Thoughts:
- Happiness is relative
- This number will be revised, probably downward
- Consumer saving continues to rise, and probably will for a while
- Employment isn't going to recover for quite some time
Copyright © 2010 by The Atlantic Monthly Group. All rights reserved.
Seriously, this is the extent of your analysis?
* Q1 revised down to -6.4% QoQ, annualized.
* Q2 at -1%.
* Federal, state, and local spending up 11%! FedGov up 10.9% all by itself. Just wait until Q3 comes out, as states and municipalities are broke and FY 2009 ended 6/30. Q3 is the start of FY 2010 for all states and they will contribute a large negative number to GDP instead of the +2.4% they chipped in this quarter.
* Exports are down 7%.
* Imports are down 15%.
* Private business inventories are down $141.1b (CNBC calling a bottom for inventory sell-off in Q1 turned out to be a load of shit, yeah?)
* Personal saving at 5.2% up from 4%, but it's not savings - it's deleveraging, and there is a long way to go.
That 1% decline will almost certainly be revised downward to about negative 2% to negative 2.5%. We'll be very lucky to get back to the break even point by the end of the year.
The bottom line is that our consumer spending and retail-dominated economy cannot possibly have a durable recovery as long as consumers are still leveraged to the hilt (more than $2 trillion in non-mortgage debt) and unemployment is still rising. And that's not even taking into account the additional pain the financial sector will see from the commercial real estate and credit card markets.
Get ready for the long haul.
It's hard to see it any other way. And don't forget the impact of the national debt that Chauncey keeps fueling. Anyone catch this weeks auctions? Yikes...
thomasblair, Claudius,
I think you're forgetting about the stimulus. You can drive from Boston to the Canadian border in VT and it's nothing but ARRA sponsored repaving projects. The promise of stimulus money has already saved the jobs of a number of my co-workers.
Everyone who was saying housing prices never go down are now saying we're in for a long slow recovery. That being the case my money is on a V shaped recovery and 3.5% GDP growth by Q4 of 09.
Newsflash from Planet Obvious:
Thomas Blair and Claudius' numbers are numbers. They don't take anything into account, they simply are.
The fact that they have happened in the face of this "stimulus" shows that perhaps there's something more to the economy than repaving roads that don't need repaving.
What is next year's stimulus - mowing government lawns twice per week instead of only once?
It didn't take long for Obama's inner-Chauncey to become patently obvious.
Nero fiddled; Chauncey "has a beer."
repaving roads that don't need repaving.
They were in desperate need to repaving - FYI.
If you want to oppose the ARRA projects on grounds of principle, go right ahead, but there's no need to accuse anyone of digging holes and filling them up again. There are several ARRA projects underway here in Colorado, and those are going into necessary work projects such as rebuilding very old bridges and repaving rotted-out road sections.
And there's an ARRA project underway about 1/4 of a mile from my father-in-law's house where they're repaving a perfectly good road. Hell, it took them two days just to drive the mandatory recovery.gov signs into the ground.
What's the point? I'm sure everybody's got an anecdote.
Ah. I have no choice but to assume you had access to the civil engineering study outlining the aging and internal condition of the surface and subsurface material, determining that the road was "perfectly good" and would continue to be so within the forseeable budgeting horizon, and that the cost/benefit ratio to the project was exceedingly large to the point of being unnecessary. Yet they repaved it anyway.
My mistake.
I am *specifically* stating that ARRA is digging holes and filling them in again, when it's not providing pork-fodder.
The AP agrees: http://www.google.com/hostednews/ap/article/ALeqM5g0c80lvkIYZF4eoTIcnV67SGZpqwD99PKM9O0
Instead of fixing bridges, etc., NJ is repaving numerous roads that they paved less than six months ago. Unlike repainting the Golden Gate Bridge, the roads don't need repaving this soon after that last coat.
PLUS all of the traffic that the construction causes is unwelcome.
Ah, evidence. That's more like it.
At any rate, I don't know how Colorado has allocated all of its stimulus money, but I do know I am seeing the ARRA signs in front of a couple areas that were desperately due for it, including bridge work. Of course, instead of foresight, it could just be that these were already in the pipeline when the budget crisis hit and the engineering was "shovel ready", seeing as how the I-25 expansions and dozens of associated bridge replacements through Denver and Colorado Springs had already been completed. But in any case, CO took something like $2b of the ARRA funds and seems to be putting it down to legitimate uses.
And I guess I'm not entirely surprised to hear that "New Joisey" is incapable of efficient money management.
Yeah, and that one job shoveling asphalt probably destroyed two jobs back in the real world.
Evidence please.
jmo3--the stimulus will undoubtedly save some jobs. But I doubt very seriously that it will create many. Also, that $700 billion+ had to come from somewhere. It came from the Treasury selling debt, adding to an already disastrous budget deficit. And as Rob noted, there are signs that the market is choking on this paper. This week's auctions were a de facto failure. This can't go on for much longer, yet the adminstration plans for a $1.2 trillion + deficit for FY2010.
Well, two major drags on GDP have been falling construction and inventories. I'm inclined to think that the construction start rate is near its (miserable) bottom and that inventories have also probably shrunk to what is appropriate for the new purchase-rate. So contraction in these numbers is likely close to its end, but I don't think demand will be growing anytime soon - and so we'll likely putter away at 0% growth in these areas for a while.
The bigger problem is both "paradoxes of thrift". Everyone's heard about the one where people are hoarding cash in high savings rates - but the same argument works for employers as well. Most of the profit surprises from the Q2 earnings reports were in SG&A - that is, these companies fired huge numbers of people.
It's the same argument - for the individual company - it makes sense to reduce costs and layoff employees in order to stop the bleeding (just like it makes sense for a single household to save their pennies in bad times). But if all companies simultaneously fire lots of workers and "hoard jobs", then there is a collective drag on total employment which creates it's own consumption-employment vicious cycle.
Between the savings rate and the layoff rate - I expect no or low growth for quite a while even after we stop contracting.
it makes sense to reduce costs and layoff employees in order to stop the bleeding
That is until the economy recovers and they don't have the staff to cope with the new demand. We have some vendors that are having a hard time responding to RFPs because they laid off too many people.
It's all about greed and fear - fear of having too many employees and greed for all that lost business when you're understaffed. Personally I think businesses are moving out of the fear stage into the greed stage.
For a rational business strategy - the question is on of competing risks. You draw your little 2x2 matrix (demand goes up/down) vs (fire/retain workers). If you keep workers and demand goes up you made the "right call". If demand goes down you'll probably go under and have to fire everybody. If you fire workers and demand goes down, you made the "right call".
But what if you fire workers and demand goes up? I think the conventional wisdom in the business community right now is that it will prove very easy to hire lots of replacements at low wages because of the huge labor inventory. That 10-million strong "reserve army of underemployed" that we've built in the last two years.
So, comparing risks of the two strategies - if you believe rehiring will be cheap and easy (which I tend to think is probable), the firing workers makes more sense no matter what happens.
But if everybody does it ... you get the picture.
Don't forget that before demand goes up businesses will have a chance to evaluate their processes and re-engineer them through automation or other efficiencies. They will learn to do with less before expanding, hence the employment lag in all recoveries.
RFPs? Every time I see that I think "government", although some colleges and universities also use the term.
do you happen to work for one of those shining examples of efficiency?
Most businesses which conduct competitive bids use RFPs and RFQs, government contract or not. It's simply good practice to shop around before making a purchase, and get those prices in writing.
Some sectors experienced a light switch type drop in demand, on top of a tightening credit situation. It may please you to call hanging on to cash 'greedy', but for many it means something different. Less employees meant smaller payroll to meet. We are seeing everyone sit on their payables as long as possible right now.
Derek
If we can just keep government spending rising by 11% per year, then we don't need to worry about GDP numbers any longer- eventually we will reach a 11% growth rate year after year until the sun burns out. That is Nirvana.
In the past day or two I've read a couple of really thoughtful, informed dismantlings of your long post about healthcare. (One from Ezra Klein, another from Ben Domenech). Plans to respond?
The question I've been asking myself recently is: which is more stimulative -
1. Government spending on government programs (i.e. state and municipality re-paving)
or
2. Government spending to private industries
Because to me, one of the vast questions that has barely (if ever) been addressed is:
Whatever supposed stimulative effect there is by government spending should have set rates of stimulation based upon where the money is spent.
If giving money to individuals in a recession just increases the savings rate, then lets say the stimulative effect of a direct disbursement of funds to citizens is .2 (i.e. 20% of the funds go back into the economy.
What's the stimulative effect of cutting corporate tax rates? How much does that spur job retention/reinvestment/spending?
How much are we stimulated when we dump money into overdue government-run infrastrucutre? How about giving money to defense contractors? New technology programs?
How much are we stimulated when we give it to police/fire departments? Schools?
From what I keep hearing, we're basically re-building roadways and hiring police officers, keeping teacher's employed, etc.
All great and noble things....but is this actually stimulative?
Joe
Whenever I hear about how rising consumer savings is slowing the rate of recovery I can't help but to recall six months ago when we were told we can't just give people money because all they will do is save it/pay off debt. I wonder if we had given people a lump sum of money to save back then if they'd be done saving by now and be moving back into spending.
What did you expect Meagan? GDP would go from a -5.5% rate to a positive rate in one quarter?
It is not like the market is exactly jumping up and down on this news.
This will be a slow recovery because (as you say)
> Consumer saving continues to rise, and probably will for a while
> Employment isn't going to recover for quite some time
Thing appear to be recovering faster than I suspected though it could be a false boomlet.
Hard as all this is, IF it changes behavior via non-regulatory means (if people actually learn something) this could be a good thing: an aging population might save a realistic amount of money and a lazy and flabby youth might get serious about education and hard work. If...
I kind of take issue with the conventional wisdom that the increase in personal savings isn't really an increase in personal savings but a "de-leveraging", although there must be some of that going on as well. I work in credit union land, and while they only represent 8% or so of depository assets, the savings rate at CUs is the strongest it's been in 20-25 years. And that's liquid deposits not people just spending less to pay off debt. Loan growth is slow too and whether an increased savings rate translates into increased consumption in the not so distant fututre is up for debate. But the dooms-dayers seem a little to quick to incorporate that wholeheartedly into their argument when the evidence looks somewhat mixed.
My money's on pretty much a zero growth '09, but I'd stop short of predicting the demise of western civilization just yet.
Megan: I was wondering about inflation and how it affects GDP calculations. Look at Table 3B of the BEA report (pages 27 and 28). This table contains the GDP numbers indexed ("chained") to 2005 dollars. If you work out the data, the economy did not shrink by 1% y/o/y, it shrank by 3.8% y/o/y.
FYI, for 2009 Q1, the decline in GDP in real dollars was about 3.3% y/o/y, not the -6% claimed by the media.
In other words, factoring for inflation, the GDP decline is actually accelerating, not reversing.
"This number will be revised ..."
Megan if you want to be a serious reporter, then I'd suggest you do a little bit of research on the amount of difference that is occurring every month in the government's release of initial data versus the revised data that is later released quietly.
I no longer pay any attention to economic numbers that the Obama administration releases initially. They are intentionally incorrect (especially jobless data). The government is intentionally releasing data they know to be understating the real economic data.
Newspapers and pundits like yourself are being manipulated - and apparently willingly so. You propogate this false data as if it is news; all the while ignoring the real story of the government releasing economic data it knows to be false.
Unemployment is STAGGERINGLY HIGH, but the Obama administration continually presents this initial data as if the unemployment picture has been improving. It has not; as evidenced by the real numbers which are the revised numbers released later on when nobody is looking.
The GDP has been falling by DOUBLE the amount that the government has been telling everyone. Yet, this data is being presented as if 1% GDP contraction is good news. It is not good news (remember Newsweek declared the recession over on its cover).
You're being manipulated by the "expectations game."
Don't be such a schmuck.
In the discussion of the decision matrix over whether to fire or hire employees in the coming months; there is the matter of what might be considered a "known unknown". Every aspect of the current Federal economic policy is biased to making the cost to an employer of having an employee greater. If your cost-benefit ratio of having employees is definitely going to change so as to make every employee more expensive -vs- any profit that having that employee may generate [and the probably existence or nonexistence of such profit is a major part of the equation]; the rational thing is to bias AGAINST hiring anybody until the "known unknown" can be quantified and evaluated. But that evaluation is probably going to be negative for further hiring.
Federal policies are not likely to be such as to willingly enhance profits of those evil employers.
Subotai Bahadur