News What is wrong with the US economy?

[Art]

It's the difference between real growth and current-dollar growth. The current-dollar GDP growth was 3.2%, but inflation was 2.6%, so they knocked it down to .6% real GDP growth. I was too lazy to do the real calculation so I just subtracted 2.6 from the current-dollar personal income growth to get an estimate of real personal income growth to get the 1.8% figure. Perhaps it should be 1.7% or 1.9%, but it wouldn't change the final conclusion of my post, the Gokul equation is contradicted. What's more, per capita personal income was up. While that doesn't mean much in my opinion, it means more than per capita GDP which has gotten so much more press in this thread. Good news travels slow.

The price index for gross domestic purchases increased by 3.5% in Qtr1. Excluding food and energy it was 2.2%.

Some of the most important figures in the data are the declines in both purchases of durable goods (6.1%) and non-durable goods (1.3%) and the commensurate rise in unsold inventories. This is not good news if it becomes a trend carrying into the next qtr as eventually companies will cut production capacity (jobs) to run down stocks. If people are using increased income to pay down debt which imo is highly likely then it is also likely this downward demand trend will indeed continue.

With supply chain lead times of typically 12 weeks it will take that long to switch off the tap and the same again to ramp it back up when demand does recover so if inventories increase again next Qtr it will be a very bad omen for the economy at least in the short term as companies begin to switch off the tap.

The next refinement of the data is due out May 29th, it will be interesting to see if it improves or disimproves the numbers.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

 

[Jimmy Snyder]

The index of depressing anecdotes fell again this month. The Conference Board announced that the economy is weak, but not in recession. The Conference Board is not a final arbiter of when we are in recession, the National Bureau of Economic Research is. We aren't.

http://www.conference-board.org/economics/bci/pressRelease_output.cfm"

 

[turbo]

Here's an analysis from a former bond broker who seems to have a good handle on the economy.
http://www.huffingtonpost.com/hale-stewart/are-we-or-arent-we-in-a-r_b_102598.html

 

[Jimmy Snyder]

Here's an analysis from a former bond broker who seems to have a good handle on the economy.

The title of the report by Hale Stewart is: "Are We or Aren't We in a Recession?". He had this to say:

So while the "two quarters" method indicates the US is not in a recession technically, we're still not doing that well.

You might think, given the title of the article, that the bottom line of the report would give an answer to the question in the title. It does not.

The bottom possible read on the above data is we're in serious trouble.

Stewart knows what the definition of recession is, he mentions it in the article. The NBER is the final arbiter. Unfortunately for the title of the article, they say no. Although he is not actually declaring that we are in a recession, Stewart seems doubtful of the NBER's ability to do their job:

So -- using the NBER's more detailed methodology, we get an economy that is probably in a recession.

So here is another definition of recession:
A recession is when a former bond broker who seems to have a good handle on the economy says we probably are in one.

I don't accept this definition. Don't give up hope though.

 

[turbo]

Apparently you didn't read to the end of the article.

So -- using the NBER's more detailed methodology, we get an economy that is probably in a recession. Or as summed up by Merrill Lynch's chief economist David Rosenberg:

In our view, the folks that are relying on the "plus" sign in front of that first quarter 0.6% GDP number as a sign that we dodged the recession bullet, we believe, are not correctly interpreting the data.

What the National Bureau of Economic Research (NBER) monitors to date the recessions are (i) employment; (ii) real personal income less transfer receipts; (iii) industrial production; and (iv), real manufacturing and trade sales. Employment peaked in December/07. Real income peaked in September/07. Production peaked in January/08. Real sales peaked in October/07. So, it is still reasonable to believe that the recession started some time between September and January.

It is possible that the NBER will not declare a state of recession soon, but it will, after the fact. They may delay a bit longer. You can keep hoping.

Maybe Merrill Lynch's chief economist is a gloom and doom liberal...or maybe he's a realist who can manage to resist playing the neo-con "everything's wonderful" game.

 

[Jimmy Snyder]

So, it is still reasonable to believe that the recession started some time between September and January.

Here's a new definition of recession:
A recession is when the chief economist at a major stock brokerage says that it is reasonable to believe that a recession has started.
Actually, the definition of a recession is when the NBER says we are in a recession. They haven't. We aren't. Don't give up hope though.

 

[turbo]

Here's a new definition of recession:
A recession is when the chief economist at a major stock brokerage says that it is reasonable to believe that a recession has started.
Actually, the definition of a recession is when the NBER says we are in a recession. They haven't. We aren't. Don't give up hope though.

You're missing a critical point. The NBER generally declares a recession after the fact, and often only when the recession is starting to ease, despite the fact that people watching leading economic indicators have known for months that a recession was underway. You keep acting as if realists are cheering for a recession - we are not. We are seeing our investments undercut, our savings de-valued, and our economy damaged by poor economic policies. The neo-con philosophy of giving businesses and banks free rein is damaging to our economy because market forces do not act properly in an environment in which the Fed constantly cuts rates to assure banks access to cheap money and engineers bail-outs for failed banks. It is disheartening for a fiscal conservative such as myself to be portrayed as if I were hoping for a recession. That's is just stupid, and the remarks are uncalled-for.

 

[quadraphonics]

Actually, the definition of a recession is when the NBER says we are in a recession. They haven't. We aren't. Don't give up hope though.

Well, to be perfectly correct, a recession was when the NBER says we were in a recession. The past tense is important, as the lag in statistics and NBER deliberations (and, possibly, political pressure) means that the NBER effectively never declares that a recession has occurred until it is already over. So arguing that we are not in a recession because the NBER hasn't yet said we are in a recession is a bit daft. From the http://www.nber.org/cycles/recessions.html" :

"Q:Typically, how long after the beginning of a recession does the BCDC declare that a recession has started?

A:Anywhere from 6 to 18 months. We wait long enough so that the existence of a recession is not at all in doubt. We concentrate on finding the date of the peak in activity. We wait until we can assign an accurate date. We are very aware of revisions in the data, in particular. "

More http://www.businessweek.com/bwdaily/dnflash/content/may2008/db20080518_499756.htm?chan=top+news_top+news+index_top+story" .

By the way, Martin Feldstein, the current president of the NBER http://www.boston.com/business/articles/2008/03/15/recession_is_here_economist_declares/" that the United States is in a recession:

"The economy is now in a recession," he said. "It will last longer and be deeper than the last two recessions, which lasted only 8 months from peak to trough. It could well be longer and deeper than the recession in the early 1980s that lasted 16 months."

 

[Jimmy Snyder]

So arguing that we are not in a recession because the NBER hasn't yet said we are in a recession is a bit daft.

I decline to agree that I am daft. Thanks for the suggestion anyway. When the NBER says we were in a recession, you can gloat all you want. To me you all sound like Hillary.

By the way, Martin Feldstein, the current president of the NBER said unequivocably back in March that the United States is in a recession.

Here is yet another definition of recession:
When the current president of the NBER says unequivocably back in March that we are in a recession, even though in May he said unequivocably we are not in a recession.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aLkqZ.fSIOdY"
Actually, the definition of a recession is when the NBER says we are in a recession. They haven't. We aren't. Don't give up hope though.

 

[quadraphonics]

I decline to agree that I am daft.

I didn't say you were daft. I said your argument was daft. Although your response is making me wonder if that distinction has much merit...

Here is yet another definition of recession:
When the current president of the NBER says in March that we are in a recession, even though in May he said we are not in a recession.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aLkqZ.fSIOdY"

So... We're supposed to be impressed that he used the language "sliding into recession?" That's an awfully thin semantic ledge to hang an argument on, particularly given the rest of his comments in that article. The stuff about "every economic indicator has gotten worse," for example...

Actually, the definition of a recession is when the NBER says we are in a recession. They haven't. We aren't. Don't give up hope though.

Okay, now you're just being argumentative. The determinations of the NBER have a 6-18 month lag, so the fact that they haven't declared a recession does not imply we aren't currently in one; it only implies that we weren't in one 6-18 months ago, which is not at issue here. If you aren't going to bother with a substantiative response, then don't bother replying at all, as insubstantiative responses are, in my book, simply the way that insecure people go about admitting that they're wrong.

 

[Jimmy Snyder]

OK, so far I'm argumentative, insubstantiative, insecure, wrong, and shouldn't bother replying at all. But at least I'm not daft. Only my arguments are. And even that is under review. But we are not in a recession. Don't give up hope though.

 

[quadraphonics]

OK, so far I'm argumentative, insubstantiative, insecure, wrong, and shouldn't bother replying at all.

Well, the insubstantiative part applied to your arguments, not your person. And the point was that you should write *worthwhile* replies, not that you shouldn't reply at all (apparently this point bears emphasizing).

But we are not in a recession. Don't give up hope though.

Nobody is hoping for a recession, and badgering people with that charge isn't impressing anybody (well, I'm beginning to be impressed at how argumentative you are capable of being, but presumably that's not the impression you're looking to create...). Anyhow, your definition of "recession" (i.e., "the NBER says we are in recession") is ill-posed. In the first place, the NBER itself has a specific definition of recession, which is not "we say so":

"A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough."

The NBER is simply a widely-accepted arbiter of the application of this definition. The outcome of that arbitration is emphatically NOT the definition of a recession. Moreover, due to the substantial time-lags discussed above, the determinations of the NBER are *never* applicable to the present time (nor are they final, for that matter). This is why you will never hear an NBER board member say that we are not in a recession simply because the NBER hasn't declared it yet (or vice-versa). They all know very well that such determinations are only made in hindsight, and so do nothing to settle issues relating to the present.

Finally, the NBER does not own the concept of recession. They are simply one widely-accepted authority, but everyone is still free to disagree with their definition of a recession, or their application of that definition. If you choose to regard their word as final, then that's your prerogative, but be aware that you're very much out in front of them in insisting that we aren't in a recession. The NBER has, quite simply, not yet taken any official position on the present state of the economy, and will not for some time now, and the president of the NBER paints a substantially less rosy picture than you do.

 

[russ_watters]

The bickering over whether we are in a recession is entertaining, but ultimately pointless. But way the predictions are going right now, there is a decent chance we will have another positive growth quarter in Q2. So here's an interesting question: has there ever been a declared recession that didn't include at least one quarter of negative gdp growth? Now that would be really interesting!

 

[russ_watters]

According to the Commerce Dept. release annualized GDP in the first quarter 2008 was $14,185 billion and annualized personal income was $11,986 billion.

http://www.bea.gov/newsreleases/national/gdp/2008/txt/gdp108a.txt"

Well, I guess I stand corrected - I'm a little confused by those numbers, though: where is business income/spending in that? Only $2 of $14 T? And that much personal income averages out to about $39,000 per person in the US. That's pretty high considering the actual size of the workforce is only half of the population, which makes the average worker's income $78,000.

 

[quadraphonics]

Well, I guess I stand corrected - I'm a little confused by those numbers, though: where is business income/spending in that? Only $2 of $14 T?

No, it's mostly in the other $12 Trillion. Business income is either paid to employees, spent on capital improvements, or paid out as dividends to stockholders. The first and third categories show up in personal income, while the capital improvements are in the remaining $2 trillion.

And that much personal income averages out to about $39,000 per person in the US. That's pretty high considering the actual size of the workforce is only half of the population, which makes the average worker's income $78,000.

Why is that high? The United States is a developed country, after all.

 

[turbo]

Well, I guess I stand corrected - I'm a little confused by those numbers, though: where is business income/spending in that? Only $2 of $14 T? And that much personal income averages out to about $39,000 per person in the US. That's pretty high considering the actual size of the workforce is only half of the population, which makes the average worker's income $78,000.

We've got to be careful with numbers like this. The wealthiest citizens make many, many times the money what wage-earners make, driving up the average personal income. A more telling number would be the median income.

 

[russ_watters]

The wealthiest citizens make many, many times the money what wage-earners make, driving up the average personal income. A more telling number would be the median income.

Yes, I do see that.

 

[Astronuc]

Let's wait and see what happens.

High debts mean deeper recession
http://marketplace.publicradio.org/display/web/2008/05/22/debt_and_recession/

A lack of cash has forced many consumers to charge food and gas on their credit cards, building a dangerous personal debt.

The adjective 'dangerous' seems to be hyperbole, but perhaps is does indicate a potential for a downturn in the economy.

Economics professor Steven Fazzari says what this adds up to is a deeper recession than normal.

Steven Fazzari: The recession of 1990 and 1991, as well as the recession of 2001, were somewhat milder because consumer spending held up reasonably well. If we look back to the middle 1970's or the early 1980's, when we had deeper recessions, consumer spending dropped during those periods rather significantly. So as we go into this period, when high debt is likely to cause cut-back in the household sector, we have to expect that the recession will be deeper than what we've seen the past two downturns in the economy.

Jagow: But exactly how does that personal debt affect the bigger economy?

Fazzari: When consumers are building up that debt, it's a stimulative factor for the economy, because it allows them to spend more and creates more revenue for business. But when they have to pull back, when they have to pay down that debt, consumer spending necessarily has to fall, the saving rate has to rise to make the pay-off of the debt possible. The economy is going to slow unless there's some other source of spending that comes into fill the gap where consumers have left.

Jagow: What do you think we should do about this?

Fazzari: It's a hard problem. In the short term, it's going to be very difficult to do anything to prevent a recession, and probably to prevent a rather long and deep recession. Over the longer term, it would probably be better to have a system that relied less on consumer debt, maybe more on higher incomes, faster wage growth, stronger investment, stronger export markets to help sustain the economy in the future. So we don't rely so much on building up debt or having a housing bubble or a NASDAQ bubble or the other kinds of things that have supported the economy in recent years.

Approximately two-thirds of the economy is built on consumer spending. If that decreases because people have to pay off debt, that will reduce consumption.

 

[Jimmy Snyder]

Here's a new definition of recession: When a president and chief investment officer at an advisory says that "employment is clearly staying more solid than a recession would indicate", then it's not a recession.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3lPJcybqopg&refer=home"

In spite of a spate of firings, layoffs, rifs, and bankrupcies, there was a drop in jobless claims. What is wrong with the US economy? How can such a weak and fragile thing remain so resilient? I'm open here, what are your thoughts? In another thread I was advised not to let the excellent be the enemy of the good. Is that what's going on?

 

[Jimmy Snyder]

Let's wait and see what happens.

High debts mean deeper recession.

There is no recession.

 

[Astronuc]

Here's a new definition of recession: When a president and chief investment officer at an advisory says that "employment is clearly staying more solid than a recession would indicate", then it's not a recession.

Not necessarily so.

In spite of a spate of firings, layoffs, rifs, and bankrupcies, there was a drop in jobless claims.

There was a small drop, and how many have temporarily given up looking for work, or how many have taken part time work in hopes of finding a full time job, or how many folks are working multiple part-time jobs to make ends meet.

In the meantime, the Fed offers a rosy outlook!

Ben Bernanke & Co. lower 2008 economic growth forecast and raise their projections for inflation and unemployment; says last rate cut was a "close call."

NEW YORK (CNNMoney.com) -- The Federal Reserve sees worse economic problems ahead, according to new forecasts from the central bank released Wednesday.

But even so, the Fed may be reluctant to cut interest rates any further than it already has, the minutes from its last meeting show. (The minutes were also released Wednesday.)

The Fed lowered its economic growth forecast for the year. At the same time, it raised its projections for inflation and unemployment. The combination of slowing growth and rising prices created a difficult situation that made the Fed's latest decision to cut rates on April 30 a "close call."

Stocks, which were trading a bit lower before the release of the minutes, fell even further after the new forecast was revealed. The Dow finished the day with a more than 220 point loss.

The central bank said it now believes full-year economic growth will be between 0.3% and 1.2% this year, significantly below its previous forecast of 1.3% to 2% growth in January.

The economy seems rather weak.

American Airlines is cutting flights and planning layoffs.

And let's see what happens if another 3 million homes go into default as ARM's kick into higher rates.

 

[Matthieu]

I don't know if this has been posted here but here are statistics released by various offices for the first quarter 2008. You can also see the annualised rate but it's probably going to change a lot:

Q1 2008 growth rate:
- Germany: +1.53%
- Greece: +1.1%
- Czech Republic: +0.9%
- Austria: +0.8%
- France: +0.64%
- UK: +0.44%
- Belgium: +0.4%
- Italy: +0.4%
- Hungary: +0.3%
- Spain: +0.27%
- Lithuania: -0.2%
- Portugal: -0.2%

Outside Europe:
- Japan: +0.81%
- US: +0.15%

Q1 2008 growth rate at annualized rate:
- Germany: +6.3%
- Greece: +4.5%
- Czech Republic: +3.6%
- Austria: +3.2%
- France: +2.6%
- UK: +1.8%
- Belgium: +1.6%
- Italy: +1.6%
- Hungary: +1.2%
- Spain: +1.1%
- Lithuania: -0.8%
- Portugal: -0.8%

Outside Europe:
- Japan: +3.3%
- US: +0.6%


Aside of this, and at least for France, the growth from the 2000s has been understimated ( source is lemonde.fr, I can't post link since I'm not a big poster enough here )

For example:
2003: expected growth 0,2%, final growth 1,1%
2005: 1,4% expected, 1,9% final

More stats:
Household's consumtion growth is also on the increase, with an annual growth of 2,5% last year.
Investments have increased to 7,4% last year.
Purchasing power's growth raised to 3,3%

 

[mheslep]

...American Airlines is cutting flights and planning layoffs...

Ok but is that during an economic boom or bust? Either one seems to suit the airlines for layoffs, salary reductions, etc, etc.

 

[Astronuc]

Ok but is that during an economic boom or bust? Either one seems to suit the airlines for layoffs, salary reductions, etc, etc.

Yeah the economy is roaring along and the airlines are doing great, so . . . .

http://www.marketwatch.com/News/Story/Story.aspx?column=Airline+Stocks
Sector benchmark plumbs new depths; crude firms above $130 a barrel

The Amex Airline Index fell nearly 3.6% at last check to 18.18 points with all but one of its 14 components trading lower. Earlier the index bottomed out at 17.87.

Getting hit with a double-digit decline was U.S. Airways , losing almost 17% to $4.34. The Tempe, Ariz.-based carrier's credit was placed on credit watch with negative implications at Standard & Poor's late Thursday along with other eight airlines. Further, in the difficult cost environment, some analysts wonder if the merger frenzy investors may have been banking on will fizzle.

As previously reported, United Airlines and U.S. Airways are in early merger talks.
. . . .

"U.S. airlines are projected to spend nearly $60 billion on fuel, $18 billion more in 2008 than in 2007 -- an increase equivalent to employing 244,000 airline workers or purchasing 261 narrow-body jets," said the Air Transport Association in a recent note. "The portion of an airline ticket needed to pay for fuel has risen from 15% in 2000 to 40% in 2008."

. . . .

I heard a financial analyst posit the some of the big airlines might declare bankruptcy - some again.

 

[mheslep]

Yeah the economy is roaring along and the airlines are doing great, so . . . .

Come on, I do not imply that. My point is that one can not look at a downturn in American Airlines and have high confidence that it is directly caused by the economy.

 

[Astronuc]

Come on, I do not imply that. My point is that one can not look at a downturn in American Airlines and have high confidence that it is directly caused by the economy.

Nor did I imply such. American, like much of the economy is suffering from higher fuel prices, which are cutting into its profits - or perhaps - causing it to lose money by operating.

Another example of how well or strong the economy is -

Bank failures to surge in coming years - this is just a prediction
IndyMac, Corus, UCBH under pressure as credit crunch slows economy

Holloway, a 30-year FDIC veteran, had worked extensively with failed lenders in Houston during the savings and loan crisis in the late 1980s and early 1990s, when thousands of thrifts collapsed.

Earlier this year, the FDIC began trying to lure roughly 25 retirees like Holloway back to prepare for an increase in bank failures. It's also hiring about 75 new staff.
Holloway quickly went back to work. ANB Financial N.A., a bank in Bentonville, Ark. with $2.1 billion in assets and $1.8 billion in customer deposits, was failing and an expert like Holloway was needed to value the assets and find a stronger institution to take them on.

Fed Governor Randall S. Kroszner has been very critical of the financial sector, particularly for taking too big risks.
Prospects for Recovery and Repair of Mortgage Markets

 

[BobG]

Yeah the economy is roaring along and the airlines are doing great, so . . . .

http://www.marketwatch.com/News/Story/Story.aspx?column=Airline+Stocks
Sector benchmark plumbs new depths; crude firms above $130 a barrel

The Amex Airline Index fell nearly 3.6% at last check to 18.18 points with all but one of its 14 components trading lower. Earlier the index bottomed out at 17.87.

Getting hit with a double-digit decline was U.S. Airways , losing almost 17% to $4.34. The Tempe, Ariz.-based carrier's credit was placed on credit watch with negative implications at Standard & Poor's late Thursday along with other eight airlines. Further, in the difficult cost environment, some analysts wonder if the merger frenzy investors may have been banking on will fizzle.

As previously reported, United Airlines and U.S. Airways are in early merger talks.
. . . .

"U.S. airlines are projected to spend nearly $60 billion on fuel, $18 billion more in 2008 than in 2007 -- an increase equivalent to employing 244,000 airline workers or purchasing 261 narrow-body jets," said the Air Transport Association in a recent note. "The portion of an airline ticket needed to pay for fuel has risen from 15% in 2000 to 40% in 2008."

I heard a financial analyst posit the some of the big airlines might declare bankruptcy - some again.

Worse yet, fuel prices have been relatively flat if you're buying in Euros instead of dollars, which is why Saudi Arabia wasn't enthusiastic about raising production.

Gas prices have risen about 17.8% in the last year. The price of the Euro has risen 17%.

Just one of the drawbacks of relying on a foreign commodity.

 

[Art]

Worse yet, fuel prices have been relatively flat if you're buying in Euros instead of dollars, which is why Saudi Arabia wasn't enthusiastic about raising production.

Gas prices have risen about 17.8% in the last year. The price of the Euro has risen 17%.

Just one of the drawbacks of relying on a foreign commodity.

And yet fuel prices at the pumps in Europe have risen as if the Euro was the USD

http://www.pumps.ie/index.php

A 10% increase since January.

The US still only pays between half and a third of the prices in European countries

http://www.aaroadwatch.ie/eupetrolprices/default.asp

 

[Matthieu]

Worse yet, fuel prices have been relatively flat if you're buying in Euros instead of dollars, which is why.

Gas prices have risen about 17.8% in the last year. The price of the Euro has risen 17%.

Just one of the drawbacks of relying on a foreign commodity.

Prices still increased but not as much as than in the states. It's still quite expensive though.

 

[Art]

Does the US publish economic data by state? As I'd have thought some states may well not be in recession whilst others are.