From Business Week (1/17/2008): “Big Blue has built a global network for client services and in the past three years has hired 90,000 people in low-cost countries.”
Of IBM’s 375,000 employees worldwide, about 2/3 of them (250,000) are outside the U.S., see the map above (click to enlarge) with a sampling of its global staffing levels. Almost 2/3 of IBM’s sales are outside the U.S. as well. How has globalization impacted IBM’s profits and share price? Quite well apparently, judging by the 40% increase in its stock price over the last 2 years:
Political rhetoric: According to Governor Jennifer Granholm, “No state has been ravaged more than Michigan by unfair trade policies.”
Economic reality: China’s demand for Michigan vehicles and auto parts has exploded and has grown by a factor of 10X since 2001 (see chart above), and demand has also increased for other Michigan exports to China like inorganic chemicals, machinery, medical instruments and soap.
Source: The Mackinac Center for Public Policy’s report “Globalization is Good for Michigan” by James Hohman.
Bottom Line: Exports and imports are two sides of the same coin of international trade. In other words, trade works both ways, and increased imports of products FROM China = increased exports of U.S. products TO China.
The chart above shows the number of new claims for unemployment benefits in the first month of the last four official recessions using data from the Department of Labor (claims) and the National Bureau of Economic Research (recession dates).
At the onset of each of the last four recessions (1980, 1981, 1990 and 2001), initial claims for unemployment benefits were above the average of 353,000 (from 1967), and in most cases, way above average. The two most recent reports of 301,000 claims (week ending January 19) and 302,000 claims (week ending January 12) suggest that the labor market is healthy and resilient, not weak and anemic.
Bottom Line: If there is going to be a recession in 2008, it definitely did NOT start this month. We are NOT in a recession.
Update: From a comment by Bill: “According to BLS employment data here are the percentages of initial UE claims as a percent of the seasonally-adjusted total civilian employment force for the dates noted”:
Jan ’80 —–> 0.42%
Jul ’81 —–> 0.40%
Jul ’90 —–> 0.29%
Mar ’01 —–> 0.27%
Jan ’08 —–> 0.19%
It’s a good point to adjust for the increasing size of the labor force over time. Using the percentages above for previous recessions and the size of the current civilian labor force (about 154 million), we would have to see somewhere between 415,000 and 615,000 new claims for unemployment benefits before we would start to approach the levels of new claims at the onset of the last four recessions. At 301,000 claims, we are nowhere NEAR those levels. Not even close.
WASHINGTON – Existing-home sales resumed tumbling in December and the median price dropped. Home resales fell to a 4.89 million annual rate, a 2.2% decrease from November’s unrevised 5.00 million annual pace, the National Association of Realtors said Thursday. For 2007, existing home sales tumbled 13% to 5.652 million.
Inventories of homes fell 7.4% at the end of December to 3.91 million available for sale, which represented a 9.6-month supply at the current sales pace. There was a 10.1-month supply at the end of November, revised from a previously estimated 10.3 months.
If there’s a bright spot in the housing market, it might be that the “Months supply of homes at the current sales rate” declined in November and December, after increasing for nine consecutive months (see chart above), suggesting an improving balance between the supply of home available for sale and the demand from homebuyers.
The WSJ has this website available for the “Months Supply” data in 28 major real estate markets, which shows a huge variation around the country, from lows of 5-6 months inventory in Boston, Houston, Dallas, Denver, Nashville, Portland, Raleigh, and Seattle (suggesting fairly health real estate markets with homes selling at rates close to the 2004-2005 average of 4.5 months) to double-digit highs in Miami (29 months!), Orlando (17.5), Las Vegas (18), Detroit (19), and Tampa (16).
This picture is NOT consistent with an economy in recession:
WASHINGTON – The number of U.S. workers filing new claims for unemployment benefits fell unexpectedly last week for a fourth-straight week, suggesting that a resilient labor market at the start of the year might keep the U.S. economy from sliding into recession.
Initial claims for jobless benefits fell 1,000 to 301,000 in the week ended Jan. 19, the Labor Department said Thursday. That marked the fourth-straight weekly decline to a four-month low. Wall Street economists had expected a sharp increase of 19,000.
The four-week average of new claims tumbled 14,000 to 314,750, the lowest level since Oct. 6 (see chart above, click to enlarge).
Bottom Line: At the onset of the last two recessions (March 2001 and July 1990), initial unemployment claims were close to 400,000, and at the onset of the 1980 and 1981 recessions new claims for unemployment benefits were close to 500,000. This extremely positive news about the health of the U.S. labor market over the last month (301,000 claims) pretty much guarantees that we are not in a recession.
“The history of anti-recession efforts is that they are almost always initiated too late to do any good. The chart above (click to enlarge), based on recession timelines from the National Bureau of Economic Research, shows the enactment of stimulus plans is a fairly accurate indicator that we have hit the bottom of the business cycle, meaning the economy will improve even if the government does nothing.”
~Bruce Bartlett in today’s NY Times
Note that the chart above shows only the legislative lag for fiscal policy, i.e. the time it takes for Congress and the President to design and implement anti-recession fiscal policy. There is also an “impact lag,” which is the time period between passing fiscal stimulus policy (dates are listed above) and when that new fiscal policy change actually starts to have an impact on the economy, which could be another six months or more. By that time, the recession will almost always be over, and the fiscal stimulus will not only be unnecessary, but could actually be destabilizing.