News What is wrong with the US economy?

[quadraphonics]

Actually, that's the best news I've heard out of GM in a long time. If only they'd wised up to the way the auto industry was heading, say, 10 years ago, they would be making profits instead of laying off workers by now. But at least now they're headed in the right direction...

 

[Jimmy Snyder]

The index of misleading anecdotes fell this morning on news:
http://www.bloomberg.com/apps/news?pid=20601087&sid=afs.Z9pMITmg&refer=home"

 

[Astronuc]

Continental said high oil prices have sparked a crisis in its industry and business models simply don't work at the current level of capacity. The airline said it will shed 3,000 jobs and reduce domestic mainline capacity in the fourth quarter by 11%.

U.S. stock-market futures point to modest gains

United Airlines will follow suit with American and lay off 1500 people and ground about 100 planes.

Meanwhile, the main economic data due Thursday are the weekly jobless claims, though investors will also be looking ahead to the nonfarm-payrolls figure due Friday. Economists polled by MarketWatch are expecting May nonfarm payrolls to fall by 50,000.

It would be interesting to see how the new jobs compare to jobs lost in terms of salary and benefits. I would expect salaries/wages and benefits decline for the most part, but certainly there are those who find better jobs.

http://marketplace.publicradio.org/display/web/2008/04/28/exempt_nonexempt/

LISA NAPOLI: It was just another workday for David Canizares, a network administrator for IBM. Then his boss called him and gave him the news.

David Canizares: They said they wanted to be more compliant with federal regulations, so they were going to take us from exempt status to non-exempt status.

That was a fancy way of telling Canizares he still had a full-time job with benefits, but he'd no longer be classified as a salaried worker. He would be paid by the hour. And that wasn't the biggest change.

Canizares: They had to cut our pay 15 percent.

IBM said the cut was necessary because the reclassified workers would now get to earn overtime. In fact, to make the same pay as before, those workers would have to put in extra hours. But for a third of the reclassified employees at IBM, working overtime isn't a possibility. So they're taking home less money.

It seems only part of the economy is in recession, while the rest limps along.

http://marketplace.publicradio.org/display/web/2008/06/04/williams_sonoma/

http://marketplace.publicradio.org/display/web/2008/06/05/federal_highway_funds/

 

[edward]

Actually, that's the best news I've heard out of GM in a long time. If only they'd wised up to the way the auto industry was heading, say, 10 years ago, they would be making profits instead of laying off workers by now. But at least now they're headed in the right direction...

In a way it is good news. On the other hand:

GM said it would idle pickup and SUV factories in Janesville, Wis.; Oshawa, Ontario; Moraine, Ohio; and Toluca, Mexico as it tries to deal with a shift to smaller vehicles brought on by $4-per-gallon gasoline. GM also took aim at the Hummer, one off the largest vehicles on U.S. highways, saying it would either be sold or get a remake.

 

[Jimmy Snyder]

Apparently, I'm just like everybody else. I want the politicians to clean up the environment without bothering me about it.

 

[mheslep]

Did the ancedotes include this one? Somehow they make the articcle sound like good news?

http://www.azstarnet.com/sn/fromcomments/242085.php

In a way it is good news. On the other hand:

GM said it would idle pickup and SUV factories in Janesville, Wis.; Oshawa, Ontario; Moraine, Ohio; and Toluca, Mexico as it tries to deal with a shift to smaller vehicles brought on by $4-per-gallon gasoline. GM also took aim at the Hummer, one off the largest vehicles on U.S. highways, saying it would either be sold or get a remake.

On the other, other hand:
http://www.time.com/time/business/article/0,8599,1811773,00.html?referer=sphere_related_content&referer=sphere_related_content

General Motors is adding a third shift at a two assembly plants to meet the rising demand for smaller cars...

The third shift addition is happening immediately, while the SUV plant idles will take place slowly.

 

[Jimmy Snyder]

Obviously, although there have been many stories of big layoffs, there must have been a lot of hiring that didn't make the news. That's why I am reluctant to pay attention to all of the gloomy anecdotes, while the averages continue to paint a less gloomy picture. I think that all the gloominess in this thread ultimately rests on the fact that people expect economic growth to be a linear function of time. It's funny to see that mistake on a physics forum. I was trained as a mathematician, so I'm supposed to think that physicists don't understand math, but I thought you guys could read a graph.

The view from the People's Republic is good. The Philadelphia area was not so hard hit by the credit crisis as other parts of the country. But the big news, and I admit it's an anecdote, is that the nomadic tribe known as Americans, who would ordinarily head for expensive vacations on the French Riviera, Costa del Sol, the Islands, and Peoria, are headed this year for cheapo vacations in the armpit of the east coast, if not the west. In the past, I have recommended New Jersey as the ideal vacation destination because it is so close to the attractions in NY, PA, and DE. Well it turns out that it is also close to the Jersey shore and business there is expected to experience climate change this summer, local warming if you will. If you want to see a bubble burst, you have to puncture it. Simply squeezing it will make it shrink in one place, but bulge out in another.

 

[Astronuc]

But did those new jobs come with increasing or decreasing wages/salaries and benefits.

More people (perhaps locals in state and nearby states) may go to the Jersey shore, because they can't afford to go further, e.g. Disney, FL, CA, or wherever.

It's great that gasoline demand is down, which means price of gasoline and oil should decrease. But the price of oil doesn't seem to be following the traditional supply/demand theory, mainly because speculators are bidding up the price on the commodities exchanges.


Here's an interesting perspective from someone from the conservative Cato Institute.
http://marketplace.publicradio.org/display/web/2008/06/04/wilkinson_complaining/

Scott Jagow: As much bad economic news as I have to give out every morning, we are not in a recession. At least not by one common definition -- that's two straight quarters of negative GDP. The economy grew at a rate of almost a percent last quarter. But commentator Will Wilkinson says don't let that stop you from complaining.

--------------------------------------------------------------------------------

Will Wilkinson: Come on! Will we ever get a recession? Sure, gas and food prices are inspiring new expeditions into couch cushions across the nation. But without full-on recession, without a declaration that the economy's officially hosed, it seems like we have to accept that it's not that bad.

With a real recession, we could blame somebody -- President Bush, the Federal Reserve, the Democratic Congress, greedy investment bankers -- take your pick! And the upside of pain is complaining about it; a bona fide recession is a license to let slip the dogs of kvetch. But the economy keeps stumbling along like a drunk who never quite falls down. If it's going to be so lousy anyway, you almost want to say: "Just fall, damn it."

Economic growth is neither constant nor predictable. It speeds up and it slows down, sometimes so much the economy starts to shrink -- the dreaded recession.
. . . .

Unemployment is up . . . to 5 percent, which used to be considered really, really low. The inflation rate, including energy and food, is up to almost 4 percent. But in 1981, the last time gas was anywhere near this expensive in real terms, inflation was over 11 percent. Despite everything, the American economy appears annoyingly resilient.

Perhaps the economy (as a whole) is resilient because the growth is financed on borrowing money. The Bush adiminstration is on a binge of deficient spending with the current federal expenditures about $400 billion above revenue - not including nearly $200 billion in supplemental spending for military action overseas.

The Bush administration sent its final budget request to Congress last week, projecting that the deficit for all of 2008 will total $410 billion, very close to the all-time high in dollar terms of $413 billion in 2004.

So far this year, federal spending is 8.3 percent ahead of last year's pace, at $949.1 billion. That is far ahead of the 3.2 percent increase in revenues, which have totaled $861.4 billion in the current budget year.

For 2007, the budget deficit totaled $162 billion, a five-year low. However, the slowing economy is expected to stunt the growth of tax revenues while the $168 billion economic stimulus plan passed by Congress last week will swell the deficit.

http://www.cbsnews.com/stories/2008/02/12/national/main3822385.shtml?source=RSSattr=HOME_3822385

Again obviously some folks are doing really well, but many are not. And onne thing that is wrong with the US economy is that it is based upon economic disparity, and always has been.

A different perspective from a response to Wilkinson's commentary -

Locally, food prices are up 12 percent, fuel over 26% (and that's a conservative estimate), power bills 15%, insurance and utilities closer to 10%. My pay went up 5% last year. This year, because of less work, we'll be lucky to get 3%. These CATO guys live in a well-subsidized dream world.

Locally, our gasoline prices are up about 30% from last year, and food and utilities are about 10% higher.

and

http://marketplace.publicradio.org/display/web/2008/06/05/foreclosures/

The Mortgage Bankers Association reports today that the number of homes now in foreclosure is now more than a million. It's the highest rate ever recorded: 2.5 percent of all loans being serviced by members of the industry group are in foreclosure and the association is warning that the number is still rising.

One of the significant new trends: There's been a sharp increase in delinquencies of prime fixed-rate loans, the kind that had been considered very low risk.

 

[Jimmy Snyder]

More people (perhaps locals in state and nearby states) may go to the Jersey shore, because they can't afford to go further, e.g. Disney, FL, CA, or wherever.

Hey, if you're going to quote me, at least attribute.

 

[Astronuc]

The people "who would ordinarily head for expensive vacations on the French Riviera, Costa del Sol, the Islands," can still afford to go to FL, CA, which will make up for those going to the Jersey Shore. But this is good. The money will stay within the US!

Maybe we will see an influx of foreigners spending their vacation (and money) in the US.


The other good news about the economy - the US is available at a 20% discount - or so I heard. I wonder if purchasers will have to assume the debt.

 

[mheslep]

...The Bush adiminstration is on a binge of deficient spending with the current federal expenditures about $400 billion above revenue - not including nearly $200 billion in supplemental spending for military action overseas...

Why do you attribute that to the Bush administration and not Rep Pelosi, Sen Reid, etc, especially in light of several Presidential spending vetos?

 

[Astronuc]

Why do you attribute that to the Bush administration and not Rep Pelosi, Sen Reid, etc, especially in light of several Presidential spending vetos?

The Budget of the United States Government is a federal document that the President submits to the U.S. Congress. The President's budget submission outlines funding recommendations for the next fiscal year, . . . .

http://en.wikipedia.org/wiki/United_States_federal_budget

http://en.wikipedia.org/wiki/United_States_budget_process

 

[quadraphonics]

It's great that gasoline demand is down, which means price of gasoline and oil should decrease. But the price of oil doesn't seem to be following the traditional supply/demand theory, mainly because speculators are bidding up the price on the commodities exchanges.

It's only US demand that's down: China and India are still putting cars onto the road at a staggering pace. Oil being a fungible commodity, then, a dip in US demand is not guaranteed to translate into a dip in price. But prices are surely lower than they would have been.

Maybe we will see an influx of foreigners spending their vacation (and money) in the US.

That's been happening for over a year, as it is driven by the low dollar. And, yeah, they tend to not only vacation here, but go on shopping sprees. It's as if the entire country were having a half-off sale for Europeans. And then there's the reports of Canadian car dealerships going out of business because everyone is crossing the border to buy cars at a steep discount.

 

[quadraphonics]

Obviously, although there have been many stories of big layoffs, there must have been a lot of hiring that didn't make the news. That's why I am reluctant to pay attention to all of the gloomy anecdotes, while the averages continue to paint a less gloomy picture.

Would that be these averages?

http://www.nytimes.com/2008/06/07/business/07jobs.html?hp

"The unemployment rate surged to 5.5 percent in May from 5 percent, the largest monthly spike in more than two decades, as the economy shed 49,000 jobs for a fifth month of decline, the Labor Department reported on Friday.

[...]

“It’s unambiguously ugly,” said Robert Barbera, chief economist at the research and trading firm ITG. “The average American already knows that gas prices are up a ton and its really hard to find a job. Sally and Sam on Main Street are already well aware of this, and that’s why sentiment surveys are lower than they were in each of the last two recessions.”"

 

[loseyourname]

I lost my own job two months ago and had almost no luck at all finding something else until last week. Something like 30,000 people in the mortgage industry were laid off in the last year here in Orange County and it's flooded the labor market with people seeking middle-class work, which has made it damn near impossible to get a decent job if you don't already have one or you don't specialize in an obscure field most people are not qualified to work in. I was finally able to get two teaching jobs, one as a math teacher, and one as a GRE teacher, that both pay high hourly rates, but I was only able to get those because they require 95th percentile or higher test scores, which eliminates most of the competition. If you're not a great test taker and you don't have arcane skills, I don't what you'd be doing right now as someone unemployed. Real estate was probably one of the biggest sectors of employment in both Orange and Los Angeles Counties and it's just contracted like crazy.

Even if you were a laborer, there were always good construction and residential maintenance jobs available, and those are disappearing now, too. The good news is that the weakening dollar is creating a huge boost in the export industry, and with the western hemisphere's busiest port right here in Long Beach, that industry should absorb some of the people lost from others, but it'll take a while for all of these people to learn new skills. There's a huge demand for rentals now, too, as everyone loses their homes, and you figure that sector of the real estate industry will start picking up at some point, but right now, the financing just isn't there.

 

[turbo]

The little towns of Millinocket and East Millinocket Maine are getting nailed again. A weak paper market forced the closure of their paper mills years back and the loss of 1100 jobs. Brascan bought the two mills in 2003 and have been running at far less than capacity with 208 workers at the Millinocket mill and 350 workers at the sister mill. The mills are 100% dependent on oil to produce steam with which to make paper and the price of oil has more than doubled in the past year. The East Millinocket mill will have to undergo curtailment (probably in both production and work force) and the Millinocket mill will be shut down completely. The #11 paper machine at that mill is fully booked, and should be running 24/7 but the company cannot afford the huge losses due the price of oil, so it appears the mill will be shut down entirely.

http://bangornews.com/news/t/news.aspx?articleid=164991&zoneid=500

We have already lost all but one of the state's largest sawmills to closure in the past year or so, and are poised to lose even more forest-products jobs as the economy contracts.

 

[turbo]

My buddy somehow got lucky and landed a job on the highway crew of a town some distance from his home. He had been a real-estate agent, but sales of existing homes has collapsed - lots of for-sale signs, and no takers. He has been looking for work for over 6 months and with so many the wood-products people out of work (many with lots of heavy-equipment experience) he had a ton of competition. Travel costs are going to beat him up some, but at least he'll have a weekly check and some health insurance.

 

[Jimmy Snyder]

The unemployment rate surged to 5.5 percent in May from 5 percent, the largest monthly spike in more than two decades, as the economy shed 49,000 jobs for a fifth month of decline, the Labor Department reported on Friday.

To be clear, that is not a quadraphonics quote, he was quoting the New York Times.

While the delta is unusual, 5.5% unemployment is not particularly high from a historical perspective.

 

[mheslep]

http://en.wikipedia.org/wiki/United_States_federal_budget

http://en.wikipedia.org/wiki/United_States_budget_process

The President's budget has exactly zero legal ability to pull money from the Treasure because of this:
Article 1, Section 1:

All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.

 

[mheslep]

I lost my own job two months ago and had almost no luck at all finding something else until last week. Something like 30,000 people in the mortgage industry were laid off in the last year here in Orange County and it's flooded the labor market with people seeking middle-class work, which has made it damn near impossible to get a decent job if you don't already have one or you don't specialize in an obscure field most people are not qualified to work in. I was finally able to get two teaching jobs, one as a math teacher, and one as a GRE teacher, that both pay high hourly rates, but I was only able to get those because they require 95th percentile or higher test scores, which eliminates most of the competition. If you're not a great test taker and you don't have arcane skills, I don't what you'd be doing right now as someone unemployed. Real estate was probably one of the biggest sectors of employment in both Orange and Los Angeles Counties and it's just contracted like crazy.

Even if you were a laborer, there were always good construction and residential maintenance jobs available, and those are disappearing now, too. The good news is that the weakening dollar is creating a huge boost in the export industry, and with the western hemisphere's busiest port right here in Long Beach, that industry should absorb some of the people lost from others, but it'll take a while for all of these people to learn new skills. There's a huge demand for rentals now, too, as everyone loses their homes, and you figure that sector of the real estate industry will start picking up at some point, but right now, the financing just isn't there.

These periods are often ideal times to kickstart that back burner good idea and start a small business. Office space going for zip, Ebay supplies the rest for zip, and you can get some talented help that might forgo the usual big compensation.

 

[DrClapeyron]

The President's budget has exactly zero legal ability to pull money from the Treasure because of this:
Article 1, Section 1:

I am not certain about your quote, it seems misleading. The Executive Branch is the Administer of these receipts and the President certainly plays a role in this. Social Security Budget is written and administered by the Executive Branch. State, Environmental, Defense and other spending goes through the various agencies of the Executive Branch which then make up the cabinet.

Hopefully all these people do not just sit on their butts all day.

 

[quadraphonics]

While the delta is unusual, 5.5% unemployment is not particularly high from a historical perspective.

It's certainly not a Great Depression (or 70's/early 80's) level of unemployment, no. I'd call 5.5% the high end of the "normal" range. I.e., if it gets much higher, it's going to start setting off alarm bells. So, given that we're now on the threshold of trouble territory, and that the uptick was so large, it's somewhat ominous. If the Fed stops having to dump money into the financial sector, then there might be grounds for optimism that unemployment will turn around, but as things stand now...

 

[Astronuc]

And oil, which was falling, reversed direction and is now over $139/bbl.

The Wall Street Journal reported American International Group is under inquiry as the Securities and Exchange Commission examines the blue-chip insurance giant's involvement in credit default swaps. Various banks are being scrutinized for shady book-keeping.


The jump in unemployment was expected to be 0.1% to 5.1% instead of 5.5%. If the experts had predicted 5.7% or 6%, then the market would have sighed relief instead.

Last month, the civil engineering (land development) company next door to us layed off 3 people unexpectedly. The demand for their work is down, as are the real estate prices. Just about every neighborhood in our area has at lease one house for sale, and many have been on the market for weeks.

We also note a large number of big cars and SUVs for sale, and dealers are apparently turning away shipments of new SUVs, trucks and vans.

 

[Astronuc]

Why do you attribute that to the Bush administration and not Rep Pelosi, Sen Reid, etc, especially in light of several Presidential spending vetos?

Certainly Reid and Pelosi bear their share of responsibility, as do Delay and Hastert.

The vetos were for political reasons, not because of fiscal responsibility.

The government either needs to raise taxes, or cut expenses. They could cut SS by 50%.

It would also help for the government to collect taxes for those who are evading taxes, but perhaps the current administration is not interested in cutting into its political base.

 

[mheslep]

I am not certain about your quote, it seems misleading.

In the US the power to appropriate money rests soly with the Congress.
www.usconstitution.net/const.html

The Executive Branch is the Administer of these receipts and the President certainly plays a role in this.

Yes the Exec. branch administers. It can not take a dime from the Treasury receipts without authorization from Congress. The recent big cuts by Congress of spending on high energy physics, despite ample funds proposed in the Exec. budget, is a clear example.

Social Security Budget is written

No, the law comes from the Congress with input/budget from the Exec.

and administered by the Executive Branch. State, Environmental, Defense and other spending goes through the various agencies of the Executive Branch which then make up the cabinet.

Yes Exec branch administers.

 

[russ_watters]

It's certainly not a Great Depression (or 70's/early 80's) level of unemployment, no. I'd call 5.5% the high end of the "normal" range. I.e., if it gets much higher, it's going to start setting off alarm bells. So, given that we're now on the threshold of trouble territory, and that the uptick was so large, it's somewhat ominous. If the Fed stops having to dump money into the financial sector, then there might be grounds for optimism that unemployment will turn around, but as things stand now...

Historically, I don't know why you would think 5.5% is the high end of the "normal" range. Could you explain that?

In any case, since unemployment is a lagging indicator (businesses wait until the economy starts improving before hiring people back), the unemployment rate is near certain to keep rising at least until the end of the year.

Regarding the 0.5% rise. Anyone have any comment on the magnitude of that rise and what it actually means? There is a hidden issue behind it-- well, not that hidden, except that some commentators are ignoring it and saying factually untrue things about what it means.

 

[Jimmy Snyder]

It's certainly not a Great Depression (or 70's/early 80's) level of unemployment, no. I'd call 5.5% the high end of the "normal" range. I.e., if it gets much higher, it's going to start setting off alarm bells. So, given that we're now on the threshold of trouble territory, and that the uptick was so large, it's somewhat ominous. If the Fed stops having to dump money into the financial sector, then there might be grounds for optimism that unemployment will turn around, but as things stand now...

I see many grounds for optimism. In fact, I propose the following bet. If the unemployment rate is at or above 5.3% next month, I lose and must drink a glass of Merlot, Chateau Pavie Macquin 2004 with my steak dinner. If it's below 5.3%, you lose and must drink a beer, Rolling Rock, 2008 with a hot dog, condiments of your choice.

 

[quadraphonics]

Historically, I don't know why you would think 5.5% is the high end of the "normal" range. Could you explain that.

Well, economists and policy-makers have many different opinions on what unemployment rate is desirable (look up NAIRU for example), but they tend to range between 1-5%, with most of the mainstream favoring something around 3-4%. So anything above 5% is in territory that nobody seriously thinks is a healthy level. More specifically, if you look at a plot of unemployment over the years, sustained unemployment of 5.5% or higher coincides very nicely with the various recessions:

http://www.miseryindex.us/URbyyear.asp

In any case, since unemployment is a lagging indicator (businesses wait until the economy starts improving before hiring people back), the unemployment rate is near certain to keep rising at least until the end of the year.

Indeed. It's interesting to consider how different indicators lead/lag the economy as a whole. For example, much of the current downturn has probably already been priced into the stock market, so unless some new problems arise, I expect to see stocks hold steady (or maybe even improve somewhat).

 

[quadraphonics]

I see many grounds for optimism. In fact, I propose the following bet. If the unemployment rate is at or above 5.3% next month, I lose and must drink a glass of Merlot, Chateau Pavie Macquin 2004 with my steak dinner. If it's below 5.3%, you lose and must drink a beer, Rolling Rock, 2008 with a hot dog, condiments of your choice.

I'd prefer to just hear your reasons for expecting unemployment to fall. Besides which the terms of the bet don't seem particularly equitable...

 

[russ_watters]

Well, economists and policy-makers have many different opinions on what unemployment rate is desirable (look up NAIRU for example), but they tend to range between 1-5%, with most of the mainstream favoring something around 3-4%. So anything above 5% is in territory that nobody seriously thinks is a healthy level. More specifically, if you look at a plot of unemployment over the years, sustained unemployment of 5.5% or higher coincides very nicely with the various recessions:

http://www.miseryindex.us/URbyyear.asp

Ok, that makes more sense. The word you used before was "normal". Clearly, 5.5% is quite within the "normal" range for the current economic condition. In fact, given the unemployment rate during the last several downturns, it would be quite "normal" for the unemployment rate to reach 6-7%. The last barely-a-recession was in 2000-2002, and unemploment peaked at 6%, so I'd expect the current almost-a-recession to include a peak near there.

 

[russ_watters]

I'd prefer to just hear your reasons for expecting unemployment to fall. Besides which the terms of the bet don't seem particularly equitable...

If unemployment falls next month, it will fall because the condition that caused the current blip up reverses. I alluded to it in an earlier post, but no one has actually commented on it: the unemployment rate jumped up this month almost entirely because of a huge increase in the amount of people in the workforce. The rise in both was much more than anticipated and may indicate a statistical blip. Unemployment went up last May as well (only slightly), despite adding 88,000 jobs. I suspect the reason is the same for both: May means a surge of new college graduates suddenly enter the workforce.

http://www.jobbankusa.com/News/Unemployment/unemployment_up_slightly.html

Personally, I think unemployment will probably be flat or tick up slightly for June.

 

[Jimmy Snyder]

I'd prefer to just hear your reasons for expecting unemployment to fall. Besides which the terms of the bet don't seem particularly equitable...

I'm not complaining, I can afford a square meal. Anyone who takes me up on this wager is talking poor. I don't want to drain their pocketbooks. As for my reasons, Russ gave it away.

 

[loseyourname]

These periods are often ideal times to kickstart that back burner good idea and start a small business. Office space going for zip, Ebay supplies the rest for zip, and you can get some talented help that might forgo the usual big compensation.

I thought about starting up a college admissions consulting service, but I'm already going back to grad school this fall and it would be a lot to do that and try to start up a business at the same time. I'd rather not sacrifice one for the other. It looks to me like lack of investor confidence is going to cause an artificially high drop across all sectors of the stock market, though, so I probably will start pouring what little money I have into solid companies that are dropping for no good reason just because everything else is. One of the advantages of being a student again is I can borrow money and pay no interest on it for a few years, so any return whatsoever that I can make is pure profit.

Plus, the combined pressure of people needing to sell cheap, the oversupply of market-price housing here, and the coming boom in the rental market is going to make these next two years a great time to buy rental properties. My girlfriend is pretty good at calling the housing markets, too. We need more assets to borrow against, though. Even with good income, no one is willing to lend much to people that already carry a debt burden from having advanced degrees right now. Most of it is hers, though, and it's looking like her father is going to assume some of, if not most of, her student loans. Plus, you figure the bank to bank and securities markets will become liquid again at some point and lenders will reach a happy medium between the lax practices they had that led to this and their current reticence right now to lend at all. The money is still there. Institutions are just less willing to let go of it right now because they fear not having the capital to survive a margin call and ending up like Bear Stearns.

 

[Astronuc]

June 9, 2008
Rural U.S. Takes Worst Hit as Gas Tops $4 Average
http://www.nytimes.com/2008/06/09/business/09gas.html
By CLIFFORD KRAUSS

TCHULA, Miss. — Gasoline prices reached a national average of $4 a gallon for the first time over the weekend, adding more strain to motorists across the country.

But the pain is not being felt uniformly. Across broad swaths of the South, Southwest and the upper Great Plains, the combination of low incomes, high gas prices and heavy dependence on pickup trucks and vans is putting an even tighter squeeze on family budgets.

Here in the Mississippi Delta, some farm workers are borrowing money from their bosses so they can fill their tanks and get to work. Some are switching jobs for shorter commutes.

People are giving up meat so they can buy fuel. Gasoline theft is rising. And drivers are running out of gas more often, leaving their cars by the side of the road until they can scrape together gas money.

The disparity between rural America and the rest of the country is a matter of simple home economics. Nationwide, Americans are now spending about 4 percent of their take-home income on gasoline. By contrast, in some counties in the Mississippi Delta, that figure has surpassed 13 percent.

4% is no big deal, in fact the cost of gasoline is less than 2% of my income. But 13%?!

 

[Gokul43201]

A historic look at the Dow Jones Industrial Average from the Great Depression:

Period (mm/yyyy)  Annualized Increase*   President**

06/1929 - 06/1933      -33%               Hoover
06/1933 - 06/1945       07%               Roosevelt
06/1945 - 06/1953       08%               Truman
06/1953 - 06/1961       11%               Eisenhower
06/1961 - 06/1963       02%               Kennedy
06/1963 - 06/1969       05%               Johnson
06/1969 - 06/1974       00%               Nixon
06/1974 - 06/1977       01%               Ford 
06/1977 - 06/1981      -01%               Carter           
06/1981 - 06/1989       11%               Reagan
06/1989 - 06/1993       11%               Bush Sr.
06/1993 - 06/2001       16%               Clinton
06/2001 - 06/2008       03%               Bush Jr.

* From 6-month moving averages
** Approximate Presidential term coinciding with selected period

All numbers generated from MSN Money.

Note: Mean post-depression annual increase = 6%

 

[Astronuc]

UPS slashes its profit outlook due to fuel, economy

It marks the second straight quarter that the company has warned it would not meet prior profit expectations. Its stock fell 4% in late trading.

The package-delivery giant cut its second-quarter profit forecast to a range of 83 cents to 88 cents a share. In late April, UPS had expected to earn between 97 cents and $1.04 a share. Since then, crude prices have surged from $110 to $136 a barrel.

Meanwhile the financial sector is shedding people.

SAN FRANCISCO (MarketWatch) -- Goldman Sachs is cutting 10% of its investment banking staff this year, the Financial Times newspaper reported on Monday.

NEW YORK (MarketWatch) -- Citigroup plans to lay off as much as 10% of the 65,000 workers in its investment-banking division, with the first round of dismissal notices to be issued as early as Monday, The Wall Street Journal reported.

Layoff notices are about to hit hundreds of investment bankers at Citigroup.

SAN FRANCISCO (MarketWatch) -- UAL Corp. announced Monday that it is laying off 950 United Airlines pilots, or about 14% of the company's total pilot workforce, to better align capacity to shrinking demand in the face of soaring fuel costs.

 

[Astronuc]

Bonfire of the Vanities Redux

Here's an interesting perspective about Wall Street and the financial markets -

“Nobody understands where the actual value is — and they don’t care anymore,” he exclaimed.

Of course, Mr. Wolfe’s 1980s Wall Street — of privileged WASPs (and Jewish Anglophiles), the sons of Harvard and Stanford and Princeton braying for money on the bond market — is pretty much gone now. It was replaced, in part, by the world of private equity and hedge funds, by hypernumerate quants and bankers who think proprietary trading is more important than serving clients.

And now that world is crumbling, too.

http://www.nytimes.com/2008/06/24/business/24sorkin.html

This portends of serious problems in the financial sector of the US and global economies.


Meanwhile two of the biggest producers of iron ore, BHP Billiton and Rio Tinto, just announced a doubling of the price of iron ore.

Japan steel firms agree to doubling of iron-ore price

HONG KONG (MarketWatch) -- Shares of Japanese steelmakers ended broadly lower Tuesday, playing off reports that Nippon Steel Corp. and others are poised to accept a doubling of iron-ore prices -- as demanded by Rio Tinto -- for the current fiscal year.

By agreeing to the increase, Nippon Steel (NISTY) is likely to experience an increase in its annual procurement costs for the key steelmaking ingredient of 100 billion yen ($925.7 million), the Nikkei newspaper reported, citing company sources. . . . .

The move comes after Baosteel Group Corp., China's largest steelmaker, agreed to an average 85% increase in the benchmark price for iron ore supplied by mining giants Rio Tinto (AU:RIO) and BHP Billiton (AU:BHP) this year, according to The Wall Street Journal. The increase will mean contract prices for iron ord range around $140 a metric ton.

So not only the cost of energy has gone way, but the cost of raw materials that go into many durable goods and infrastructure just jump significantly.

 

[Gokul43201]

Exports help Q1 growth beat last revised estimate:

WASHINGTON: The economy turned in a better — but still subpar — performance in the first three months of this year, mostly spurred by stronger sales of U.S. products overseas.

The 1 percent annualized increase in gross domestic product, announced by the Commerce Department on Thursday, marked a slight improvement from the government's previous estimate of 0.9 percent growth for the January-to-March quarter. And, it showed the economy logging stronger growth than the feeble 0.6 percent pace registered in the final three months of last year.

http://www.iht.com/articles/ap/2008/06/26/america/Economy.php

 

[turbo]

4% is no big deal, in fact the cost of gasoline is less than 2% of my income. But 13%?!

People in rural Maine are getting hit hard, because the population is thin and widely-spread and jobs often require long commutes. My wife has a high-skill manufacturing job, but with stagnant wages, soaring gas, and a commute that once was reasonable, 10% or more of her take-home pay now goes in the tank so she can get back and forth to work.

 

[Astronuc]

In our area, people are abandoning their SUV's and large vehicles in favor of smaller ones like the Honda Civic (conventional and hybrid) and Toyota Prius. We see a lot of For Sales signs on large vehicles, but nobody wants them.


Also there has a been an upswing in the theft of copper wiring and plumbing from homes in our area.

 

[Gokul43201]

In our area, people are abandoning their SUV's and large vehicles in favor of smaller ones like the Honda Civic (conventional and hybrid) and Toyota Prius.

And don't forget scooters: http://www.msnbc.msn.com/id/24620567/

With the average price of gas closing in on $4 a gallon, many cash-strapped motorists are turning to fuel-stingy motor scooters and smaller motorcycles. Dealers across the nation report brisk sales this spring, particularly for those that get from 75-120 miles per gallon.
...
Sales of name-brand scooters such as Honda, Yamaha, Vespa and Suzuki rose 24 percent in the first quarter of the year, said Mike Mount, spokesman for the Motorcycle Industry Council trade group — noting that it's not exactly a hot sales period because of cool weather in much of the nation.

Now that's a lifestyle change!

 

[Gokul43201]

The Dow fell 358 points and the Nasdaq, a whopping 80 points - I think the second largest single day loss in the last 12 months. The largest was the nearly 400 point day, about 2-3 weeks ago.

 

[russ_watters]

4% is no big deal, in fact the cost of gasoline is less than 2% of my income. But 13%?!

Mine's about 5.5% of take-home and I'm certainly feeling it, but it isn't a huge problem.

 

[russ_watters]

The Dow fell 358 points and the Nasdaq, a whopping 80 points - I think the second largest single day loss in the last 12 months. The largest was the nearly 400 point day, about 2-3 weeks ago.

Here's the data: http://finance.google.com/finance?cid=983582&client=news

There were two others: On Aug 9 it was down 387, Feb 29, 370.

One day rarely matters much - what matters right now is that it is down 12% in the past 6 weeks. In Jan it lost 12% in about 2 weeks. That one was the big one that we're now back just below the level of.

We have a 1-2 punch going, with the financial companies continuing to report losses (even after they keep saying the write-downs are over), plus fuel prices are getting to be more of a corporate concern, hitting the already crappy car companies (GM), shipping companies and airlines.

Early summer is typically worst for gas prices - we'll see if that holds true this year. If it does, the economy will come booming back in the fall (as economists are currently predicting). That'll add quite a late twist for the election outlook (a little like in 2000, but much closer to the election).

 

[Art]

Early summer is typically worst for gas prices - we'll see if that holds true this year. If it does, the economy will come booming back in the fall (as economists are currently predicting). That'll add quite a late twist for the election outlook (a little like in 2000, but much closer to the election).

The latest I've read is that crude is expected to reach $170 bbl in the next couple of months. If this keeps up the world economy will be in serious trouble.

The spike in the price of oil followed comments from the producers' organisation Opec about the prospect of oil at $170 a barrel this summer.

Oil producer Libya added to the pressure after signalling it may cut output, while a falling US dollar also pushed up the price of crude.

Analysts said a raft of bad news about the health of corporate America, the impact of higher oil on company profits and fears about US financial sector hurt investor confidence.

"I felt we were going to have a garden variety recession, but if oil goes up goes up to $170 and stays in the $170 area, who knows," said Al Goldman, chief market strategist at Wachovia Securities.

http://news.bbc.co.uk/2/hi/business/7476269.stm

 

[mheslep]

...If this keeps up the world economy will be in serious trouble.

http://news.bbc.co.uk/2/hi/business/7476269.stm

trouble +1
Total:
trouble, troubling: 25

 

[WarPhalange]

Can I just ask who's seeing the profits from such high oil prices? Who's getting paid $140 for a barrel of oil? What are that person's expenses in turn?

 

[Astronuc]

The people who own the oil/gas or oil/gas leases are the ones making money. If you bought gas leases a few years ago, you'd be making money.


Research In Motion hit after forecast disappoints
BlackBerry maker plans to step up spending as it faces new competition

SAN FRANCISCO (MarketWatch) -- Shares of Research In Motion slid more than 10% in early trading Thursday, a day after the wireless device maker signaled that future earnings may come under pressure as it ramps up spending to sustain its breakneck growth rate.

After the closing bell Wednesday, the maker of the popular BlackBerry line of smart phones reported that both revenue and net income more than doubled for its first fiscal quarter ended May 30. But the company (RIMM) also issued a lower-than-expected earnings forecast for the current quarter, during which it will come under increased pressure from competing products such as a faster, cheaper iPhone, which will hit the market next month.

They double their profit, but poeple expected more, to just doubling profit was not good news.

The stock has soared more than 65% over the last five months as investors banked on continued strong sales of the popular BlackBerry devices. . . . .

The company managed to continue its strong run for the first fiscal quarter, which ended May 31. RIM reported earnings of $482.5 million, or 84 cents a share, for the period compared to earnings of $223.2 million, or 39 cents a share, for the same quarter last year.
Revenue grew more than 100% to $2.24 billion from $1.08 billion last year.

While that seems fine, RIMM expressed concern that they may not be able to sustain that, so now investors are worried that the stock is now over-valued.


U.S. stocks sink; GM falls nearly 11%
Brokers no longer 'attractive,' says Goldman Sachs; oil tops $140 a barrel

NEW YORK (MarketWatch) -- U.S. stocks fell sharply Thursday with the blue-chip index enduring its worst June so far since 1930, and plunging to its lowest finish since Sept. 11, 2006, after getting slammed hard as crude soared to new highs and Goldman Sachs disparaged U.S. brokers and advised selling General Motors Corp.

"We're going to move in the opposite direction of oil, and General Motors is going to go out of business, at least according to Goldman Sachs," said Art Hogan, chief market strategist at Jefferies & Co.

. . . .

Cautious outlooks from Research In Motion Ltd., Oracle Corp. and Nike Inc. added to the gloom.
. . . .

Well Goldman Sachs could be taken down brokerage stocks in hopes of snapping up a good bargain.

Apparently Algerian Energy Minister Chakib Khelil, who serves currently as president of OPEC, said oil prices could jump as high as $150 to $170/bbl this summer, according to reports, so oil traders jumped to get oil at $140/bbl. Apparently one Libya's ministers is pushing for oil at $150/bbl.

http://www.bloomberg.com/apps/news?pid=20601087&refer=&sid=aBzD.V1iluuA

http://marketplace.publicradio.org/apheadline_detail.php?story_id=D91I10V01&group=ap.online.headlines.business

Declining issues outnumbered advancers by about 6 to 1 on the New York Stock Exchange, where consolidated volume amounted to 5.11 billion shares, up from 4.72 billion shares on Wednesday.

Tokyo, Friday, June 27 - The Nikkei 225 Average dropped 315.12 points to 13,507.20 in the early minutes.

London, Thursday, June 26 - Pan-European stock index closes at its lowest level since October 2005 as markets tumble.

The Fed will have to strengthen the dollar, or at least keep it from falling further in order to keep oil prices down, or prevent them from climbing further.


On the bright side - metals and mining stocks are doing well, and energy is mixed.

Gold for August delivery ended up $32.80 at $915.10 an ounce on the New York Mercantile Exchange. Gold had started to fall back from the $900 mark.

Anheuser Busch may sell of some assets to spoil InBev's offer of ~$65/share. If AB sells assets, they could pay down debt or spend the cash on stock holders in a one time special dividend. Some analysts expect AB may take the InBev offer at $70/share.

Certainly there are bargains in the equities markets - if you've got the money.

 

[Astronuc]

Floods may push corn inventories to historical low
USDA to report acreage; analysts warn of $10 corn and possible supply crisis

. . .

The loss of acreage could slash U.S. corn production and push the 2009 season's year-end stocks to the lowest level since just after World War II, analysts said. And the real damage is likely to be even worse than what Monday's 8:30 a.m. EDT report will show, as it's still too early to evaluate the full impact of the flooding.

"The report is already obsolete," said Elaine Kub, a grains analyst at commodities-information provider DTN. Many acres could be abandoned at a later date and the acreage situation will be worse than the report sounds, she said.

The acreage report is likely to show that the U.S. will harvest 77 million acres of corn in the 2009 season, down 1.8 million from the USDA's March report, according to an estimate from Shawn Hackett, president of agriculture futures brokerage Hackett Financial Advisors.
. . .
Corn yields are also expected to be hurt by the Midwest flooding, which by some estimates was the worst since 1993.

Shrinking acreage and falling yields could push 2009 year-end corn inventories to as low as 300 million bushels, down 80% from the previous year, Hackett projected. This will be the lowest inventory level the U.S. has seen since 1947.

The USDA, without fully considering the impact of flooding, projected in early June that corn year-end stocks would stand at 673 million bushels in 2009, down 53% from a year ago and the lowest in 13 years. . . . .

This will be troublesome if food prices escalate well above incomes.

I've noticed that local restaurants, cafes, delis and other food places are less busy, and emergency food demand is up. Not a good sign.

 

[russ_watters]

The people who own the oil/gas or oil/gas leases are the ones making money. If you bought gas leases a few years ago, you'd be making money.

They aren't fundamentally different from stocks (and much of that actually is just stocks). So really, it's about half of the population of the US who sees that profit.