My anti-recession troll is about to enter convulsions; anytime I post something about the troubles with our economy, he sends me a ton of Fox News talking points to convince me we're "not in a recession." He might breathe a little easier reading the article from CSM, although I suspect he's going to send me stuff anyway - he usually does.
Trouble is, it doesn't much matter whether "experts" tell us we are or not, although I guess it lends credibility to those who must look to them for their own sense of verification. On the other hand, if you come to my day shelter and ask folks there who're certainly employable and have been looking for jobs since last year at this time, they'll pretty much tell you that there are few jobs to be had and they aren't paying very well, either. Some would go as far as saying we're entering into a depression, although I doubt they know what that would actually entail and the slope has considerable slipping distance yet before that might occur.
In any event, regardless of whether or not someone tells us we're in a recession, times are tough for a great many, both at home and abroad and labeling it one way or the other won't ease their hard times anytime soon. Oddly enough, if you were to ask me how I am doing personally, I would have to say that I've never been doing better in my personal or financial zones. Hard times bring demand for my service but before folks start assuming that I promote hard times, even in the best of times over the past 20 years or so, there's been a high demand for people like me, so there's no reason at all for me to perpetuate poverty in order to remain employed. There's plenty of other areas I am skilled at and the greatest joy in my working life would be to work myself right of a job as a homeless outreach specialist....
U.S. Economy: The Worst is Yet to Come
Mark Weisbrot
Posted May 27, 2008 | 02:38 PM (EST)
Since the U.S. economy showed positive growth for the last quarter, some commentators in the business press are saying that we are not necessarily going to have a recession, or that if there is one it will be mild. This is a bit like the proverbial story of the man who jumped out of a window 60 floors up, and then said "so far, so good," as he passed the 30th floor.
The United States accumulated a massive, $8 trillion housing bubble during the decade from 1996-2006. Only about 40 percent of that bubble has now deflated. House prices are still falling at a 20 percent annual rate (over the last quarter). This means that the worst is yet to come, including another wave of mortgage defaults and write-downs. Even homeowners who are not in trouble will borrow increasingly less against their homes, reducing their spending.
President Bush says we are not in a recession. One commonly-used definition of a recession is two consecutive quarters of declining output (GDP). The first quarter of 2008 came in at 0.6 percent, although it would have been negative if not for inventory accumulation. So by this definition we cannot say with certainty that the recession has started, although it could well have started this quarter. Of course, for most Americans it has felt like a recession hit some time ago, with real wages flat since the end of 2002, and household income not growing for most of the six-and-a-half year economic expansion.
The National Bureau of Economic Research will eventually decide on the official onset of the recession, but even its definition is arbitrary. All the indicators of a serious recession are swirling around us. The economy has lost jobs for four months in a row, which has never happened without a recession. Consumer confidence has dropped to a 28 year low - a level not seen since Jimmy Carter was president. Home foreclosure filings are up 65 percent over last year. And now commercial real estate prices are heading south, dropping 6.2 percent in the first quarter.
With oil prices hitting record highs, and the Fed beginning to worry more about inflation, more restrictive lending practices and other fallout from the credit crunch, the near-term economic future looks even dimmer.
Some look to exports to lead the recovery, but these are only 11 percent of GDP, and consumption is about 70 percent. Still, the fall in the dollar over the last six years is helping - making our exports more competitive and reducing the subsidy that we have been giving to imports for many years. In a sign of how economic illiteracy prevails in the United States, most people (thanks largely to what they hear and read in the media) see the dollar's decline as bad economic news.
We are facing the prospect of millions losing their homes, their jobs, their retirement savings, their health insurance, and their livelihoods.
This serious economic situation greatly raises the stakes of the 2008 election. What will the government do to help the victims of economic mismanagement, to provide health insurance, and to restart the economy? Is it really more important to spend billions each week on the occupation of Iraq?
So far the government hasn't done much. The stimulus package now taking effect, at about one percent of GDP and much of it likely to be saved, is quite small. The major legislation that Congress is considering for the housing crisis would mainly bail out lenders and investors while doing little for most underwater homeowners.
The voice of the people has yet to be heard on these questions in the halls of power. It had better get a lot louder, soon.
(From CSM)Profile of a (maybe) recession
Some analysts think the slowdown may be confined largely to the housing market.
By Mark Trumbull | Staff writer of The Christian Science Monitorfrom the May 28, 2008 edition
Optimism has grown this month that the United States may escape a recession. But don't haul out the ticker tape just yet.
The current economic slowdown is unusual – and difficult to read – because the housing market is playing such a central role.
Alongside high oil prices and a credit squeeze, a downturn in homebuilding and home prices has rattled consumer confidence, which fell Tuesday to a 16-year low. That prompts many economists to say a recession is still likely.
Yet housing cycles historically have been slow, taking years on both the up and down side. Moreover, the decline in housing wealth doesn't cause an equal or immediate decline in consumer spending. This may portend a kind of slow-motion slump, one that may not even end up officially as a recession.
"We are not going to have a recession this time. This time the troubles in housing will stay in housing," predicts Edward Leamer, director of the Anderson Forecast at the University of California, Los Angeles. "[But] it's harder to forecast because something new is happening this time."
It's common, he says, for housing to be one of the sectors hit early and hard by an economic downturn. And the current housing downturn is unusually deep. Home prices are down 14.1 percent in the past year, according to the Standard & Poor's Case-Shiller index, released Tuesday.
But recessions involve a sharp slowdown in economic activity well beyond housing and construction. Mr. Leamer says that the manufacturing sector generally plays the pivotal role, in terms of job losses, during recessions. After the last US recession, which occurred in 2001, US factories never went on a hiring spree, and this year's economic slowdown so far hasn't spawned manufacturing layoffs at typical recession rates.
Housing's fallout
Still, the housing downturn has not only cost lots of construction and banking jobs. Through home-price declines, it's also devouring trillions of dollars in consumer wealth – which in recent years had been a source of cash through home-equity loans and "cash-out" refinancing of mortgages.
That could make it hard for the economy to enter a strong growth phase.
"The second half [of this year] will not be a return to normal, and neither will 2009, basically because the consumer who was the driving force is going to be sitting on sidelines," Leamer predicts.
The crunch doesn't affect everyone equally. Some families are hard-hit by mortgage rate resets for example, while millions of others are renters or people who own homes without a mortgage.
But housing troubles could make it hard for consumers overall to spend a lot more, even if they don't dramatically cut spending.
Hence the uncertainty: Will this even end up as a recession?
A panel of economists is watching what happens now, and will ultimately have to make that call.
Members of the panel caution against reading too much into the fact that GDP didn't turn negative in the preliminary first-quarter numbers released at the end of April.
"Employment is falling," says Jeffrey Frankel, one of seven members of the business cycle dating committee, an arm of the private National Bureau of Economic Research.
It may be that a recession has simply been postponed, not avoided, he says.
Mr. Frankel, a Harvard University economist, notes that the housing slump is one of several forces buffeting consumers.
Other negatives:
•Energy and food prices have soared.
•Bank credit conditions are tightening.
•The lost housing wealth not only crimps access to home-equity loans, but it also adds pressure on workers to save for retirement. The house is no longer as big of a nest egg.
"There's every reason to think that the household is going to have to cut back on consumption," Frankel says.
Still, he says it's conceivable that a recession could be avoided.
"We're very cautious and wait until everything is finished," before deciding that a recession began in a certain month, he says.
What might balance all the negative forces?
The natural tendency of the economy is to grow, as businesses invest in new ventures, banks make loans, and consumers spend. Recessions often happen when several major obstacles arise at once – a policy mistake by the Federal Reserve, a "shock" such as a spike in oil prices, or imbalances such as a run-up in product inventories.
In the current cycle, the big imbalance in the domestic economy centered on housing. Homebuilders are correcting by retrenching rapidly, but inventories of for-sale homes remain large.
Some economists also say the Fed made a mistake of waiting too long to boost interest rates as a "bubble" began to build in home prices – a bubble that was biggest in coastal and Sun Belt markets.
But in recent months, the Fed has responded vigorously to the threat of recession, cutting interest rates and extending loans to help banks weather hard times. Congress and President Bush also moved quickly to stimulate the economy with fiscal policy – tax rebate checks that are starting to arrive this month.
The policy response could help the economy skate through much of the year without a declining quarter for GDP.
An economy on edge
Often, a shorthand definition of recession is two quarters where GDP falls. The National Bureau's business cycle dating committee doesn't have such a specific criteria. On its website, the group says there must be a "a significant decline in economic activity" for more than a few months, visible in several indicators beyond just GDP.
Right now, those indicators show an economy on the edge.
A comparison of activity levels now with three months before show that three indicators declined, while two others are up. GDP, measured quarterly, is rising at a 0.6 percent annual rate. The amount of inflation-adjus
Employment, industrial production, retail sales all show declines.
Jobs often hold the key. So far, the labor market hasn't deteriorated as sharply as it has heading into past recessions, but the trend also doesn't look encouraging. A weak job market has contributed to recent declines in consumer confidence. The continuing run-up in oil prices is also hammering consumers. It acts like a tax, as energy expenses leave people with less to spend elsewhere in the economy.
And housing remains a great source of uncertainty.
Like all typical housing cycles, the current one involves big swings in home construction and home sales. The decline in home sales this time looks similar to what happened back in 1990 and 1991, for example.
But it's unusual to see such a sharp plunge in prices. "Everything hinges on what's going to happen to house prices," Martin Feldstein, another Harvard economist who sits on the dating committee, said recently in a Bloomberg TV interview.
Property values need to adjust to balance supply and demand. But banks and consumers could be hit harder, he says, if prices "spiral down … into an overshoot position."
END
| Memorial Day weekend: High oil prices are pinching wallets, but boaters were still in evidence at the Cypress Black Bayou Recreation Area in Louisiana. Mario Villafuerte |
Fuel prices' toll on U.S. economy
A $10 increase in the price of a barrel of oil can lower GDP by about 0.2 percent.
By Ron Scherer | Staff writer of The Christian Science Monitorfrom the May 27, 2008 edition
New York - Obviously, the sharp rise in the price of oil – $80 a barrel higher than a year ago – has major, negative consequences for the economy.
Every time the local gas station raises the price at the pump, consumers' wallets are getting pinched – something that could affect impulse purchases this summer, such as for ice cream or jewelry. At the same time, businesses are trying to pass on their higher costs for everything from PVC tubing to steel bars. Such changes may go beyond the short term: Some Americans are now making lifestyle changes, most of them involving belt-tightening
Economists are divided, however, over whether the price of oil has skyrocketed enough to push the economy into a recession. The optimists see Americans making adjustments, scrimping when they can to make up for the extra cost of gasoline.
"The economy is still growing," says Richard DeKaser, chief economist of National City Corp. in Cleveland. "There is nothing magical about $130 [a barrel] oil. It's just more of a drag, more intense."
The pessimists say that the rise in energy prices is coming too fast and that the US economy is now in an "oil shock" downturn.
"For the average American, we are in a recession," says Mark Zandi, chief economist for Moody's Economy.com. "They are worth less than last year; their purchasing power has evaporated; they are past the breaking point."
Every $10 increase in the price of a barrel of oil lowers America's output of goods and services (known as the gross domestic product) by about 0.2 percent, economists calculate. This means that the economy has lost 1.6 percent in the past year due to the rise in oil prices. Since January, oil prices are up nearly $40 a barrel, or 0.8 of the GDP. The fiscal stimulus package passed by Congress was intended to add about 1 percent to GDP.
"We have been struggling against a severe headwind, and the latest developments suggest the headwind is increasing," Mr. DeKaser says.
Consumers notice rising energy costs the most when they fill up the family car. Since Jan. 1, gasoline prices are up 89 cents a gallon, according to GasPriceWatch.c
In surveys, the Gallup Organization has found different gasoline prices that were "tipping" points for consumers. The first one was $3 a gallon (the United States hit that about Jan. 1). The next one is $4 a gallon, which is only 8 cents above last Friday's price, according to GasPriceWatch.c
"The degree at which they adjust their lives increases as we hit those prices," says Dennis Jacobe, chief economist at Gallup in Washington. "For example, shopping behavior changes considerably. There is less impulse buying, and people don't go out as much for weekend activity."
As the price of energy rises, the first thing people try to do is maintain their standard of living, Gallup has found. "They sacrifice saving," Mr. Jacobe says. "But when it comes to major impacts like $4- or $5-per-gallon gas, people start to change their lifestyle. We are starting to see it where people are parking their big vehicles and driving something more fuel efficient."
Ford Motor Co. has already noticed this shift. Last Thursday, it said it would cut production of some larger vehicles by as much as 40 percent in the second half of 2008.
The business sector, which generally has become a more efficient energy user, is making other changes, too. Kenneth Simonson, chief economist at the Associated General Contractors of America, is seeing more price increases and fuel surcharges.
Construction companies are getting squeezed by more than energy prices. Steel prices have been rising, up 5.5 percent in both March and April over the previous months' levels. Among the reasons: strong foreign demand and the weak dollar, as well as the rise in energy prices, Mr. Simonson says.
But prices are also starting to ratchet up for plastic products, he says, because natural-gas prices have been rising as well. He cites one contractor who wrote him that he had just been told his costs for PVC (polyvinyl chloride) products were going up 20 to 30 percent.
Simonson finds anecdotal evidence that some of these cost increases are getting pushed through to consumers. He points to a Holyoke, Mass., roofing contractor who is raising prices 5 to 8 percent on some plastic products.
One result of the rising prices, combined with slowing demand and higher financing costs, is that an increasing number of projects are getting deferred, he says.
The economy could probably cope with just the energy price increases, says Don Norman, an economist at the Manufacturers Alliance/MAPI in Arlington, Va. But he notes that energy costs are rising against a backdrop of falling home prices and the collapse of the subprime mortgage market – which have affected the ability of all sorts of businesses to get loans. "It's a triple whammy. It's amazing the economy has been as resilient as it has been, given all the hits it has taken," Mr. Norman says.
Consumers have yet to feel the full impact of the rising price of oil. Norman estimates it will take another four to six weeks for that to happen. Given the current price of oil, Zandi estimates that gasoline should be closer to $4.50 a gallon. A sharp rise like this could cause the economy yet more problems.
"When people see high gas prices and then see it rising several cents a gallon each day, that is when they have the psychological problem of not knowing how high it will go," Jacobe says. "When that happens, people start to adjust their lifestyle."
){kind=link}