Thursday, August 20, 2009

Inflection Point

This was the "it" term before green shoots. The 'ah but the change in the second derivative is changing positive. When discussing economics at a cocktail party hosted by my father, one of his mates blindly referred to the inflection point changing. I murmured approval and then asked him what he meant by it and quickly a pen was found and it was like high school all over again drawing sin graphs. I have supplied a graph below, its a gif so it moves.

When you are looking at it pay attention when the point nears the x-axis near 1.6. As the color of the tangent line changes from green to red to blue, the red is the inflection point. This also works as an analogy for the economy. When economists, talking heads and policy wonks parroted the inflection point mathematical jargon what they were saying was that the steepness of the decline was lessening and that we would approach bottom. Here is an example with the employment to population level.

So you can see that the wonks were correct, at about January the ratio stopped dropping as steeply. However, if you refer back to the graph above you can see that it would be no where near the nadir of the curve.

Then bad news in the guise of good news came from the labor report on the 11th. In truth it is good news, productivity jumped 6.4% annualized, 1.6% for the quarter, meanwhile labor costs fell -5.8% annualized or -1.45% for the quarter. Which, when employing deductive reasoning means that the employment ratio will grow slowly as companies squeeze more out of their labor. It follows then that they would then increase part-time workers to full time before finally bring aboard new hires.

All in all, it will be quite a long while before we hit the next inflection point.

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