The jobless rate dropped to 9.7% in January from 10% in December– an unexpected turnaround. But the jobs picture is much shakier than that headline number suggests: seasonal adjustments to the numbers account for much of the rate change. Further, the nation still lost 20,000 jobs last month.  Calculated Risk notes that on a percentage basis, this recession has produced the most severe job losses since WWII.

Over at Credit Writedowns, Edward  Harrison explains the nitty gritty of the seasonal adjustment to the unemployed number.

…In December 2009, there were 15.267 million people unemployed on a seasonally-adjusted basis. This ticked down to 14.837 in January 2010, a fairly large drop of 430,000. Meanwhile the unadjusted numbers go the other direction – massively. In December 2009, the number of unemployed persons was 14.740 million. This rose 1.4 million to 16.147 million. Therefore, we saw a swing of over 1.8 million between what the unadjusted and the seasonally adjusted data are saying about who’s unemployed. The number of people employed increased by over 500,000 on a seasonally-adjusted basis, while it decreased by over 1.1 million on an unadjusted basis. That’s a swing of 1.6 million.

Bottom line: the unemployment rate downtick has nothing to do with people dropping out of the workforce, it is an statistical aberration due entirely to seasonal adjustments in the household survey in the number of people employed and unemployed.

via Unemployment number decline is all about seasonal adjustments – Credit Writedowns.

A few other items to note in the report: The Bureau of Labor Statistics released its annual revisions, which showed job losses were much more severe in 2009 — by 600,000. On the plus side, temporary hiring continues to expand; hourly wages rose; and the workweek expanded by one-tenth of an hour, a sign that employers may be turning part-time workers into full-time workers.

We will have to wait until February to really know if the unemployment picture is improving in a more meaningful way.

Weekly jobless claims edge up as retail sales rise (clcik to enlarge)

Retail sales numbers for January came out today and were surprisingly strong. Here are few things to think about in reviewing the numbers:

First, anyone who hasn’t lost a job over the past two years is probably feeling that they aren’t going to lose their jobs. The fear factor in the economy is ebbing, so those with jobs are spending a bit more.

Second, the retail numbers are unlikely to signal much good news for the unemployed — at least not for a long while. Calculated Risk notes that the four-week running average for weekly unemployment claims is rising, with the average now 28,000 above the January low:  “Both the level of claims, and the recent increase in the 4-week average, are concerning and suggest continued job losses.”

And finally, I can’t help but wondering when and whether these numbers will translate into higher tax receipts for states. So far, retail sales numbers and tax receipts aren’t in sync. Gotta keep an eye on that. The numbers, for example, don’t take into account store closings.

Here’s the top of the  Wall Street Journal story on January retail sales; click on the link at the bottom for the full story:

Retailers continued their comeback last month, with long-suffering categories like department stores and apparel retailers showing signs that consumers are returning.

January same-store sales rose 3.3%, according to the 29 publicly traded retailers tracked by Thomson Reuters. The monthly gain, the strongest since April 2008, exceeded projections for a 2.5% advance at stores open at least a year and followed a 2.9% rise in December.”I think we're seeing that customers came out after Christmas and stayed out,” said Janet Hoffman, global managing director for retail at consulting firm Accenture. “Retailers are doing a significantly better job at managing inventory. So the markdown frenzy we saw last year didn't occur,” which will help profit, she said.

via Retailers Gather Strength as Sales Rise 3.3% – WSJ.com.

Graphic from Calculated Risk

Back when he was in Harvard Law School, people said that Barack Obama could give a speech that had opponents believing he sided with them both — even though that clearly wasn’t possible.

The State of the Union address last week turns out, then, to be vintage Obamaspeak. The Economist insists the President declared unwavering devotion to health-care reform. Wall Street Journal columnist Peggy Noonan says the President quietly laid the health-care bill to rest and was moving on. Both accounts, however, agree that the President pretty much buried the health care section of the speech.

Here the Economist’s assessment:

BEING a president and not a journalist, Barack Obama buried the lead. But for all his talk about creating jobs and taming the deficit, the big news in his state-of-the-union speech on Capitol Hill this week was that despite the Democrats’ recent stunning loss of Ted Kennedy’s Massachusetts seat—and with it their supermajority in the Senate—the president intends to press ahead with health-insurance reform. The only thing he could not say was how he intends to do it.

via The state-of-the-union message: Still talking, at any rate | The Economist.

And now for Peggy Noonan:

The president did not speak of health care until a half hour in. “As temperatures cool, I want everyone to take another look at the plan we've proposed.” Then, “If anyone has a better idea, let me know.” Those bland little sentences hidden in plain sight heralded an epic fact: The battle over the president's health-care plan is over, and the plan will not be imposed on the country. Waxing boring on the virtues of the bill was a rhetorical way to obscure the fact that it is dead. To say, “I'm licked and it's done” would have been damagingly memorable. Instead he blithely vowed to move forward, and moved on. The bill will now get lost in the mists and disappear. It is a collapsed soufflé in an unused kitchen in the back of an empty house. Now and then the president will speak of it to rouse his base and remind them of his efforts.

via The Obama Contradiction – WSJ.com.

What do you think the President said? Here’s a link to the speech.

Washington report card (click to enlarge)

“An extraordinary upset.”

“A historic win.”

“A stunning blow.”

But just how surprising is Republican Scott Brown’s victory over Democrat Martha Coakley in Massachusetts, a state Presidential candidates largely ignore because it always votes Democratic? For anyone following the polls for the past eight months the short answer: not very. That’s because the Massachusetts elections is as much a story about health care and the economy as it is a story of data blindness and how it damaged the purring Obama machine.

The first signs of trouble appeared in April. Back then, the nation was in the grip of Obamaphoria and party-pooping commentary was definitely unwelcome. To recap: April was the month when everyone began writing about “little green shoots” in the economy, a nascent recovery! The stock market was already one month away from its lows; Treasury was preparing a stress test that would once and for all reveal who was solvent and who was not among the nation’s banks. As another hugely popular president once said: It was morning in America again.

No surprise, then that an April  NYTimes/CBS poll showed that Obama commanded an impressive 61% approval rating. The NYTimes shouted the news, obliterating the pesky details in the wide-ranging poll that while voters really liked Obama (What a surprise! After four months would voters turn on their historic choice?), they were quite divided on whether they supported his agenda. I pointed out back then that if you skipped passed the cheerleading there were some important concerns about spending :

Even while in the throes of a global financial crisis, Americans are in a statistical dead heat on whether to stimulate the economy by spending more money even if that means deepening the deficit (45%) or whether the Administration should focus on reducing the budget and the national debt (46%). Further, a whopping 63% of those participating in the poll said they were “very concerned” that the growing debt load would “create hardships for future generations of Americans.” Another 28% said they were “somewhat concerned” about leaving a legacy of debt. In other words, 91% of those polled aren’t comfortable with the ballooning national deficit, which the Congressional Budget Office projects will reach $9.3 trillion between 2010 and 2019, $2.3 trillion more than White House estimates.

Those pesky details got buried. It was good to feel good again after eight long years in the desert. And it was just at this juncture that the White House and the Congressional Democrats began what Peggy Noonan last weekend called the disconnect between their agenda and voters. The Administration missed a critical moment. It had confused popularity with support; it fell prey to what I called the Sally Field moment. Oscar in hand she had declared:  “”You like me, right now, you like me!”  The operative phrase is “right now.” The historic and decisive victory in hand, Team Obama had assumed they could plow ahead with their agenda and the public would come along, even if grudgingly. “I won,” Obama reportedly said to Republicans who dared to challenge the newly-minted president last January.

The dis-ease with the spending programs gained momentum in June from two new polls I wrote about as well. Again to recap: By early summer the stock market rally was in full throttle. Consumer sentiment was on the way up. The green shoots were looking like little bushes and most of the banks had passed a placebo stress test from Treasury with flying colors. The stock market rally was in full blossom. Unemployment was still a single-digit number. And the health care bill was still inchoate, just a Rorschach for everyone’s hopes.

But the statistical dead heat in the June polls had become a Massachusetts-style shocker: deficit concerns now took precedence 52% to 41%. Further, the Times reported that six in ten respondents in its June survey didn’t believe that the Administration had a game plan on how to battle the ballooning debt — including 65% of independents, the very same group that powered Scott Brown’s victory and the Republicans in New Jersey and Virginia.

Now, on the eve of Obama’s first year anniversary, his party has swallowed a massive defeat in a state he carried with 62% of the vote. And this election wasn’t even close. Brown smashed Attorney General Coakley 52 % to 47% — very similar to the Obama – McCain matchup: 52% to 46%.

The disaffection of independents with the Obama agenda — from health care to cap and trade to the economy — is just one way to write this story:

Nationally, a new Wall Street Journal/NBC News poll shows that Mr. Obama’s job-approval rating among independents stands at 41%. That’s a 12-point drop from his performance on Election Day in 2008, when he won 52% of independents, and a near-20-point decline among that group from the heights of his popularity soon after taking office.

Put another way, data blindness did in Team Obama. Obama and his supporters were assuming that just because they had won the night on November 4 that they had won whatever lay ahead. The poll numbers were signaling something different and more complex. This post is not just about “I was right” but about the way our beliefs skew our interpretation of numbers. It’s something I encounter all the time in my musings on the economy. continue »

Is Sheila Bair thinking about ways to garnish lobbying fees of failed regulators?

Here’s a new chapter in the ongoing serial novel yclept Regulatory Capture: The battle for bucks.

The FDIC narrowly endorsed a proposal this week that would tie risk-taking, compensation and bank insurance fees. Can you imagine that? Linking risk, compensation and fees? The proposal is ruffling feathers, and none-too-surprisingly the plumage of one senior official central to the institutionalization of too-big-to-fail:

Comptroller of the Currency John Dugan, an FDIC board member, said he had “substantial concerns” about the proposal, in part because the Fed and Congress are moving forward with separate plans.

“It would be very unfortunate to have an end result where insured institutions…were subject to inconsistent schemes evaluating the risk of their executive compensation programs,” Mr. Dugan said. John Bowman, an FDIC director who is also acting director of the Office of Thrift Supervision, asked, “What are the limits of the FDIC’s authority?”

Ms. Bair responded with an unusual public rebuke. “I must say to take a position that we should not even be asking these questions is not one that I can understand,” she said.

via FDIC Moves to Tie Fees to Bank Pay – WSJ.com.

Dugan, in theory, fears balkanazation of regulatory authority. Yeah, right. That’s why he opposes any reform that would steal one iota of authority from the OCC –which he claims has done a fabulous job at both protecting consumers and supervising the national banks that failed in 2008. His testimony has vocally opposed expansion of powers of the Fed at the expense of tapping OCC expertise or new authority for the FDIC on those pesky mortgage securities. In Washington, it’s all about turf.

Dugan is an experienced hand at managing turf, whirling through the giant revolving door marked “D.C.” as a Senate staffer, lobbyist and Treasury official.  The OCC job has provided primo turf for Dugan, where for the past five years, he became “one of the most powerful engines of economic policy in the world,” according to a terrific profile in The Nation.

The OCC would also turn out to be the perfect perch to put into practice the ideology he had honed nearly 20 years earlier at Treasury when he penned a 750-page “manifesto” entitled Modernizing the Financial System: Recommendations for Safer, More Competitive Banks. (You gotta hand it to those bureaucrats  — they could give graduate school courses in irony.) The Green Book, as it was known, didn’t actually propose anything new, The Nation says. But it was critically important:  The tome pulled together all the threads of ideas floating in Washington and academic circles that formed the basis for too-big-to-fail.

Throughout the crisis Dugan has actually boasted that his agency did well. His agenda clearly dictates that everyone else around him needs to learn from him. And why not? He is a master survivor and manipulator of facts. The Nation reports:

His favorite talking point is a claim that OCC-regulated banks issued only 10 percent of all subprime mortgages in 2006. But that statement is a distortion, since many of the largest subprime players were regulated by the OCC, according to data from the National Mortgage News, a banking trade publication. Wells Fargo, Citi, Chase and First Franklin–all OCC charges–were among the top ten subprime lenders through the peak years of the housing bubble. In 2006 alone, Wells Fargo extended nearly $28 billion in subprime loans, while Citi issued more than $23 billion. The OCC had authority over more than nine of the twenty-five biggest subprime offenders identified by a Center for Public Integrity investigation.

Dugan is like a banking mole inside financial reform while the FDIC’s Bair is often odd-woman-out in the oversight turf battle. That’s probably because she seems most closely aligned with taxpayer interests — the weakest lobbying special interest sector. The worker bees at the Federal Deposit Insurance Corp. have spent most of their weekends in 2009 shuttering banks and scrambling to repay depositors. Technically speaking, the FDIC fund is kaput and may need its own bailout. Bair’s approach seems reasonable — although the devil is in the details. But let’s face it: Setting compensation limits for any industry is just plain stupid and beyond the purview of government bureaucrats. Safety and soundness issues are and should be under scrutiny and they are indeed FDIC babies. The WSJ reports:

FDIC Chairman Sheila Bair said the agency has no interest in setting specific limits on the amount bank employees can make. Instead, the proposal raises the question of whether to use deposit insurance fees as an incentive to encourage compensation practices that favor less-risky behavior.

“This isn’t about levels. It’s about structures,” Ms. Bair said.

Of course, compensation  has been the hot button of the financial fiasco. The issue of compensation came up briefly this morning at the Financial Crisis Inquiry Commission hearings on Capitol Hill. Surprise, surprise. The Wall Street CEOs didn’t say, oh, we paid everyone too much. Not gonna happen. JPMorgan chief Jamie Dimon even dismissed a recent Harvard study that showed that the top guns at Lehman Brothers and Bear Stearns had cashed in a great deal of their stock before their firms hit the skids, effectively severing the role stock grants are supposed to play: aligning the interests of shareholders and the executive suite. “They should check their numbers,” Dimon threw back at the FCIC.

No need to remind everyone. Wall Street is expert at numbers.

If Bair has her way, those executives and people like former Citi advisor Robert Rubin and former Merrill Lynch CEO Stan O’Neal would have been forced to return a goodly portion  of their eight- and nine-figure packages or their institutions would have been forced to pay bigger fees into the ailing insurance fund.

Here’s a new proposal:  Let’s garnish a portion  of the fees failed regulators earn as they swish through the revolving door marked “D.C.”

Image by Getty