles on this subject can be found in my update on April 8th. For now let me just give you a taste of it. This seems innocent enough but I have looked at the numbers for 2010 and this is its impact on the headline output number for producer price inflation for the months of this year so far. They are -0.3%,-0.4%,-0.5%,-1%,-0.5%,-0.7%,-0.8%,-0.5% and -0.6%. I will leave you to draw your own conclusions! Using the analysis I did them leads me to believe that the figures for producer price inflation for May under our previous system would be 6.7% for the output measure and 17% for the input measure.