News What is wrong with the US economy? Part 2

[russ_watters]

If people spent the money. The evidence is they did not, instead they just banked it, or payed down debt. That is, the stimulus checks mailed last May had no effect on GDP via the consumption contribution. See the attached BEA sourced graph on personal consumption vs disposable income. Income clearly spiked up w/ the govt. checks, consumption went limp.
http://online.wsj.com/article/SB122757149157954723.html

What is the definition of "personal consumption" and where did the money go? Even if people used the money to pay down credit card debt or pay (or get ahead of) their other bills, it is still money going out the door.

What else could account for the 6 months of positive GDP growth without income growth?

 

[OmCheeto]

I hope everyone didn't think I was just trying to be funny with my python post.

I was trying to be serious.

I know it's difficult to absorb so much information so fast. I've been an economical illiterate for most of my life. What a surprise to find out that the people running the world were just guessing as to how to do it.

But referring back to my whistling post, I liked the following the best. Mostly because it was simple enough for me to understand:

http://kay.net.nz/2007/10/25/is-a-recession-bad/"
Martin Kay
October 25, 2007

So why then is everyone so frightened by the mention of the dreaded R word? The US Federal Reserve has stepped in whenever the economy looked like it was heading for recession by lowering interest rates and pumping liquidity into the economy to stave off recession. But is this a good idea? It seems like a good deal - why go through recession when you could possibly stave it off for good.

Yes. It is politics. People in power, and everyone else for that matter, don't like things going wrong on their watch. It's simple human nature.

I like Kay's analysis. Let the flotsam float away. Let the jetsam sink to the bottom.

...

sorry. I've run out of cute metaphors at the moment.

....

ps. just hired someone on Friday. Hiring freeze went into effect yesterday. She's the best. I saw "graduated with a degree in applied sciences" on her resume and thought to myself; "Damn, a scientist! Throw all the other applications away!"

 

[edward]

As I've reminded others, the title of this thread is "What is wrong with the US Economy", not, "What is wrong with the life of some guy edward knows".

That someone Edward knows is my son and his employees Russ.

My sons job and the strife of his employees are every bit as much about what is wrong with the economy as any rear projected GDP statistics you can post. You can crunch all the numbers you want and it won't change anything at this point.

A while back people were posting about the cost of food. Hey go jump on them O.K.

As a matter of fact the thread should now be titled What Happened To The U.S. Economy.

 

[russ_watters]

That someone Edward knows is my son and his employees Russ.

So you take this subject very personally and react based on emotion, not logic. I get it and it is understandable, edward, but even as you do it, you should be able to recognize that reaction for what it is. And it isn't even that it isn't personally relevant to me that matters: what matters is that it isn't relevant for any of the other couple hundred million people who didn't lose their jobs recently. The only way to properly evaluate The Economy is through broad economic statistics. Anecdotes are things to commiserate over in GD and not useful beyond that.

And just fyi, you don't know me - you know very little about me because I don't talk about my personal life much here. I've had some job issues this year too, and they weren't pleasant. But they are completely irrelevant here.

 

[edward]

So you take this subject very personally and react based on emotion, not logic. I get it and it is understandable, edward, but even as you do it, you should be able to recognize that reaction for what it is. And it isn't even that it isn't personally relevant to me that matters: what matters is that it isn't relevant for any of the other couple hundred million people who didn't lose their jobs recently. The only way to properly evaluate The Economy is through broad economic statistics. Anecdotes are things to commiserate over in GD and not useful beyond that.

And just fyi, you don't know me - you know very little about me because I don't talk about my personal life much here. I've had some job issues this year too, and they weren't pleasant. But they are completely irrelevant here.

Do you realize that you just stated that job issues are not relevant in this thread about economics??

One job may be irrelevant. But in my son's case he has 15 employees and the same thing is happening all over the country.

I was trying to give some insight as to how the economic crisis has already filtered down to the local level.

Go ahead and keep throwing out statistics that only mattered in the past.

 

[mheslep]

What is the definition of "personal consumption" and where did the money go? Even if people used the money to pay down credit card debt or pay (or get ahead of) their other bills, it is still money going out the door.

What else could account for the 6 months of positive GDP growth without income growth?

GDP = Consumption + Investment + Govt Spending + (Export - Imports), so it was one of those. Note govt spending has to be in govt purchases, as in buying guns and butter that the govt. then owns. Mailing checks that don't purchase anything doesn't count, unless and until the recipient goes out and buys something, where it then counts as Consumption. Likewise for individuals who just deposit money in the bank, doesn't count.

 

[Astronuc]

Employers shedding jobs as recession deepens (2 hrs ago)
http://news.yahoo.com/s/ap/20081205/ap_on_bi_ge/financial_meltdown

WASHINGTON – With the economy sinking faster, employers are giving more Americans dreaded pink slips right before the holidays.

The Labor Department releases a new report Friday that's expected to show the employment market deteriorated in November at an alarming clip as the deepening recession engulfed the country.

After bolting to a 14-year high of 6.5 percent in October, the unemployment rate likely climbed to 6.8 percent last month, according to economists' forecasts. If they are right, that would mark the worst showing in 15 years.

Skittish employers, which have slashed 1.2 million jobs this year alone, probably axed another 320,000 last month, economists forecast. If that estimate is correct, it would represent the deepest cut to monthly payrolls since October 2001, when the economy was suffering through a recession following the Sept. 11 terrorist attacks.

Employers are slashing costs to the bone as they try to cope with sagging appetites from customers in the United States as well as in other countries, which are struggling with their own economic troubles.

The carnage — including the worst financial crisis since the 1930s — is hitting a wide range of companies.

Just in recent days, household names like AT&T Inc., DuPont, JPMorgan Chase & Co., as well as jet engine maker Pratt & Whitney, a subsidiary of United Technologies Corp., and mining company Freeport-McMoRan Copper & Gold Inc. announced layoffs.
. . . .

Employers cut 533K (the expectation was 230K to 340K according to what I heard yesterday)

US sheds 533,000 jobs
http://news.yahoo.com/s/afp/20081205/bs_afp/useconomyunemployment

WASHINGTON (AFP) – The US economy lost a stunning 533,000 jobs in November and the unemployment rate jumped to a 15-year high of 6.7 percent, the Labor Department said Friday.

The report highlighted the severe retrenchment by companies in the face of a struggling economy and tight credit.

The number of job losses was much higher than the 325,000 expected by private forecasters.

The report, seen as one of the best indicators of economic momentum, also included a sharp upward revision in the number of job losses in the prior two months: October saw a loss of 403,000 jobs (up from an earlier estimate of 240,00) and September job losses were revised up to 320,000 from 284,000.

. . . .

Yet unemployment rate is 6.7%, which is down. Discouraged workers, i.e. those given up, are not counted, so the unemployment (for whatever reason) rate is actually much higher.


Imports are down somewhat more than exports, so the trade deficit is down - but so are exports.

 

[Gokul43201]

The only way to properly evaluate The Economy is through broad economic statistics.

Like the unemployment rate? How do you anticipate that number is likely to trend over the next year or so? Do you think we are near the peak at 6.7%, or do you think it'll get higher?

 

[turbo]

Like the unemployment rate? How do you anticipate that number is likely to trend over the next year or so? Do you think we are near the peak at 6.7%, or do you think it'll get higher?

Depending on the timing, the official unemployment figure could actually drop while real unemployment is increasing. This happens when groups of people from earlier lay-offs exhaust their benefits and are no longer counted. If people exhaust their benefits at a faster rate than new claims emerge, "official" unemployment will decline while real unemployment climbs.

 

[Astronuc]

Depending on the timing, the official unemployment figure could actually drop while real unemployment is increasing. This happens when groups of people from earlier lay-offs exhaust their benefits and are no longer counted. If people exhaust their benefits at a faster rate than new claims emerge, "official" unemployment will decline while real unemployment climbs.

The unemployment rate would have moved even higher if not for the exodus of 422,000 people from the work force. Economists thought many of those people probably abandoned their job searches out of sheer frustration. In November 2007, the jobless rate was at 4.7 percent.

from the revised Yahoo/AP article.
Employers cut 533K jobs in Nov., most in 34 years
http://news.yahoo.com/s/ap/20081205/ap_on_bi_ge/financial_meltdown

http://www.bls.gov/news.release/empsit.nr0.htm

The number of long-term unemployed (those jobless for 27 weeks or more) was
little changed at 2.2 million in November, but was up by 822,000 over the past
12 months. (See table A-9.)

Total Employment and the Labor Force (Household Survey Data)

In November, the labor force participation rate declined by 0.3 percentage
point to 65.8 percent. Total employment continued to decline, and the employ-
ment-population ratio fell to 61.4 percent. (See table A-1.)

Over the month, the number of persons who worked part time for economic
reasons (sometimes referred to as involuntary part-time workers) continued
to increase, reaching 7.3 million. The number of such workers rose by 2.8
million over the past 12 months. This category includes persons who would
like to work full time but were working part time because their hours had
been cut back or because they were unable to find full-time jobs. (See
table A-5.)

. . . .

Apparently if one takes all the 'unattached' or discouraged workers, then the unemployment rate would be more like 12%.

Actaully 12.5% - http://www.bls.gov/news.release/empsit.t12.htm
and the term is 'marginally attached' as opposed to 'unattached'.

The Employment Situation for December 2008 is scheduled to be released
on Friday, January 9, 2009, at 8:30 A.M. (EST). Employment Situation
release dates for the balance of 2009 can be found on the BLS Web site at
http://www.bls.gov/schedule/news_release/empsit.htm.

 

[kronon]

some initial reactions of economists to the job data:


This is almost indescribably terrible. In the past six months the U.S. has lost 1.55 million jobs, almost as many as were lost in the whole 2001 recession, which included 9/11 and the two months after. The pace of job losses is accelerating alarmingly, as this report attests, with steep drops in most sectors but the biggest deterioration in services — down 370,000 in November after 153,000 in October. Note education/health and governmentt added 59,000, so core private payrolls even worse than headline. Desperate.

This was much worse than was expected and represents wholesale capitulation. The threat of a widespread depression is now real and present.


The bottom drops out of the labor market… History tells that once the labor market weakens as much as it has in the past several months, job-shedding takes on a life of its own and tends to persist for a long while. We expect labor market conditions to be dreadful for many months to come and consequently for consumer spending to continue to decline. The U.S. consumer, which for so many years was the global engine of growth, will remain a significant drag on economic activity in coming quarters

A shockingly weak report that suggests the fourth quarter could see a drop in real GDP of 5% or more at an annual rate. The large downward revisions to employment in September and October suggest that the economy was even weaker than we thought when the credit crunch intensified (indeed the employment report for September, which now shows a larger than 400,000 decline in jobs, was surveyed in the week before Lehman Brothers failed).,, These data will spur the calls for a massive stimulus plan, increase the chances of a rescue package for the domestic auto industry

 

[Ivan Seeking]

...STEVEN PEARLSTEIN, The Washington Post: About 600,000 people got discouraged, probably, and left the workforce, or most of them. And we had also nearly as -- 400,000 workers who were working part-time, additionally, working part-time last month involuntarily. They would have rather had a full-time job and all they could get was part-time.

So if you add up the sort of marginal workers, marginally employed workers, or people who discouraged or people who are underemployed, you're dealing with a sort of underemployment and unemployment rate of more than 12 percent, according to the Department of Labor...

http://www.pbs.org/newshour/bb/business/july-dec08/jobloss_12-05.html

 

[jal]

So if you add up the sort of marginal workers, marginally employed workers, or people who discouraged or people who are underemployed, you're dealing with a sort of underemployment and unemployment rate of more than 12 percent, according to the Department of Labor...

>10% is considered going into the depression.
In order to get a proper comparison ... how did they arrive at 25% for the depression?
jal

 

[OmCheeto]

>10% is considered going into the depression.
In order to get a proper comparison ... how did they arrive at 25% for the depression?
jal

Experts will probably all have their own definition for what a depression is.
The following describes one aspect of the sociological side of economics.
The experts make up new, less harsh sounding phrases so the masses won't freak out when things go bad.

The Wall Street Journal
December 5, 2008, 3:59 pm
http://blogs.wsj.com/economics/2008/12/05/defining-depression/"

Friday’s dismal November jobs report brings the old joke to mind: A recession is when your neighbor loses his job, a depression is when you lose yours.

The truth is that there is no good rule of thumb for a depression, like the two quarters of consecutive GDP declines that many people use for a recession. And unlike recessions, which are semi-officially declared by the National Bureau of Economic Research’s business cycle dating committee, there’s no arbiter to say that an economy has fallen so hard it’s in a depression.

In the old days, what we now call recessions used to be called depressions. The word recession only came into common use after the Great Depression, in order to distinguish garden-variety downturns from that epic crash. Sort of like the World Meteorological Association retiring a devastating hurricane’s name.

That said, with the economy in the midst of what may be its worst downturn in the postwar period, it is worth thinking about what it would take to dust off the “depression” moniker.

Richard Sylla, an economic historian at New York University, says that his rule of thumb for a depression would be double-digit unemployment rates lasting for more than a few months. The only times that occurred in the U.S. were during the Great Depression and the 1890s. The deep recession that ended in 1982 briefly saw unemployment rise above 10%.

Berkeley economic historian Brad DeLong’s definition of a depression is in a similar vein: Unemployment hits 12%, or it stays above 10% for three years.

Rutgers economic historian Michael Bordo says he would define a depression “as a sustained decline in output of 2 or more years of at least 10% per year. If you look at U.S. history we only really had one such event.” –Justin Lahart

But it looks as though everyone is freaking out right now anyways.

We need a cheerleader.
Buy low! Sell High! Get into the market now! If everyone took that $10,000 under their mattress and put it in the market, that'd be over a trillion dollars! And buy a new car! If 50,000,000 Americans buy a new car for $20,000, that's another trillion dollars! Recession over! No more bailouts! Yippie!...

...

um. ok. back to freakin out.

 

[russ_watters]

Employers cut 533K (the expectation was 230K to 340K according to what I heard yesterday)

US sheds 533,000 jobs
http://news.yahoo.com/s/afp/20081205/bs_afp/useconomyunemployment
Yet unemployment rate is 6.7%, which is down. Discouraged workers, i.e. those given up, are not counted, so the unemployment (for whatever reason) rate is actually much higher.

?? Unemployment rate is up from 6.5%.

Apparently if one takes all the 'unattached' or discouraged workers, then the unemployment rate would be more like 12%.

Actaully 12.5% - http://www.bls.gov/news.release/empsit.t12.htm
and the term is 'marginally attached' as opposed to 'unattached'.

How is that useful? Can you compare that number to, say, a rate calculated the same way in 2001 or 1991?

In any case, 533,000 is a big, big number. It may be a reaction to the stock market turmoil, but it points to a likelihood that the recession will be pretty significant. The previous two months were revised up as well.

 

[turbo]

And buy a new car! If 50,000,000 Americans buy a new car for $20,000, that's another trillion dollars! Recession over! No more bailouts! Yippie!

I beat you to it. Bought a new Forester yesterday. With new-vehicle sales slumping, there are some pretty good deals out there.

 

[Gokul43201]

Depending on the timing, the official unemployment figure could actually drop while real unemployment is increasing. This happens when groups of people from earlier lay-offs exhaust their benefits and are no longer counted. If people exhaust their benefits at a faster rate than new claims emerge, "official" unemployment will decline while real unemployment climbs.

Is there good reason to believe that this effect is significantly more pronounced this time round than during previous recessions? I can imagine that there might be less of this if a recession, even if deep, was pretty short-lived (it takes time before people start losing hope). So, one question worth answering is: has the weak employment situation this time been around for longer than is typical?

If not, what other reason is there that makes this time special? If there is none, and this is something seen in all similar recessions, then I see no good reason to replace the official unemployment rate with some "real" unemployment rate; the official number remains a better economic indicator because it comes with a smaller error bar.

 

[mgb_phys]

Is there good reason to believe that this effect is significantly more pronounced this time round than during previous recessions?

Generaly the effect gets worse each time, because all the tricks from each earlier recession are already in place and new ones are added.

In the UK during the 80s as unemployment rose the official rate ended up being about 1/2 the real rate - then in the next downturn that becomes the starting point for the creative statisics this time.

 

[russ_watters]

(for whatever reason) [why people not looking for a job are not included in unemployment stats]

The purpose of the conventional unemployment statistic is to gauge the supply and demand of labor in the labor market. People who are not in the labor market don't affect it. Ie, if you apply for a job and the "official" unemployment rate is 5%, it doesn't matter if there are 1 million or 10 million "unattached" workers. They don't affect your prospects for getting the job.

As you might expect, though, when those people enter the market as the economy picks up, the unemployment rate will continue to rise. So while you may think the rate doesn't show how bad it really is, the corollary is also true: sometimes it makes the overall economy look worse than it really is (which is why the NBER doesn't use the unemployment rate directly in its dating procedure).

More info on the different measures, international standards, rationales, and criticisms: http://en.wikipedia.org/wiki/Unemployment#Measurement

 

[russ_watters]

>10% is considered going into the depression.
In order to get a proper comparison ... how did they arrive at 25% for the depression?
jal

By the conventional definition.

 

[Gokul43201]

Incidentally, here's a curious anecdote from the news: http://www.cnn.com/2008/LIVING/12/05/unemployed.sign/index.html

NEW YORK (CNN) -- Paul Nawrocki says he's beyond the point where he cares about humiliation.

That's why he weekly takes a 90-minute train ride to New York, where he walks the streets wearing a sandwich board that advertises his plight: The former toy-industry executive needs a job.

"Almost homeless," reads the sign. "Looking for employment. Very experienced operations and administration manager."

Wearing a suit and tie under the sign, Nawrocki -- who was in the toy industry 36 years before being laid off in February -- stands on Manhattan corners for hours, hoping to pass resumes to interested passers-by.

 

[russ_watters]

Like the unemployment rate?

Yes.

How do you anticipate that number is likely to trend over the next year or so? Do you think we are near the peak at 6.7%, or do you think it'll get higher?

It'll certainly go higher. How high, I don't know, but...

I suspect that the stock market tumult that started in September (iirc) sent a shock through the economy that caused a lot of employers who were taking a wait and see approach to pull the trigger on layoffs. If that is true, we have seen a rush of layoffs that was pent-up for perhaps the past year. That implies that once the rush clears, unemployment could start to level off. When will that happen? Dunno. What will the top be? Dunno. 7.5-8%, would be where I'd place my bet. But even 9% is not out of the realm of possibility. I'd be shocked if it went higher than that, though.

edit: long term unemployment stats (sorry it's not a graph): http://www.data360.org/dsg.aspx?Data_Set_Group_Id=248

The peak of the 2000-2003 barely-a-recession was 6.3% in June of 2003. It isn't reasonable to expect it never to go that high again in a recession - or rather, it isn't reasonable to expect to never have a recession again. 1990-92 was the last "real" recession and the unemployment rate peaked at 7.8%. I think we should be prepared for this recession to be of a similar depth (which would still put it at one of the mildest ever).

I am one of the few optomists here and while I certainly see that the economy is in bad shape right now, I think people have short memories and forget what things have been like before. Comparisons to the Great Depression - and even the deep 1970s and early 80s recessions are still waaaay off the mark. Part of the problem with pessimism is that when we haven't hit bottom yet and people are already using strong language, there is nowhere else to go. When someone says "disaster" and we haven't even seen a -1% GDP yet, what is left to say when the Q4 numbers come back at -3%?

 

[OmCheeto]

I beat you to it. Bought a new Forester yesterday. With new-vehicle sales slumping, there are some pretty good deals out there.

Was it made in America?
My nephew works for Honda of Alabama.
I don't do as much 4-wheeling as you and your dad, so I thought I might buy a Civic-hybrid today, if there are any available.

Where the hell is Detroit right now? I read last night that Chrysler shut down it's only plant that makes hybrid vehicles. Good timing fellas. And good luck getting bail out money with that kind of visionary decision making.

 

[turbo]

Was it made in America?
My nephew works for Honda of Alabama.
I don't do as much 4-wheeling as you and your dad, so I thought I might buy a Civic-hybrid today, if there are any available.

Where the hell is Detroit right now? I read last night that Chrysler shut down it's only plant that makes hybrid vehicles. Good timing fellas. And good luck getting bail out money with that kind of visionary decision making.

The Foresters are made 100% in Japan, and if you look up Subaru's marketing and environmental statements, they claim to have a 0% landfill rate in the production of that vehicle (probably others, too, but that's the only one I was interested in). I took it on an icy/packed snow back road this morning to check the automatic anti-skid function and was pretty impressed. The independent anti-lock brakes are very effective, too. BTW, the Foresters have the PZEV badge, indicating that they are among the cleanest vehicles (rated by tailpipe emissions) available.

 

[OmCheeto]

Incidentally, here's a curious anecdote from the news: http://www.cnn.com/2008/LIVING/12/05/unemployed.sign/index.html

For the life of me, I cannot find the wall street people looking for work in the Mexican parody "who can do this? ok. get in the back of the truck" video.

All I could find was a scene from "Wall Street":

 

[mgb_phys]

Was it made in America?

I think that's a lot of Detroit's problem.
If you base your business on 'buy american' you have no need to produce products that really compete. You very rarely see American cars outside the USA, car buyers in Germany are not queueing up to get their hands on a buick!

 

[OmCheeto]

Subaru make 180,000 cars/years in america - it actually went up once GM sold it's stake to Toyota/Fuji.

Subaru is now a subsidiary of Toyota?
I guess it doesn't matter.
I just need a new car.
I saw a Subaru along the side of the road yesterday with a $1200 price tag.

How much of my Aluminum stock will I have to sell to be able to afford that?
Let's see, $0.05/can into $1200...

 

[LightbulbSun]

I remember the unemployment rate being at 8% at one point. Now it's down to 6.7%. Maybe 8% was the peak?

 

[turbo]

Subaru is now a subsidiary of Toyota?
I guess it doesn't matter.
I just need a new car.
I saw a Subaru along the side of the road yesterday with a $1200 price tag.

How much of my Aluminum stock will I have to sell to be able to afford that?
Let's see, $0.05/can into $1200...

My understanding is that Toyota and Subaru are subsidiaries of that industrial giant Fuji. I wasn't concerned about the country of origin of the Forester, though. My wife's Legacy sedan was made in Indiana and it is a gem. It is tight and reliable, and great in snow and ice. The quality of a vehicle is not dependent on the country of origin - I have come to realize that the Japanese auto-makers design and build to tighter tolerances and they re-tool often enough to keep parts in tolerance. When Harley started adopting such policies, starting with the Evolution-powered big bikes, I bought one right away. I rode that Fat Bob for 10 years, and due to high demand and limited production capacity, I sold it for $1500 more than I paid for it. When AMF owned Harley, they acted like one of the big 3, thinking that they had a captive market share and they let things slide.

Back to the cars: Subaru's approach to full-time AWD, anti skid control, traction control won me over. Each of the 4 wheels are independently controlled, and if one starts to slip, the computer shifts the power to the ones that still have traction. Add in a well-tuned independent 4-wheel suspension and you've got a vehicle that handles rough roads well, while still providing a cushy ride. I took some soup to my father this morning and showed him some features on his Forester that he didn't know about - he was grinning like a kid on Christmas morning.

 

[russ_watters]

I remember the unemployment rate being at 8% at one point. Now it's down to 6.7%. Maybe 8% was the peak?

Huh? You mean in 1984? That's the last time it was 8% or more.