Are we in an economic recovery, stuck in a period of below average growth, or headed for a double-dip recession? Let’s look at some more of the traditional and non-traditional economic indicators to find out.
Kicking the Bucket
There is a business district close to where I live that has been devastated during this recession. The only company in this area making any money is the one making the “For Lease” signs. Right in the middle of the district is a coin car wash. For around $4 worth of quarters you can soap, rinse, and wax your car. There were always prominent signs at the car wash that said “Bucket Washing Strictly Prohibited”. If people use buckets to “hand wash” their cars before rinsing, they take up space without spending more money and increase the waiting time of other customers. So recently I was shocked to see a large sign beside the car wash proclaiming “Bucket Washing Welcomed”. This is an act of desperation. This is the equivalent of a Baptist church advertising “Bring Your Own Bottle”on Sunday morning. If people don’t have enough quarters to wash their cars, things can’t be good.
Bottoms Up
Speaking of bottles, Ohio just announced that hard liquor sales were up strongly in 2009 and still steady in 2010. A spokesperson claimed that this is in no way related to people drinking more due to the state’s double digit unemployment rate. Of course this is a contributing factor, they just won’t admit it. But a bigger reason is that more people are saving money by drinking at home instead of in bars.
Eating In
Not only are people “drinking in”, they are also eating in. The latest data from the restaurant industry show that sales are up some from the bottom in 2009, but still weak. Discretionary income is still tight and people are not increasing outside meals. It is speculated that many restaurants are losing money, but are holding on and hoping business picks up soon.
Basket Case
Charitable giving continues to suffer. Reports from several churches show that giving is actually down from 2009. Unemployment remains high and people with jobs are being very conservative with their money.
Still Cutting
Companies continue to cut workers. My daughter became a victim recently when the call-center where she worked reduced manpower. Even in good times companies reduce workers, but in a recovery there should be plenty of new jobs for these people. Now they just join the 14 million other job seekers competing for the few new jobs available. One local job seeker group has actually grown in membership the past few months.
Temporary Workers
Temporary workers are increasing. This is good news and is usually the first sign of an economic recovery. The way it is supposed to work is that companies hire temporary workers until they are confident business is increasing. They then hire these people as standard workers and hire more “temps”. This time they are hiring temporary workers, but are not making these workers “permanent”. I do not believe that businesses have confidence in the government to effectively manage this economy. A friend of mine says he gets more nervous every time he hears Timothy Geithner speak.
The Sound of Silence
There is a landscaping material business close to my house. The sound of the digging equipment is audible from my house and it always been very busy in the spring and summer months, 6 days a week. But this year, there has been no work on Saturdays and it has also been quiet sometimes during the week. People are spending less money on their homes as property values continue to suffer.
The Rest of the Best
It is interesting that a multitude of economic indicators show an increase of only 1-2% versus a year ago. That was when the recession was ending. That means we have not moved that far from the bottom, which helps explain the lack of job growth. In addition, the experts expect Q2 GDP to be revised downward (not upward as I anticipated). This means the top economist were totally baffled by the Q2 results which is consistent with my belief that some economic indicators are giving false readings due to the unusual conditions.
So Where Are We?
Most of the indicators previously discussed reflect a very slow economy. There are no reliable trends and few reliable leading indicators at this time. Economists will still be analyzing the last three years of turmoil, twenty years from now.
The Model “T” still says no double-dip recession, but a long, slow, climb up a steep hill. This definitely can’t be called a recovery, but the conditions are unusual and economists are struggling to understand where we are. And if you don’t know where you are, you can’t know where you are going. More on this next time.
Wednesday, August 25, 2010
Wednesday, August 11, 2010
Facing Off With the White House
Was it just a coincidence that less than 24 hours after I declared the “recovery’’ over that Tim Geithner op-ed piece “Welcome to the Recovery” appeared in the New York Times? Is the White House reading this blog? (If so, I may want to review my tax returns). Maybe they are looking at the same data I am and coming to the same conclusions. However while it is safe for me to declare the recovery over, Tim needs to convince us that it is just beginning. It reminds me of the dead parrot skit from Monty Python. (Link at the end of the blog).
Me: “This recovery is dead.”
Tim: “Oh no. The recovery is certainty not dead. It’s just resting a bit.”
So I disagree with Tim Geithner. And many economists also disagree, so Tim you just got faced.
Romer Also Gets Faced
My March 25 blog (Jobs Are Job One) put forth the idea that there is a big problem with structural unemployment. In April, White House economic advisor Christina Romer declared in a speech that structural unemployment is not a significant factor. In the past few weeks several economists have written articles about the impact of structural employment in this recession (Come on guys, try to keep up. For the love of Maynard Keynes, I don’t even have an economics degree!).
I disagree with Christina Romer as do bunch of real economists, so Christina you also got faced. She was so embarrassed, she resigned.
The Long-Term Unemployment Problem
In my last post I presented the idea that the economy was operating in a traditional manner, except for there were 14.6 million people “officially” unemployed and millions more that were either working part-time or had dropped out of the labor force. The unemployment problem is huge due to the unique economic conditions. This recession is different because of the many professional, white-collar, workers who lost their jobs. These are engineers, accountants, information technology workers, production support and other “office” workers. Many had been with their companies for over ten years and many are over 50 years of age. In previous recessions, fewer white collar workers were cut and most decisions were based on seniority. This time it was largely based on salary and workers who had been with their companies the longest and therefore made the most money were let go.
These workers are having difficulty finding new jobs. The competition for the few jobs being created is fierce. The number of people unemployed more than 27 weeks was a record 6.75 million in June and still at 6.57 million in July. After factoring out all the noise, a paltry 12,000 jobs were created in July that and available to the 20-million plus job seekers. You don’t need a calculator to do the math. Does this look like a recovery to you? Many economists do not expect the unemployment rate to drop to acceptable levels until 2015. I think if you add in all the potential job seekers it could stretch well into 2016.
The New Structural Unemployment Problem
Structural unemployment is unemployment caused by fundamental changes in the structure and make up of employment markets. It differs from cyclical unemployment which is caused by the business cycles. The recession caused the increase in unemployment, but I contend it is structural unemployment that is keeping the unemployment rate high.
One type of structural unemployment involves geography. If jobs exist in Seattle and the workers to fill those jobs are in Miami, then you have structural unemployment. (Note: You do have some of this now in that many workers cannot move to new jobs because their mortgages are “upside down”. Traditionally we have considered this geographic structural unemployment only within our borders. But if this is a “world economy”, then this model is outdated.
I believe that when we started exporting production jobs to other countries in the 1990’s, we laid the groundwork for the exporting of the professional jobs that were supported by a balanced workforce. The reason why the professional jobs did not exit sooner is that they were being supported by the housing bubble. When the bubble burst, so did the support.
Now the investment capital, innovation, new factories and pure economic growth is in China, India, and other countries. The professional jobs that support this growth are where the factories are. The workers that have the skills to fill these jobs are older workers in the U.S. who do not speak Chinese and are not going to move to China. I questioned my logic until I saw an article on MSN Money titled “Should GM just move to China?”
Who Moved My Job?
Millions of unemployed workers are left to ask, “Who moved my job”? And of course it was your government. This was done by all your government, both parties, for a long time. No matter what the excuses, the U.S. has not played the game well. When you look across the poker table and your opponent has most of your chips and hasn’t been hitting any lucky draws, then son, you have been outplayed.
Our government needs to realize this is mainly structural, not cyclical unemployment. Stimulus programs are useful for cyclical unemployment, but ineffective for structural (that’s why we saw a limited impact to the huge stimulus plans). Unemployment compensation is designed to help workers during cyclical unemployment, but becomes welfare at some point during structural unemployment. I’ve seen this from both sides (having received unemployment benefits during my job search) and I have no good answer to this one.
More Than Just Votes
To get out of this mess it will take more than just voting to change the party in power (although this may help eliminate some of the factors holding the economy back). It will take more government intervention. But just throwing more stimulus money at the problem will not work for the reasons listed previously. What is needed is a strategy to rebuild and restructure the U.S. economy. It will take skilled people with expert knowledge to do this. These people exist, but they are not in the government today.
We desperately need more people with solid, international, business experience in our government. The consequences of not utilizing these skills at this time are dire. In 2008, facing the biggest economic challenge of our lifetime, we were given the choice of the financial Tweedle brothers and we firmly rejected Tweedle Dee.
Dead Parrot Video
Me: “This recovery is dead.”
Tim: “Oh no. The recovery is certainty not dead. It’s just resting a bit.”
So I disagree with Tim Geithner. And many economists also disagree, so Tim you just got faced.
Romer Also Gets Faced
My March 25 blog (Jobs Are Job One) put forth the idea that there is a big problem with structural unemployment. In April, White House economic advisor Christina Romer declared in a speech that structural unemployment is not a significant factor. In the past few weeks several economists have written articles about the impact of structural employment in this recession (Come on guys, try to keep up. For the love of Maynard Keynes, I don’t even have an economics degree!).
I disagree with Christina Romer as do bunch of real economists, so Christina you also got faced. She was so embarrassed, she resigned.
The Long-Term Unemployment Problem
In my last post I presented the idea that the economy was operating in a traditional manner, except for there were 14.6 million people “officially” unemployed and millions more that were either working part-time or had dropped out of the labor force. The unemployment problem is huge due to the unique economic conditions. This recession is different because of the many professional, white-collar, workers who lost their jobs. These are engineers, accountants, information technology workers, production support and other “office” workers. Many had been with their companies for over ten years and many are over 50 years of age. In previous recessions, fewer white collar workers were cut and most decisions were based on seniority. This time it was largely based on salary and workers who had been with their companies the longest and therefore made the most money were let go.
These workers are having difficulty finding new jobs. The competition for the few jobs being created is fierce. The number of people unemployed more than 27 weeks was a record 6.75 million in June and still at 6.57 million in July. After factoring out all the noise, a paltry 12,000 jobs were created in July that and available to the 20-million plus job seekers. You don’t need a calculator to do the math. Does this look like a recovery to you? Many economists do not expect the unemployment rate to drop to acceptable levels until 2015. I think if you add in all the potential job seekers it could stretch well into 2016.
The New Structural Unemployment Problem
Structural unemployment is unemployment caused by fundamental changes in the structure and make up of employment markets. It differs from cyclical unemployment which is caused by the business cycles. The recession caused the increase in unemployment, but I contend it is structural unemployment that is keeping the unemployment rate high.
One type of structural unemployment involves geography. If jobs exist in Seattle and the workers to fill those jobs are in Miami, then you have structural unemployment. (Note: You do have some of this now in that many workers cannot move to new jobs because their mortgages are “upside down”. Traditionally we have considered this geographic structural unemployment only within our borders. But if this is a “world economy”, then this model is outdated.
I believe that when we started exporting production jobs to other countries in the 1990’s, we laid the groundwork for the exporting of the professional jobs that were supported by a balanced workforce. The reason why the professional jobs did not exit sooner is that they were being supported by the housing bubble. When the bubble burst, so did the support.
Now the investment capital, innovation, new factories and pure economic growth is in China, India, and other countries. The professional jobs that support this growth are where the factories are. The workers that have the skills to fill these jobs are older workers in the U.S. who do not speak Chinese and are not going to move to China. I questioned my logic until I saw an article on MSN Money titled “Should GM just move to China?”
Who Moved My Job?
Millions of unemployed workers are left to ask, “Who moved my job”? And of course it was your government. This was done by all your government, both parties, for a long time. No matter what the excuses, the U.S. has not played the game well. When you look across the poker table and your opponent has most of your chips and hasn’t been hitting any lucky draws, then son, you have been outplayed.
Our government needs to realize this is mainly structural, not cyclical unemployment. Stimulus programs are useful for cyclical unemployment, but ineffective for structural (that’s why we saw a limited impact to the huge stimulus plans). Unemployment compensation is designed to help workers during cyclical unemployment, but becomes welfare at some point during structural unemployment. I’ve seen this from both sides (having received unemployment benefits during my job search) and I have no good answer to this one.
More Than Just Votes
To get out of this mess it will take more than just voting to change the party in power (although this may help eliminate some of the factors holding the economy back). It will take more government intervention. But just throwing more stimulus money at the problem will not work for the reasons listed previously. What is needed is a strategy to rebuild and restructure the U.S. economy. It will take skilled people with expert knowledge to do this. These people exist, but they are not in the government today.
We desperately need more people with solid, international, business experience in our government. The consequences of not utilizing these skills at this time are dire. In 2008, facing the biggest economic challenge of our lifetime, we were given the choice of the financial Tweedle brothers and we firmly rejected Tweedle Dee.
Dead Parrot Video
Monday, August 2, 2010
Something Just Ended (But It Wasn’t the Recession)
To review some prior observations:
- The U.S. economy had been growing due to “artificial” factors since 1995. This period ended abruptly with the housing and financial crises in 2008.
- Because the period preceding the crash was far from normal conditions, we cannot expect the economy to ever return to those exact conditions. Instead we should expect a “new normal” at some point, with many conditions similar to those in 1995.
- The economy is being propped up by government stimulus and bailouts. The strategy is to offer support in the short run and buy time until the economy heals and can grow on its own. This has impacted the normal business cycles and has caused some traditional economic indicators to be unreliable.
- Because of the damage done to the financial and housing markets, this will be a long, slow, recovery that is a “UL” in shape. Others have called it a “reverse checkmark”.
I still believe all these things are true, except for the last one.
The economic recovery is over. Did you miss it?
I’m not trying to be funny. And this is far from a laughing matter for the15 million people who are unemployed.
2010 looks like a “reset” rather than a recovery. Many of the graphs of industry sales and economic conditions are now following a normal cyclical pattern. If you look at just the curves, you would have no indication than anything is amiss. It is only when you compare to 2010 data to the peak years in the growth cycle that you realize how weak the economy still is. Recessions and recoveries tend to interfere with the seasonal patterns. This is not happening in 2010. The economy is not recovering, nor is it receding. Therefore, I contend it has “reset”.
Consider the job market for example. When job postings increased in Q1 of this year, people thought that the job market was improving. However, this always happens (unless you are in recession) because companies get their hiring budgets approved for the new year. But job activity cooled in Q2. In a true recovery, the job market growth would have accelerated, not fell back to seasonal patterns.
So this is a reset, not a recovery. With most industries returning to normal business cycles and the government stimulus programs losing impact in other industries, I believe the economic recovery ended sometime in May. This recovery lacked in both duration and strength. Like a disappointed bride on her wedding night, we cry out, “That was it?”
Almost every article on the economy mentions the progress of the recovery. We are expecting a full recovery, because that is what is supposed to happen. We are hoping that things recover to the same conditions as early 2008 before the downturn. But we are like older children who still believe in Santa Claus because it’s good to get the presents. We are like the fair maiden who expects the prince to show up because it’s good to the princess. But Santa Claus has declared bankruptcy and the prince’s castle just got foreclosed on.
If you apply this logic to the economic reports, it does make sense. This is not a “jobless recovery”. It is not a recovery at all, so you don’t expect much job growth. There won’t be a double dip recession because in order to dip, you had to significantly rise. Sure there was a slight recovery, but falling out of the first story window hurts much less than falling off the roof.
I expect the economy to keep following normal cycles at a growth rate consistent with a high unemployment rate and tight credit. This translates to 2% - 3% growth until the housing market begins to grow and the credit markets return to normal (two key markets that have yet to reset). Of course under these conditions, it will not be steady growth. There will be some bumps and jumps along the way.
There is some positive news with the Great Reset of 2010. Many companies are generating profits and operating well with the return of normal business cycles. Looking at the charts you could assume that everything is now fine, except that we have reset with the unemployment rate at 9.5%. That is a problem, a big problem, and will be the subject of my next post.
GDP Update
My panel of economic experts predicted a Q2 GDP (in March) of 2.9% and the first government estimate was 2.4%. The panel ended up nailing Q1 with a forecast of 2.6% versus 2.7% actual.
The forecast for Q3 is 3.0% which looks high at this point. I expect Q3 GDP to be around 2%. There is some type of shift going on because the total Wall Street Journal panel of economists seemed to be fooled by the low Q2 estimate of 2.4%. Only two out of 55 economists forecasted a Q2 GDP of less than 2.5% in the June survey so I would expect the 2.4% estimate to be adjusted upward.
- The U.S. economy had been growing due to “artificial” factors since 1995. This period ended abruptly with the housing and financial crises in 2008.
- Because the period preceding the crash was far from normal conditions, we cannot expect the economy to ever return to those exact conditions. Instead we should expect a “new normal” at some point, with many conditions similar to those in 1995.
- The economy is being propped up by government stimulus and bailouts. The strategy is to offer support in the short run and buy time until the economy heals and can grow on its own. This has impacted the normal business cycles and has caused some traditional economic indicators to be unreliable.
- Because of the damage done to the financial and housing markets, this will be a long, slow, recovery that is a “UL” in shape. Others have called it a “reverse checkmark”.
I still believe all these things are true, except for the last one.
The economic recovery is over. Did you miss it?
I’m not trying to be funny. And this is far from a laughing matter for the15 million people who are unemployed.
2010 looks like a “reset” rather than a recovery. Many of the graphs of industry sales and economic conditions are now following a normal cyclical pattern. If you look at just the curves, you would have no indication than anything is amiss. It is only when you compare to 2010 data to the peak years in the growth cycle that you realize how weak the economy still is. Recessions and recoveries tend to interfere with the seasonal patterns. This is not happening in 2010. The economy is not recovering, nor is it receding. Therefore, I contend it has “reset”.
Consider the job market for example. When job postings increased in Q1 of this year, people thought that the job market was improving. However, this always happens (unless you are in recession) because companies get their hiring budgets approved for the new year. But job activity cooled in Q2. In a true recovery, the job market growth would have accelerated, not fell back to seasonal patterns.
So this is a reset, not a recovery. With most industries returning to normal business cycles and the government stimulus programs losing impact in other industries, I believe the economic recovery ended sometime in May. This recovery lacked in both duration and strength. Like a disappointed bride on her wedding night, we cry out, “That was it?”
Almost every article on the economy mentions the progress of the recovery. We are expecting a full recovery, because that is what is supposed to happen. We are hoping that things recover to the same conditions as early 2008 before the downturn. But we are like older children who still believe in Santa Claus because it’s good to get the presents. We are like the fair maiden who expects the prince to show up because it’s good to the princess. But Santa Claus has declared bankruptcy and the prince’s castle just got foreclosed on.
If you apply this logic to the economic reports, it does make sense. This is not a “jobless recovery”. It is not a recovery at all, so you don’t expect much job growth. There won’t be a double dip recession because in order to dip, you had to significantly rise. Sure there was a slight recovery, but falling out of the first story window hurts much less than falling off the roof.
I expect the economy to keep following normal cycles at a growth rate consistent with a high unemployment rate and tight credit. This translates to 2% - 3% growth until the housing market begins to grow and the credit markets return to normal (two key markets that have yet to reset). Of course under these conditions, it will not be steady growth. There will be some bumps and jumps along the way.
There is some positive news with the Great Reset of 2010. Many companies are generating profits and operating well with the return of normal business cycles. Looking at the charts you could assume that everything is now fine, except that we have reset with the unemployment rate at 9.5%. That is a problem, a big problem, and will be the subject of my next post.
GDP Update
My panel of economic experts predicted a Q2 GDP (in March) of 2.9% and the first government estimate was 2.4%. The panel ended up nailing Q1 with a forecast of 2.6% versus 2.7% actual.
The forecast for Q3 is 3.0% which looks high at this point. I expect Q3 GDP to be around 2%. There is some type of shift going on because the total Wall Street Journal panel of economists seemed to be fooled by the low Q2 estimate of 2.4%. Only two out of 55 economists forecasted a Q2 GDP of less than 2.5% in the June survey so I would expect the 2.4% estimate to be adjusted upward.
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