News What is wrong with the US economy?

[drankin]

I'm just lucky to be working in industries that doesn't seemed to be influenced by all of this. Machine shops are booked out for months everywhere. What's amazing is that Canadian manufacturers/machine shops are under bidding US shops. They must be buying materials from the US cheap because of the dollar, and selling it back to us cheap and still able to make a profit. I hear more recession than I see.

 

[Astronuc]

Workers Get Fewer Hours, Deepening the Downturn
http://www.nytimes.com/2008/04/18/business/18hours.html

Not long ago, overtime was a regular feature at the Ludowici Roof Tile factory in eastern Ohio. Not anymore. With orders scarce and crates of unsold tiles piling up across the yard, the company has slowed production and cut working hours, sowing worry and thrift among its workers.

“We don’t just hop in the car and go shopping or get something to eat,” said Kim Baker, whose take-home pay at the plant has recently dropped to $450 a week, from more than $600. “You’ve got to watch everything. If we go to town now, it’s for a reason.”

Throughout the country, businesses grappling with declining fortunes are cutting hours for those on their payrolls. Self-employed people are suffering a drop in demand for their services, like music lessons, catering and management consulting. Growing numbers of people are settling for part-time work out of a failure to secure a full-time position.

The gradual erosion of the paycheck has become a stealth force driving the American economic downturn. Most of the attention has focused on the loss of jobs and the risk of layoffs. But the less-noticeable shrinking of hours and pay for millions of workers around the country appears to be a bigger contributor to the decline, which has already spread from housing and finance to other important areas of the economy.

While official unemployment has risen only modestly, to 5.1 percent, the reduction of wages and working hours for those still employed has become a primary cause of distress, pushing many more Americans into a downward spiral, economists say.

. . . .

Parts of the country, e.g. Ohio and surrounding areas, have been hit harder than the rest.

 

[russ_watters]

No, it's a testament to how strongly people are glued to their TV's. They don't notice what is going on around them.

What does it have to do with what people notice? We're talking about statistics and reality, not perception. Or are we talking about perception? People seeing doom and gloom where none exists?

By and large, economists are *not* predicting a major recession - only pessimists and democrats hoping for an edge in November.

 

[russ_watters]

I'm just lucky to be working in industries that doesn't seemed to be influenced by all of this.

But that's exactly it: so far, the economic issues have not spread much beyond the financial and housing sectors. The rest of the economy is doing fine.

 

[Astronuc]

But that's exactly it: so far, the economic issues have not spread much beyond the financial and housing sectors. The rest of the economy is doing fine.

Umm, the airlines are still losing money, and three carriers filed bankruptcy in the last several weeks.

Delta, Northwest losses widen on noncash charges

The US automobile companies aren't doing so well, and the manufacturing sector is rather weak.

Retailers are closing hundreds of stores and laying off people.


Of course, the US government is hiring people, but that's all on borrowed money.

 

[Jimmy Snyder]

Of course, the US government is hiring people, but that's all on borrowed money.

There is a huge difference between economy and finance.

 

[drankin]

If we can get this military tanker deal put back with Boeing rather than overseas, that would be a step in the right direction. I heard a figure of about 100,000 jobs will be directly and indirectly affected. It was coined a type of "stimulus" deal.

 

[mheslep]

If we can get this military tanker deal put back with Boeing rather than overseas, that would be a step in the right direction. I heard a figure of about 100,000 jobs will be directly and indirectly affected. It was coined a type of "stimulus" deal.

Well I don't care to pay for it. Boeing thought that being the home team meant they could deliver crap for a ton of money. Yes they can make better planes than airbus but they didn't bother this time. Jobs will be fewer, but only some 40k fewer as many of them will still be US based via Northrup Grumman in the aircraft, engines are still GE US.

 

[mheslep]

Of course, the US government is hiring people, but that's all on borrowed money.

If the deficit is 20% then surely hiring is on only 20% borrowed money.

 

[mheslep]

Umm, the airlines are still losing money, and three carriers filed bankruptcy in the last several weeks.

Delta, Northwest losses widen on noncash charges

No, as a whole they are not losing money. Industry profits are currently $4.5B which are down a couple B from last year and there have been bankruptcies but the industry as a whole is not losing money.
http://www.forbes.com/2008/04/01/air-transport-closer-markets-equity-cx_mp_0401markets46.html
Certainly one of the reasons air carriers have had a hard time making money is that there are far too many players; time for some of them to go.

 

[quadraphonics]

If we can get this military tanker deal put back with Boeing rather than overseas, that would be a step in the right direction. I heard a figure of about 100,000 jobs will be directly and indirectly affected. It was coined a type of "stimulus" deal.

I wouldn't get to worked up about aircraft contracts going "overseas" at the moment, because the weak dollar has been eating Airbus alive. So much so that they're shifting a lot of their production to (drumroll please...) the United States.

 

[russ_watters]

Umm, the airlines are still losing money, and three carriers filed bankruptcy in the last several weeks.

Ok, the big airlines are perpetual losers as are the car companies. Maybe it would have been better if I had said the rest of the economy is humming along as normal.

 

[Astronuc]

No, as a whole they are not losing money. Industry profits are currently $4.5B which are down a couple B from last year and there have been bankruptcies but the industry as a whole is not losing money.
http://www.forbes.com/2008/04/01/air-transport-closer-markets-equity-cx_mp_0401markets46.html
Certainly one of the reasons air carriers have had a hard time making money is that there are far too many players; time for some of them to go.

From the link -

Airline shares took off Tuesday, fueled by falling oil prices, but the industry's profit expectations continued to be weighed down by tepid economic growth and fuel costs that remain at historically high levels.

That was then - this is now. Oil prices have surged in the past three weeks.

The International Air Transport Association chopped its industry profit expectations to $4.5 billion on Tuesday from December's forecast of $5.0 billion and September's $7.8 billion.

Expectations - not actual profit. US Air also announced a loss. Most of Delta's loss was a writedown on reduced capitalization. "Excluding about $6.1 billion in one-time charges, Delta said it lost $274 million".

At Northwest, the Minneapolis, Minn.-based carrier said its loss first-quarter loss widened to $4.14 billion, or $15.78 a share, from $292 million, or $3.34 a share, a year ago. Revenue increased 8.8% to $3.13 billion.
Excluding a $3.9 billion, noncash goodwill impairment charge the carrier said it lost 26 cents a share, in line with analysts' mean expectation.

http://www.marketwatch.com/news/story/us-airways-swings-1st-quarter/story.aspx?guid=%7B18EF2E45%2D63BA%2D442C%2D823F%2D1154D2ABCEA0%7D&dist=msr_5

AMR swings to first-quarter loss

UAL, Jet Blue get slammed by fuel costs
Carriers report quarterly losses, UAL shares drop 35%

UAL the Chicago-based parent of United Airlines, said its quarterly loss widened to $537 million, or $4.45 a share, from $152 million, or $1.32 a share, a year earlier.

But watch out!

Gasoline could hit $7 a gallon in four years: CIBC
Crude predicted to top $200 by 2012 on tight supplies, pushing gas higher

 

[Astronuc]

Some actual good news - Ford declared $100 million profit - on overseas sales.

But let's put that in perspective -

Quarterly revenue fell to $39.4 billion from $43 billion a year ago.

$100 million on revenue of $39.4 billion. What's wrong with this business model? What is the ROI?

 

[Jimmy Snyder]

$100 million on revenue of $39.4 billion. What's wrong with this business model? What is the ROI?

The ratio of profit to revenue is called margin, ROI (return on investment) is different. It is the ratio of profit to the amount invested. I don't think companies report it. I think it is applied to the ratio of price appreciation and dividends to the purchase price of a share of stock. In other words, it is a matter for the stock holder, not the company.

When profit is rising while revenue is falling, it can mean a lot of different things. It could mean that they are cutting costs faster than they are losing sales. Lower sales could mean a problem with the business plan, but not necessarily. For instance, if customers started buying smaller cars, it would cause a decrease in revenue. This could ruin a company if it bet heavily that things would go the opposite way. But if profits rise, then probably that is not the way they bet, so perhaps we shouldn't blame the business plan.

This would be a good time for those who advocate a greener future to access what they are willing to give up to get it.

 

[mheslep]

From the link -
That was then - this is now. Oil prices have surged in the past three weeks.

Oil was back down today $4 to $116 based on a big spike in the dollar and expectations that the Fed is done cutting rates, so we will see. If the Fed does not issue another rate cut look for Oil to drop ~10%.

Expectations - not actual profit.

Yes agreed, I see the Forbes airline piece was 4/1 before these Q1 reports started coming out this week showing the losses (not Southwest, they made money) driven by fuel prices. I have to say that surprised me as the airlines usually insulate themselves from price swings by buying futures contracts on fuel. Delta famously failed to do that awhile back which is what put them under.

From WSJ:
Southwest made $25M in Q1 '08.

The technology sector is doing ok:
Company / Q1 Earnings:
----------------------------------
ATT 2.8B (up from Q4)
Intel $1.4B
GE $4.2B, down from $6.4B Q4
Google $1.3B, up
IBM $2.2B, same as Q3
Microsoft $4.1B, up

Pharmaceuticals ok:
Pfizer $2.2B, same
Merck $3.2B

Johnson and Johnson $3.6B, up

And of course Exxon: ~$12B greatest all time quarterly record, any public co. I hear they're hiring

 

[mheslep]

But watch out!

Gasoline could hit $7 a gallon in four years: CIBC
Crude predicted to top $200 by 2012 on tight supplies, pushing gas higher

Four years out, we will see. But this year:

"S&P sees oil prices easing by year-end
Crude may end up at $91, but margin of error is wide, analysts say"
http://www.marketwatch.com/News/Sto...x?guid={BA5DA189-56FA-47D0-A468-71F9E9E5806E}

 

[turbo]

Many states appear to be in recession - from AP:
http://news.yahoo.com/s/ap/20080425/ap_on_bi_ge/state_finances;_ylt=AqQNyBtWLUJSLE8mxYHhp.Ws0NUE

With the exception of CT, all the New England states are in trouble, with revenue gaps that may be hard to close. Maine is considering increasing taxes on alcoholic beverages, soft drinks, etc, to increase revenue. With the housing slump and the weak job market, fewer people are buying furniture, appliances, fixtures, and related items. People are also holding onto their vehicles longer. This results in decreasing tax revenue from sales tax (levied on almost every retail transaction) and excise tax (levied on vehicles at the time of their yearly registration). Since excise tax is based on the value of the vehicle, the longer people keep their vehicles, the more they depreciate, and the lower their yearly taxes.

Maine also collects income taxes and that revenue stream is being reduced by the failing job market. Fuel tax revenue is also pressured by the high cost of gasoline, which is causing people to curtail driving when possible.

 

[Astronuc]

Four years out, we will see. But this year:

"S&P sees oil prices easing by year-end
Crude may end up at $91, but margin of error is wide, analysts say"
http://www.marketwatch.com/News/Sto...x?guid={BA5DA189-56FA-47D0-A468-71F9E9E5806E}

Analysts are about as correct as the weatherman. It's hard to say where oil prices are going. There is certainly a lot of pressure to push oil prices higher - more profit. But higher prices would seem to dampen demand - and I suppose that if unemployment rises, there will be a significant drop in demand.

But the US, which represent ~5% of the world's population consumes about 26% of the energy. That's not sustainable in the long term - especially considering the growing anti-US sentiment in many of the energy producing states - and increased competition from growing markets.

 

[Vanadium 50]

Analysts are about as correct as the weatherman. It's hard to say where oil prices are going. There is certainly a lot of pressure to push oil prices higher - more profit. But higher prices would seem to dampen demand - and I suppose that if unemployment rises, there will be a significant drop in demand.

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

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

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

 

[mheslep]

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

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

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

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

 

[quadraphonics]

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

 

[drankin]

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

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

 

[Jimmy Snyder]

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

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

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

 

[Astronuc]

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

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

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

No one is hoping for a recession.

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

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

Apparently government is the biggest single employer at the moment.

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

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

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


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

 

[Jimmy Snyder]

Sorry Astronuc, I have edited your quote considerably.

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

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

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

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

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

 

[mheslep]

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

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

 

[mheslep]

Apparently government is the biggest single employer at the moment.

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

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

 

[drankin]

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

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

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

 

[turbo]

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

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

 

[mheslep]

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

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

 

[russ_watters]

No one is hoping for a recession.

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

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

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

 

[russ_watters]

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

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

Anyway:

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

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

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

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

 

[mheslep]

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

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

 

[russ_watters]

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

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

 

[Gokul43201]

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

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

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

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

 

[Gokul43201]

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

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

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

 

[mheslep]

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

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

 

[Poop-Loops]

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

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

 

[Gokul43201]

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

 

[mheslep]

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

That new Airbus monster jumbo costs $300+ million.

 

[Astronuc]

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

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


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

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


The Fed's perspective -

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

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

 

[Gokul43201]

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

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

 

[Astronuc]

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

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

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

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

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

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

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

 

[mheslep]

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

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

but more likely because of speculation in the commodities markets.

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

 

[mheslep]

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

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

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

 

[russ_watters]

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

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

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

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

Yes.

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

Yep.

 

[russ_watters]

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

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

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

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

 

[drankin]

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

 

[Gokul43201]

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

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

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

The typical commuter may save 10 bucks, perhaps.

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