Nouriel Roubini was recently on CNBC (the video is provided below) discussing his views on the economy, and clarifying his recent comments last week that were interpreted as being more positive than earlier in the year. Some comments/observations from the interview include the following:

• Roubini still believes the recession will last 24 months, causing it to be over by the end of this year.
  
• The recovery will be weak, sub-par, and below trend, with 1% growth for a few years.
• The "recovery" will feel like a recession, even if growth is positive.
  
• The unemployment rate will peak around 11% next year.
• Including partial employed/unemployed workers, the unemployment rate is over 16%.
• We have seen the worst, given that the free-fall in the economy is over.
• Nonetheless, even though we will not have an "L" shaped depression, we will also not have a "V" shaped recovery, and he has worries of a "W" shaped double dip recession.
  
• The slow and lower growth are being driven in-part by current debt and spending levels.
• There is a thin line as to when it is best to exit current monetary policy. This also adds risk.
  
• A second stimulus bill is needed by the end of the year (we need to wait until later in the year to let the current stimulus start working).
  
• The second stimulus should include more shovel-ready infrastructure projects.
  
• If the second stimulus is too small, it will not be effective. If it is too large, the bond market will panic. He believes it should be around $200 billion.
• He feels that the U.S. will be the first advanced economy to exit the recession. While China and India are seeing growth already, it will be weak until the G3 recover and start helping to drive their economies.
• Equities, commodities, and credit markets have gone up too far, too fast.
  
• There is possible downside surprise regarding marcoeconomic numbers, earnings, credit shocks.
  
• The risk in the market is still on the downside. Investors should continue to stay away from risky assets.
• The market will not test the lows of March (the levels of which were pricing in depression), but could see a sell-off below current levels and the March lows if his forecast of downward surprises in economic data come true (which he still expects to happen).
  
  Source: CNBC Video

Some of the recent economic data and graphs from the St. Louis Federal Reserve look more like a ski slope or snow boarding run at the X-Games. In some instances the charts look truly scary, or encouraging, depending on the trend and your perspective. For instance, if you were worrying that the Fed was not doing enough to flood the system with liquidity (or worrying that it was doing too much), check out the recent Adjusted Monetary Base chart.

Source: St. Louis Fed

Are you thinking about re-financing, but not sure if rates are attractive? Check out the chart of conventional 30-year fixed mortgage rates.

Source: St. Louis Fed

Have you noticed that it does not cost quite as much to fill-up your car as it did just a few months ago? Check out the move in the energy component of the consumer price index.

Source: St. Louis Fed
Are you wondering whether the unemployment rate is really spiking, and how it compares to other recessions? Check out the following chart (the current loses are large, but not at historical extremes - meaning there is good and bad news - it is not as bad as it as been, but worse rates are not unprecedented).

Source: St. Louis Fed

Have you heard that we are moving from manufacturing to a service-based economy, but have been wondering just how long this has been occurring? Check out the number of manufacturing employees over the last three decades, and the last year.

Source: St. Louis Fed

Given the recent employment numbers in manufacturing and the general economy over the last year, it is not surprising that capacity utilization is falling off a cliff.

Source: St. Louis Fed

Wondering if other consumers have also been taking on extra credit over the last 20 years? Don't fear, you are not alone (well, maybe you should be fearful).

Source: St. Louis Fed

How have Aaa and Baa Corporate Bond Yields compared? The charts certainly seem to be reflecting some risk in the market (compare the two over the last year).

Source: St. Louis Fed

Source: St. Louis Fed

Finally, and even more disturbing, are the number of people that have been unemployed for 27 weeks or more. Given the spike up in extended unemployment, it is not surprising that home foreclosures are also increasing at a rapid rate.

Source: St. Louis Fed

Of course, I have focused on some of the more extreme charts, and even those pictures that truly are "worth a 1000 words" or more don't tell the entire story. Nonetheless, the last year has been interesting, even though some of trends have been in place for a while. While we marvel at the moves, it is also worth remembering that charts and series with such violent spikes or declines are often followed by similar extreme and violent reversals - although for some moves, such as in energy prices, you could argue that this is what we are currently seeing. Finally, I suspect that the picture being painted in each of these charts is far from compete in most instances. Whether we like it or not, the unintended consequences and fall-out from turning-on and then turning-off the liquidity faucet should provide additional topics for discussion months and years to come. Such moves will no doubt also create new challenges and opportunities.

There is an interesting article in the WSJ regarding recessions and productivity numbers. As seen in the figure below, the last six recessions have occurred at a time when productivity numbers were decreasing (although the numbers were still positive for the last two recessions, and productivity was relatively strong during the most recent recession in 2001).

Source: Wall Street Journal
While productivity has averaged 0.8% over the last six recessions, it is currently growing at an annual average rate of 2.5%. This is important since high productivity numbers allow the Federal Reserve to keep interest rates lower than normal since higher prices are being matched with higher productivity, at least to some extent. As an example, if workers are making x% more of a product in the same amount of time, then wages can increase by the same x% and the per unit labor cost will stay the same. Simplistic, but you get the idea. Productivity gains were the key to the 1990s, and one of the reasons Alan Greenspan was often espousing the benefits of high productivity, providing yet another reason to keep interest rates low, sub-prime notwithstanding.

Of course, higher productivity can allow you to keep from hiring new workers, or even allow you to reduce headcount, since now you can do more with less. Furthermore, the current high productivity numbers may just be an artifact of the recent environment. Housing, which is a less productive industry, is currently being shifted out of while higher productivity industries, like those exporting, are increasing in emphasis. The weak dollar is also having an effect in amplifying the export-based productivity numbers. Given that the U.S. is trading overseas more now than in the past, the higher export productivity numbers make sense.

So, if productivity is not cooperating for those talking recession, what about other numbers in comparison to previous economic conditions, such as the stagflation days of the 1970s that many analysts are comparing the current conditions to? Given higher energy costs, producer price increases for finished goods are worse now than during the 1970s, causing lower consumer confidence and higher levels of consumer credit as a percentage of GDP. The savings rate is down, as it has been for a while, and the number of vacant homes is increasing.

Yet, all is not bad, or falling off a cliff. The ISM index is hovering about the benchmark contraction / expansion levels, and disposal income has still not collapsed, even with increasing job losses. Industrial production, while flat, is also not severely contracting. Furthermore, core CPI (without food and energy) is not excessive, nor is core PPI. The unemployment rate, while rising, is also not yet close to approaching high single and low double digit levels. High productivity is keeping unit labor cost down (as discussed before), and wages have stayed in check for corporations. After-tax corporate profits as a percentage of GDP are also still good, and long-term Treasury yields are not excessive in comparison to the stagflation years.

So in short, is the picture rosy? No. But are we heading for another decade of stagflation with sustained lower growth and high inflation? Right now the data does not point to this conclusion, regardless of the continued comparisons. Housing and crude oil still seem to be ruling the day, the fallout of which is affecting nearly everything in the economy. When the former finally turns around, and the later sells off with conviction, we may be able to finally get rid of both the "stag" and "flation".

Nonfarm payrolls declined by 20,000 in April, much less than the 70-80K loss that was predicted. February and March numbers were revised down. The unemployment rate surprisingly fell 0.1% to 5%. Average hourly earnings increased $0.01, or 0.1%.

The Fed also released a statement about 15 minutes before the payroll number announcement, somewhat spooking the market. The statement highlighted how it will increase the size of its term auction program and expand currency swaps with the ECB and Swiss National Bank, adding further liquidity to the markets. The increase brings the Term Auction Facility to $150 billion, from $100 billion. The swap line with the ECB increased from $20 billion to $50 billion dollars of available credit for borrowing at European banks. Initially the market assumed this news was implying that the payroll numbers would be weak, but of course, they were not as bad as expected.

Recently at my blog I have discussed how the parsing of the Fed statements has reached near comic proportions. I still believe this. What is more important is what the Fed does, and not necessarily what it says - or more importantly, what we think it says. From the statement on Wednesday, I really have no way to know 100% whether they plan to pause or not, regardless of what the pundits say. Today's action also does not indicate a pause, but does highlight how the Fed realizes that rate cuts are not enough, and that other measures need to be taken to increase liquidity. In this regard, the Fed is spot-on. By working with the ECB to help fix the issues with LIBOR, and increase liquidity, it is possible that ARMs and other rate sensitive instruments may reset at manageable levels, and could even possibly reset favorably for some borrowers. This will be good news for the market and investors, and not just those that are currently upside down in their loans.