Archive for the ‘economic crisis’ Category

How the US economy is like Luke Wilson in “Idiocracy”

10 March 2014

See for yourself. Our anemic economic performance since 2007 is . . . the best in the world?

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Yes, it’s still a slow recovery that has yet to restore full employment, but, except for Germany, we’ve done better than any of our counterparts in Europe that also experienced a financial crisis.

“The ordinary will be considered extraordinary.”

I was going to say something about the folly of austerity policies (spending cuts and tax increases) during an economic slump, which is true insofar as US budget policy has been only mildly contractionary while our European counterparts have embraced austerity and all but one have sick economies to show for it, but that one is Germany, which was slightly ahead of the US as of 2013:Q2 (data for 2013:Q3 and Q4 were not available for the European countries). Germany’s economy defies easy explanation. Maybe Germany should be Luke Wilson’s character and the US can be Maya Rudolph’s.

(For anyone who’s not familiar with “Idiocracy,” here’s the trailer.)

Something to sneeze at (the new employment report)

4 May 2013

Friday’s big economic headline was that the unemployment rate fell to 7.5%, the lowest since 2008. And payroll employment rose by 165,000, somewhat better than expected.  The news was good enough to push the Dow Jones average over 15,000 for the first time, and it obviously could have been worse, but what an age of diminished expectations we are in. Almost four years since the 2007-2009 recession officially ended, and we’re at 7.5% unemployment. The comprehensive “U-6” unemployment rate, which includes all discouraged job-seekers and part-timers who want to work full time, actually edged up slightly to 13.9%. And the employment-to-population ratio was essentially unchanged at 58.5%. All not good.

As for the why and what do we do now, Jared Bernstein nails it a lot better than I could.

Butter before guns

30 January 2013

George F. Will once wrote, “All economic news is bad news. All economic news is good news.” Today’s GDP report has lots of both and has already sown a lot of confusion. Real GDP fell in the last three months of 2012, indicating a recession (although the drop was only 0.1%). Part of the decline came from reduced inventory investment, i.e., from companies not producing as many goods that haven’t been sold yet. So far, so bad.

The biggest decline came in government spending; in particular, military spending dropped a whopping 22%. Why? The Washington Post’s Brad Plumer says it has something to do with the drawdowns in Iraq and Afghanistan and apparently also with the various budget games that the Pentagon and other government agencies play, as regards the timing of the fiscal year and the “sequester” budget cuts that could come if Congress fails to raise the debt ceiling. One thing I learned from Plumer’s piece is that, although the 22% drop is unusually large, it’s not unusual for defense spending to drop in a particular quarter. It did so in about half of the twelve quarters from 2010 on; the second-largest drop was almost 15%.

Many people would view the big reduction in military spending as a good thing — the wars are unpopular, and some studies have found that, dollar for dollar, domestic government spending tends to create more jobs than does military spending. Aside from military spending, real GDP rose in the last quarter of 2012, by 1.3%.

Is 1.3% good? Of course not. It makes 2012:IV one of the weaker quarters of the past two years, in which the economy’s average annual growth was 2.0%. The economy grew at 3.1% in the third quarter of 2012, so this is a step backward at least in a relative sense.

But positives are not hard to find in the GDP report. Thus Bloomberg’s headline “Growth Stall Obscures Consumer, Business Pickup.”  Consumer spending grew at a decent 2.2% clip, up from 1.6% in the third quarter. Rising auto sales were a big part of the increase (which sounds about right to someone like me who bought a car for the first time since 1999). I would guess that some of the slippage in inventory production was simply due to consumers buying more goods than anticipated, with the result that inventories were down. (If inventory production had not fallen, then GDP would have grown by 2.6%, according to the Bloomberg article.) The best news of all was probably on the housing front, where residential construction (counted in the “Investment” part of GDP) grew by 15%. For 2012 as a whole, housing construction rose 12%, its biggest increase since 1992.

The markets seem to have to shrugged off the report. Market participants may doubt that the increased consumer spending and construction are sustainable. Right now, five hours after the release, the Dow, S&P 500, and Nasdaq averages are basically unchanged (within 0.05% of yesterday’s close).

The Occupy movement, seriously

17 November 2011

picture with textI’d been meaning to write about the Occupy Wall Street movement, but now I’m intimidated, having just read Mohammed el-Erian’s eloquent take on the movement. Although el-Erian, as CEO of the PIMCO investment behemoth, is about as high up the 1% tree as one can be, he is more than sympathetic to the movement. Sympathy is easy. It’s also easy to criticize the movement for its lack of unity and seeming cacophony of voices. But El-Erian, unlike many observers, sees beyond the surface and makes out a powerful, “peaceful drive for social justice,” not unlike the protests in Tunisia and his home country of Egypt:

OWS may pale in comparison to these country examples. Yet it would be both foolish and arrogant to dismiss three important similarities:

First, the desire for greater social justice is a natural consequence of a system shown to be blatantly unfair in its operation and, to make things worse, incapable of subsequently holding accountable people and institutions.

In the US, it is about a system that privatized massive gains and then socialized huge losses; allowed bailed-out banks to resume past behavior with seemingly little regulatory and legal consequences; and is paralyzed when it comes to alleviating the suffering of victims, including millions of unemployed (too many of whom are becoming long-term unemployed, slipping into poverty, and losing access to safety nets). The result is a visible and growing gap between the haves and the have-nots in today’s America.

Second, OWS’s followers will grow as our economy continues to experience sluggish growth, persistently high joblessness, and budgetary pressures that curtail spending on basic social services (such as education and health). Other internal and external realities will also play a role.

At home, our elected representatives seem incapable as a group to respond properly to severe economic and social challenges. Continuous (and increasingly nasty) political bickering undermines the required trio of common purpose, joint vision, and acceptance of shared short-term sacrifices for generalized long-term benefits.

Internationally, Europe’s deepening debt crisis amplifies headwinds undermining an already sluggish American economy that, in the absence of better policy responses, is on the brink of another recession, Should the economy slip from treading to taking on water, the social implications would be profound given that we already have high unemployment, a large fiscal deficit and, with policy interest rates already floored at zero, little policy flexibility.

Third, advances in social media help overcome communication and coordination problems that quickly derailed similar protests in the more distant past.

I couldn’t have said it better myself. I can only hope that el-Erian will speak out forcefully for better government policies, namely the type of wholesale changes that we need to tackle these huge problems that he identifies.

The world economy’s “Mingya!” moment?

10 November 2011

“Italy Is Now the Biggest Story in the World,” says Kevin Drum. And he’s not talking about Joe Paterno (whose story I confess to having spent a lot more time following lately than Italy’s). But this is bad: another Eurozone country with a high debt/GDP ratio, soaring interest rates on its government debt, and no currency of its own that could depreciate to revive net exports, and no central bank of its own to expand the supply of credit. Just like Greece, except that Italy’s economy is about six times as large. It’s the fourth-largest economy in all of Europe, in fact.

For months people have been nervously watching Europe’s toxic cauldron of economic depression, austerity, sovereign debt crises, and bank funding problems (verging on crisis), and wondering if and when Europe’s problems might lead to a double-dip recession (or, as I’d call it, a recession within a depression, a la 1937). I wonder if someone else has already written the headline “Italy: Waiting for the Other Boot to Drop” yet.

P.S. If you’ve never heard the expression “Mingya!” then you obviously don’t live in Oswego. The Urban Dictionary will set you straight.

As good as it gets, and still lousy

7 October 2011

The best that can be said about today’s BLS employment report is that it revealed 202,000 new jobs, which is in the right ballpark for how many jobs the economy needs to generate each month for the next eight years in order to get back to a normal unemployment rate. The bad news is that only 103,000 of those jobs are from last month. The other 99,000 are from revisions to July and August, which push those months’ net-new-jobs totals up to 127,000 and 57,000. So the average employment gain for the last three months is less than half of what we need to be on that eight-year recovery track.

It gets worse. Quoth the BLS: “Since April, payroll employment has increased by an average of 72,000 per month, compared with an average of 161,000 for the prior 7 months.” So now we’re down to about one-third of the needed monthly job creation to be on that eight-year recovery track.

NPR’s Planet Money reports that the job market is bad across all demographic groups, even the college educated. While college-educated people age 25 and over are the only group with an unemployment rate below 5%, the BLS historical tables show that the current rate (4.2%) is more than double what it was four years ago (2.0%). And the employment-to-population ratio of this group has fallen almost 3 percentage points (to 73.0%) over the same span.

The employment-to-population ratio is really where the worst news is. Even the expanded unemployment rates, which include discouraged job-seekers and/or involuntary part-timers, have shown some improvement over the past two years. But the improved unemployment rates seem to be entirely an artifact of people dropping out of the labor force. The labor force is actually slightly smaller today (154 million) than it was in mid-2009, at the trough of the recession. The economy has added about 1.6 million jobs since the employment trough of October 2009, but that hasn’t been been enough to keep pace with population. The current employment-to-population ratio (58.3%) is actually slightly lower than that of October 2009 (58.5%), even as the main unemployment rate has fallen from 10.1% to 9.1%.

Along those lines, the BLS’s “Alternate Measures of Labor Underutilization” are instructive. The official (U-3) unemployment rate counts only the jobless who say they are actually looking for a job. The U-4 unemployment rate includes “discouraged workers,” i.e., jobless people who are not looking but would take a job if one came along. The U-5 unemployment rate adds in “marginally attached workers,” who are a similar state of joblessness. Yet the U-5 unemployment rate (10.5%) is only 1.4 percentage points higher than the official rate, which suggests that most of the unemployed are either (1) still looking for work or (2) really not even thinking about it, i.e., have found life, or despair, or something,  outside the labor force.

The oft-cited U-6 unemployment rate, which is by far the highest, includes part-time workers who cannot get full-time work. This one is 16.5%, so most of the addition comes from the involuntary part-timers. So 6.0% of the labor force is involuntarily working part time. How does 6% compare with other times? The BLS data here go back only to 1994, so it’s hard to be definitive, but about 3% seems to be the norm. That’s what it was for most of 1994-2007, including even the recession and slow recovery of 2001-2003. That’s right — the involuntary-part-time employment rate is double what it was in the last recession and “jobless recovery.” It edged up to 4% in 2008, above 5% in 2009, reached 6% in September 2010 and has hovered around there ever since. That’s a lot of involuntary part-time jobs, and it adds another dimension of lousiness to the current depression. Also, if those are the kind of jobs this economy is creating, it’s no wonder that many people would rather hold onto their unemployment benefits, which, depending on their previous jobs, might pay more. But that’s a subject for another post.

WTF, S&P???

26 September 2011

How did I miss this one? Bloomberg News, on Aug. 31, reported that Standard & Poor’s is still giving its highest rating, AAA, to subprime-mortgage-backed securities:

Standard & Poor’s is giving a higher rating to securities backed by subprime home loans, the same type of investments that led to the worst financial crisis since the Great Depression, than it assigns the U.S. government….

More than 14,000 securitized bonds in the U.S. are rated AAA by S&P, backed by everything from houses and malls to auto- dealer loans and farm-equipment leases, according to data compiled by Bloomberg.

(Hat tip: Simon Johnson.)

Gambling Is Going On in Here! (576 pp.)

26 January 2011

Granted, nobody reads 576-page commission reports, but this newly released, two-year-in-the-making report by the Financial Crisis Inquiry Commission looks pretty good, based on the article about it in today’s NYT.  The article states:

‘The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.

‘“The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done,” the panel wrote in the report’s conclusions, which were read by The New York Times. “If we accept this notion, it will happen again.”’

Right on. And with testimony from more than 700 witnesses to inform those conclusions, there ought to be some good detail within the report.

The above conclusions might seem obvious, but acknowledging the obvious is something that politicians are not good at. And predictably, the commission was split among party lines.  The above excerpt is from the majority report. From the article:

‘Of the 10 commission members, the six appointed by Democrats endorsed the final report. Three Republican members have prepared a dissent focusing on a narrower set of causes; a fourth Republican, Peter J. Wallison, has his own dissent, calling policies to promote homeownership the major culprit. The panel was hobbled repeatedly by internal divisions and staff turnover.’

So much for feasible solutions. Even with a Democratic Congress, the financial reform bill we got last year was extremely watered down. Get ready for the next conflagration.

Hope and jobs

24 December 2010

Optimism is breaking out among economic forecasters. I admit, I share their optimism, as should be clear from my recent posts. My optimism is bolstered by the latest Index of Leading Economic Indicators, which rose in November for the fifth straight month and by the most (1.1%) in eight months.

Two of the big banks cited in today’s New York Times article (first link) predict 4% real GDP growth for 2011, i.e., fast enough to actually reduce the unemployment rate. Unfortunately, as Princeton’s Alan Krueger suggests in the article, that would only be enough to make a modest dent in the unemployment rate. Does the Times still run those “Remember the neediest” taglines, I wonder?

Much as I think recovery is already underway and will pick up steam in 2011, I can’t stop thinking that this recovery, like most recoveries in the past several decades, is likely to leave millions of Americans behind. Will the new Congress care? My main hope is that Republicans’ love of all things voucher will extend to relocation vouchers for the unemployed, to encourage them to move from places like Detroit and Upstate New York to where the jobs are.

P.S. The second link, from 24/7WallSt.com, includes a helpful discussion of the Conference Board’s index of ten Leading Economic Indicators, namely what they are and how some of them might be more like coincident or lagging indicators. The index is still useful, but there’s a reason why nobody is able to extract airtight forecasts from it.

Green shoots and leaves

18 November 2010

The Conference Board’s index of leading economic indicators is up again, by 0.5%, for each of the last two months.  This is very good news, yet it was hardly reported at all.

That wasn’t all of today’s good news, either.  Jobless claims (i.e., unemployment insurance claims) were at about the same level as last week’s two-year low.  And the Philadelphia Federal Reserve district, which had been very weak, showed astounding improvement in today’s report, with its general business conditions index jumping from near-zero to 22.5, way ahead of the consensus forecast range of 4.o to 9.6.  Bloomberg summed up the Philly Fed news as follows:

“Philly Fed data have been lagging regional and national data but not in November. The report’s November index on general business conditions jumped from a zero-flat trend to a prodigious 22.5 to indicate very sharp month-to-month growth. New orders rose more than 15 points to 10.4. Shipments also rose more than 15 points, to 16.8. The region’s manufacturers are showing commitment by adding to their workforces as the jobs index rose more than 10 points to 13.3. . .

“This report points to accelerating strength for what is already solid growth for the national manufacturing sector. Interestingly, these results contrast with Monday’s weak Empire State report from the New York Fed, a report that had been significantly stronger than Philly’s. Month-to-month swings in regional data shouldn’t cloud what is generally a positive outlook and continued leadership for the nation’s manufacturing sector.”

A genuine recovery really does seem to be underway.  It’s still not nearly fast enough, but the pace could easily pick up, and these indicators suggest it will.  I have other reasons for my current optimism, but I’ll get to those later.