What is wrong with the US economy?

[mheslep]

There are many factors that affect the price of oil other than demand, though. One is supply - oil that is uneconomical to extract when the price is $50/bbl may look a lot better at $100/bbl. So as the price goes up, so does the supply.

Additionally, the fall of the dollar means that the price of the oil in dollars will naturally rise. While the above feedback loop was negative, this one is positive (at least for a while): dollar falls, energy prices rise, US companies become less profitable, dollar falls further. Eventually exports grow and stop the dollar's fall, but there are economic factors at play that have nothing to do with supply and demand.

Finally, oil is almost a currency. (I will avoid making any puns on liquidity). If the dollar is falling, it makes sense to put your dollars into oil instead. This drives up the price, at least temporarily.

A falling dollar is tangentially related; it is primarily inflation fears that are responsible for the marginal price increase of oil and other commodities such as gold, and conversely causes them to drop when inflation fears lessen, like yesterday when a report came out that the Fed would stop cutting rates.

 

[quadraphonics]

Also, the implication that a falling dollar results in US companies becoming less profitable isn't well-founded. In export sectors, a falling dollar is great for business (Boeing, for example, is presumably thrilled by the falling dollar).

 

[drankin]

Also, the implication that a falling dollar results in US companies becoming less profitable isn't well-founded. In export sectors, a falling dollar is great for business (Boeing, for example, is presumably thrilled by the falling dollar).

I agree, I'm seeing this. Our stuff is relatively cheaper now.

 

[Jimmy Snyder]

Hopes that the US was in a recession were dealt a setback today.

http://www.msnbc.msn.com/id/24384893"

A recession is defined as two consecutive quarters of negative growth in GDP. We haven't had a negative quarter since December 2001. Egad pessimists, what does the economy have to do before you'll admit we aren't in a recession? If you're not optimistic, you haven't been paying attention.

 

[Astronuc]

Hopes that the US was in a recession were dealt a setback today.

http://www.msnbc.msn.com/id/24384893"

A recession is defined as two consecutive quarters of negative growth in GDP. We haven't had a negative quarter since December 2001. Egad pessimists, what does the economy have to do before you'll admit we aren't in a recession? If you're not optimistic, you haven't been paying attention.

No one is hoping for a recession.

I heard this morning that some folks were expecting a growth of 0.5%. But it could be revised downward later.

Then I have to wonder, do the numbers take credit for the government borrowing to support the economy.

Apparently government is the biggest single employer at the moment.

Apparently the economy is so great that 650,000 homes are in some stage of foreclosure, up from about 300,000 homes last year at this time.

The rate of home vacancies, excluding rentals, is about 3%.

Home vacancy rate rises to record 2.8%
2.2 million unoccupied homes were for sale at end of quarter


http://marketplace.publicradio.org/apheadline_detail.php?story_id=D90C7Q3O0&group=ap.online.headlines.business

 

[Jimmy Snyder]

Sorry Astronuc, I have edited your quote considerably.

1. 650,000 homes are in some stage of foreclosure, up from about 300,000 homes last year at this time.

2. The rate of home vacancies, excluding rentals, is about 3%.

3. 2.2 million unoccupied homes were for sale at end of quarter

4. GM loses $3.3 billion in 1Q, lowers sales outlook

And yet GDP is up. Is there a point 5 that we are all missing here?

 

[mheslep]

http://marketplace.publicradio.org/apheadline_detail.php?story_id=D90C7Q3O0&group=ap.online.headlines.business

Doesn't GM lose a billion or so in every quarter, every year?

 

[mheslep]

Apparently government is the biggest single employer at the moment.

At this moment and most other recent moments, federal, state, and local government employ about 1 in 6 in the US. Fed alone employs 2M civilians, that is, not counting those in uniform.

Now, which of the candidates to you expect will be most likely to increase or decrease government employment?

 

[drankin]

At this moment and most other recent moments, federal, state, and local government employ about 1 in 6 in the US. Fed alone employs 2M civilians, that is, not counting those in uniform.

Now, which of the candidates to you expect will be most likely to increase or decrease government employment?

The Democrats tend to increase government programs in general. Increasing bureaucracy, requiring more taxes, slowing down processes. I'd like us to do more with less.

 

[turbo]

The Democrats tend to increase government programs in general. Increasing bureaucracy, requiring more taxes, slowing down processes. I'd like us to do more with less.

You forgot Reagan, who swore he would cut the size of government if elected and increased it by 25% instead. You can bet that I didn't for for him to get a second term!

 

[mheslep]

The Democrats tend to increase government programs in general. Increasing bureaucracy, requiring more taxes, slowing down processes. I'd like us to do more with less.

That may be true for the New Deal and Great Society eras, but more recently it is not so lopsided. President Bush has presided over the creation of the Homeland Security Department, and Senator McCain was instrumental in staffing the air travel inspectors (TSA) with federal employees. However these examples would be dwarfed by anything approaching a federal takeover of the $2 trillion heath care industry. Senators Obama and Clinton both favor federally based universal health care programs. Of course, one has toalso credit / blame Congress for the growth of the federal government. The executive can't spend a dime or hire one federal employee without Congress first appropriating the money.

 

[russ_watters]

No one is hoping for a recession.

Democrats who reaaaaly want a win in November most certainly are hoping for a recession.

Then I have to wonder, do the numbers take credit for the government borrowing to support the economy.

You don't already know the answer to that question?

 

[russ_watters]

And yet GDP is up. Is there a point 5 that we are all missing here?

Quite obviously people just don't want to accept the truth of what I said in post #404 (even when citing the statistics themselves!): virtually all of the economic troubles are confined to the real estate market and it's appendages. Most of the rest of the economy is doing just fine.

Anyway:

Two-thirds of the 52 economists polled said the U.S. economy is in recession. Add those who believe the economy will be in recession soon, and 79% believe that the economy will contract at some point in 2008.

The good news: The recession will be short and shallow, and inflation will abate, say the 52 economists surveyed.

http://www.usatoday.com/money/economy/2008-04-28-economy-survey-recession_N.htm

Ironically, that story is still on the headline of the Money section even though it is a day old and the actual GDP numbers came out today. Oops.

 

[mheslep]

Quite obviously people just don't want to accept the truth of what I said in post #404 (even when citing the statistics themselves!): virtually all of the economic troubles are confined to the real estate market and it's appendages. Most of the rest of the economy is doing just fine.

Yep, though I think you have to add heavy fuel consuming industries like the airlines; its hard for them to pass on the steep price jumps. All major US carriers except Southwest had a down quarter. Of course, SW is so good it could make money flying paper airplanes.

 

[russ_watters]

Yep, though I think you have to add heavy fuel consuming industries like the airlines; its hard for them to pass on the steep price jumps. All major US carriers except Southwest had a down quarter. Of course, SW is so good it could make money flying paper airplanes.

Are airlines part of the economy? Seriously, I'm beginning to wonder if the big ones even hope to ever turn a profit. The airlines in general are near-perpetual losers in the US, so they don't really effect the cycle much.

 

[Gokul43201]

Hopes that the US was in a recession were dealt a setback today.

http://www.msnbc.msn.com/id/24384893"

A recession is defined as two consecutive quarters of negative growth in GDP. We haven't had a negative quarter since December 2001. Egad pessimists, what does the economy have to do before you'll admit we aren't in a recession? If you're not optimistic, you haven't been paying attention.

I don't know about hoping for a recession (I doubt we'll have a textbook recession), but I might personally benefit if housing prices continued to fall for another 6-9 months, thank you!

 

[Gokul43201]

Ironically, that story is still on the headline of the Money section even though it is a day old and the actual GDP numbers came out today. Oops.

Since we hadn't had 2 quarters of GDP decline when the economists were polled I guess they weren't relying on that definition for their response. So, the new GDP numbers shouldn't really change the validity of the survey. I imagine though, that a non-negligible fraction of the "two thirds" were anticipating a negative growth to be reported for the last quarter and may have changed their responses given the new data.

Besides, bad news sells more than good news...doesn't it?

 

[mheslep]

Are airlines part of the economy? Seriously, I'm beginning to wonder if the big ones even hope to ever turn a profit. The airlines in general are near-perpetual losers in the US, so they don't really effect the cycle much.

Heh, yes maybe they'll never turn a profit. As long as the airlines are making investments i.e. buying fuel, airplanes (GDP expenditure measurement) or paying wages (GDP income measurement) they'll have a large impact on GDP and thus the recession (or not) metric. Losing money more directly impacts how long they're allowed to contribute to GDP More importantly its a labor intensive buis. so the airline fortunes impact the unemployment numbers. UAL 53k employees, the upcoming Delta+NW company >100k.

 

[Poop-Loops]

Are airlines part of the economy? Seriously, I'm beginning to wonder if the big ones even hope to ever turn a profit. The airlines in general are near-perpetual losers in the US, so they don't really effect the cycle much.

I've been wondering this myself. An airplane costs how much? $60Mil? And how much does a ticket cost? Even if it's across the Atlantic, well, now prices hiked up to $3k/ticket. But you have to add in fuel, paying your employees, food, maintenance, etc. I really can't imagine how they can afford to stay in business.

 

[Gokul43201]

$3k/ticket? Did you buy your ticket the day you were flying?

 

[mheslep]

I've been wondering this myself. An airplane costs how much? $60Mil?

That new Airbus monster jumbo costs $300+ million.

 

[Astronuc]

A perspective on the 0.6% (annual basis) increase of the GDP.

Federal Reserve Trims Interest Rate Again
http://www.npr.org/templates/story/story.php?storyId=90078092


In an interview with Jim Zarroli, Lou Crandall (of Wrightson ICAP, LLC) indicated that the economy grew (weakly) because companies stockpiled inventory (there's an increase in productivity) and that exports are up (not strongly though) but domestic spending is down.

http://www.wrightson.com - Independent research firm.


The Fed's perspective -

What the Fed Said
• Economic activity remains weak.
• Household and business spending has been subdued.
• Labor markets have softened further.
• Financial markets remain under considerable stress.
• Tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.
• Some indicators of inflation expectations have risen in recent months, but Fed policymakers expect inflation to moderate in coming quarters.
• Uncertainty about the inflation outlook remains high and it will be necessary to continue to monitor inflation developments carefully.
• Rate cuts so far, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity.
• The Fed will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

As for the argument about the Federal gasoline tax - McCain and Clinton support suspending the tax in order to ease the burden on drivers, but Obama is against the suspension since it will not be effective. One local analyst indicated that suspending the Fed tax is a silly idea, since it will be ineffective. He pointed out that 1% decline in the value of the dollar means a rise in the price of oil of $4.00/barrell. Oil prices will likely continue to rise possibly due to further devaluation of the dollar, but more likely because of speculation in the commodities markets. The rising price of oil is good for the profits of oil companies.

 

[Gokul43201]

As for the argument about the Federal gasoline tax - McCain and Clinton support suspending the tax in order to ease the burden on drivers, but Obama is against the suspension since it will not be effective.

The gas tax holiday is a load of hogwash! Virtually every economist has called it not only useless, as far as consumers are concerned (because, I think, of low supply elasticity in the summer), but essentially equivalent to a Summer Bonus for the Oil companies. Even Krugman (yikes!) agrees.

 

[Astronuc]

The gas tax holiday is a load of hogwash! Virtually every economist has called it not only useless, as far as consumers are concerned (because, I think, of low supply elasticity in the summer), but essentially equivalent to a Summer Bonus for the Oil companies. Even Krugman (yikes!) agrees.

Yes - but how many consumers know that? I doubt most folks know what's going on. They simply hear an $0.18 decrease in each gallon of gasoline, which probably will be rapidly erased by rising prices.

Being 'Upside Down' and Other Car Loan Hazards
http://www.npr.org/templates/story/story.php?storyId=90077688

Morning Edition, May 1, 2008 · Americans who bought cars beyond their means are falling behind on their loans in record numbers.

Auto loan delinquency in the United States hit a 17-year high in the fourth quarter of 2007, according to the American Bankers Association. Some 3.13 percent of car loans were overdue 30 days or more.

People overextended on easy credit! Well - whose fault is that?

Speaking of being overleverage - Bear Stearns apparently borrowed $30 per $1 of cash on hand. When their portfolio dropped in value, investors and creditors demanded their cash back - hence the crisis - and effective failure of BSC. It was not the governments fault BSC failed - simply irresponsible over-leveraging on the part of BSC.

 

[mheslep]

.. One local analyst indicated that suspending the Fed tax is a silly idea, since it will be ineffective. He pointed out that 1% decline in the value of the dollar means a rise in the price of oil of $4.00/barrell. Oil prices will likely continue to rise possibly due to further devaluation of the dollar,

I'm not sure I follow a big correlation of the dollar to oil. Oil is largely still sold for dollars, esp. in Saudi Arabia. So 1%=$4/barrel?

but more likely because of speculation in the commodities markets.

Now there I absolutely agree. Inflation driven commodity buys are a big chunk of the barrel price.

 

[mheslep]

...As for the argument about the Federal gasoline tax - McCain and Clinton support suspending the tax in order to ease the burden on drivers, but Obama is against the suspension since it will not be effective. ...

The gas tax holiday is a load of hogwash! Virtually every economist has called it not only useless, as far as consumers are concerned (because, I think, of low supply elasticity in the summer), but essentially equivalent to a Summer Bonus for the Oil companies. Even Krugman (yikes!) agrees.

It may not be effective as economic stimulus, if that's what is meant. A break on the gas tax would seem never the less to help those on tight incomes and driving for living. Taxi / truck drivers are paying that tax right out of pocket.

 

[russ_watters]

Since we hadn't had 2 quarters of GDP decline when the economists were polled I guess they weren't relying on that definition for their response. So, the new GDP numbers shouldn't really change the validity of the survey.

That's not necessarily true. If the growth numbers were negative, we could be in a recession by the conventional definition, we just wouldn't know it yet. So a 'we're in a recession' vote could be true based on the conventional definition. But if the GDP numbers are positive, we could not be in a recession by the conventional definition.

This simply means that it is very likely that the poll reflects more pessimism than warranted, but very unlikely that the poll reflects unwarranted optomism.

I imagine though, that a non-negligible fraction of the "two thirds" were anticipating a negative growth to be reported for the last quarter and may have changed their responses given the new data.

Yes.

Besides, bad news sells more than good news...doesn't it?

Yep.

 

[russ_watters]

As long as the airlines are making investments i.e. buying fuel, airplanes (GDP expenditure measurement) or paying wages (GDP income measurement) they'll have a large impact on GDP and thus the recession (or not) metric.

Of course, but that impact is based on how many people are flying, not whether the airline is turning a profit.

Losing money more directly impacts how long they're allowed to contribute to GDP

You kidding? How many major airlines have gone bankrupt in the past few years? How many of them have stopped flying?

 

[drankin]

Even with all the airlines dropping out, no one really has a problem flying anywhere they need to get to. If one airline drops out, another takes up the slack. The money is still flowing through the industry. What we need to look at as a metric are industries that are actually diminishing overall. I don't think the airline industry is a currently a factor. At least I haven't heard about a decline in overall flights in general. If we are in a recession I would think that would be a something we would see, less people travelling.

 

[Gokul43201]

It may not be effective as economic stimulus, if that's what is meant. A break on the gas tax would seem never the less to help those on tight incomes and driving for living. Taxi / truck drivers are paying that tax right out of pocket.

The people that should be most thrilled about this aren't. The American Trucking Association says they will support the bill only if it includes allocation of more money to the Highway Trust Fund.

http://news.medill.northwestern.edu/chicago/news.aspx?id=86967&print=1

The typical commuter may save 10 bucks, perhaps.

And you know where the rest of the money goes - another government handout to oil companies, from money they don't have in the first place.

 

[Poop-Loops]

$3k/ticket? Did you buy your ticket the day you were flying?

My mom and siblings are going to Poland this summer. They are leaving from the airport in Seattle and arriving in Berlin, with a stop in Copenhagen. When they ordered tickets a few weeks ago (they are flying out July-ish I believe, until the beginning of Sept.) they were $1.5k/each. My mom checked the same type of flight a few days ago and got double prices.

So sure, if they were willing to make a few stops, they could still pull off the same price. But the point is that the tickets pretty much doubled in a short amount of time.

And tickets to Poland have always been expensive, it's just that now they shot up even more.

 

[Jimmy Snyder]

Hopes that the unemployment rate would rise this month were dealt a setback today.
http://www.msnbc.msn.com/id/24425026"
Actually, it fell below the 100 month moving average. In other words, it is slightly lower now than the average over the last 100 months. All those anecdotes about thousands of people losing their jobs at a single company are just that, anecdotes. Egad pessimists, what does the economy have to do before you'll admit that the employment situation is not dire? If you're not optimistic, you haven't been paying attention.

 

[turbo]

You think people hope that unemployment will rise? That's pretty cynical, Rush. Unemployment is a regional problem, and it's very real here in Maine. I live in Somerset county where the unemployment rate is 8.5%, which doesn't count the people no longer eligible for unemployment benefits. The real number of people who want jobs is much higher, and it includes self-employed loggers, truckers, etc who have been laid low by the sag in construction and housing that have shuttered some very large sawmills. They don't qualify for unemployment and are never counted when they are thrown out of work due to poor economic conditions.

Neighboring Piscataquis county is running at approximately the same (official) rates. The most populous county (Cumberland) in the southern part of the state has the lowest rate of unemployment, and the very large population helps drive down the state's average unemployment rate, but believe me, the northern and northwestern part of the state is in very bad shape.

http://www.state.me.us/labor/lmis/data/laus/mectycurrent.html

 

[lisab]

You think people hope that unemployment will rise? That's pretty cynical, Rush. Unemployment is a regional problem, and it's very real here in Maine. I live in Somerset county where the unemployment rate is 8.5%, which doesn't count the people no longer eligible for unemployment benefits. The real number of people who want jobs is much higher, and it includes self-employed loggers, truckers, etc who have been laid low by the sag in construction and housing that have shuttered some very large sawmills. They don't qualify for unemployment and are never counted when they are thrown out of work due to poor economic conditions.

Neighboring Piscataquis county is running at approximately the same (official) rates. The most populous county (Cumberland) in the southern part of the state has the lowest rate of unemployment, and the very large population helps drive down the state's average unemployment rate, but believe me, the northern and northwestern part of the state is in very bad shape.

http://www.state.me.us/labor/lmis/data/laus/mectycurrent.html

But Turbo - if you weren't paying attention, you'd be optimistic!

 

[turbo]

But Turbo - if you weren't paying attention, you'd be optimistic!

You're right lisab. What a fool I am for actually looking at the numbers for myself. I could have been so happy if I had just blithely considered my own comfortable position and disregarded all the local people that are struggling to feed their families and heat their homes (if they can keep them).