Even More Bad News

Home Sales and construction are slowing down:

A slowdown in the housing and construction markets contributed to a sluggish outlook for the economy Thursday, highlighting the significance of government stimulus and job creation.

According to new statistics, pending homes sales and construction both declined in May. In addition, figures showed that while manufacturers recorded some gains in June, the pace of activity in that sector slowed last month compared with May and also came in slightly below estimates.

Auto Sales Down:

New-vehicle sales in the United States slowed in June, automakers and analysts said, raising concerns that the market’s recovery could be stalling after months of slow but encouraging gains.

The jobless sure are messing things up for the market’s recovery.
This isn’t likely to change any time soon. The hiring outlook isn’t good:

The weak private sector job growth, coupled with the loss of more than 200,000 census jobs in June, has economists surveyed by Briefing.com forecasting an overall loss of about 100,000 jobs for June. The government will release those figures Friday. The unemployment rate is expected to rise to 9.8% from 9.7% in May.

The Senate failed again to pass an extension of unemployment benefits.

Lurking beneath the deficit concerns for some members is the suspicion that the extended benefits discourage people from looking for work — even though there are five people vying for every available job and a full third of the 15 million unemployed don’t actually receive the benefits.

If Congress eventually does reauthorize the aid, people eligible for extended benefits during the lapse will be paid retroactively. Failure to do so would be unprecedented: Since the 1950s extended federal benefits have never been allowed to expire with a national unemployment rate above 7.2 percent. The current rate stands at 9.7 percent.

The deficit peacocks claim that extending benefits will increase the deficit. No word on how the deficit will decrease with even more people out of work living in poverty.

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Bad News Upon Bad News

I’m sure it’s partly my mood, but wow is the news depressing this week. I’m just going to do some quick links until I can wrap my mind around all this, accept that it’s actually where we are right now, and come up with something to say.

  • State and local budget cuts don’t “trim fat,” they slash needed services and increase the unemployment rate:

    In 2010, the Obama administration has estimated, school districts across the country might lay off as many as 300,000 employees, many of them teachers. That would be five times the number of layoffs in 2009, and ten times the number of layoffs in 2008.

    -snip-

    The teachers and other public-sector employees might be just the start. The CBPP has estimated that if states cut their spending from 2009 to 2010 the same level they did from 2008 to 2009, it might cost as many as 900,000 public- and private-sector jobs — swelling the ranks of the unemployed by five percent or more.

  • And state and local budget cuts aren’t the only drag on the economy.
  • This one deserves a deeper look, and we’ll get there, but right now the headline will suffice: Initial Jobless Claims Increase; Economists Fear for Tomorrow’s Jobs Report.
  • Did you know the national debt would stabilize if Congress did nothing? Because nothing includes things like the Bush tax cuts for the wealthy expiring—and who thinks Congress will let that happen?
  • And, of course, jobless workers around the country are still waiting for that unemployment extension we keep talking about. And they’re going to keep waiting. Thank you, Senate!

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Economists and Experts

Responding to a PhD economist who thinks bloggers and op-ed writers shouldn’t bother trying to explain what’s going on in the economy, Matt Yglesias does an excellent job explaining why we should try to explain exactly that:

But perhaps you’re a citizen of a liberal democracy who speaks English and tries to keep abreast of political controversies. Well you’ve probably heard politicians talking a lot about jobs and the economy. You’ve probably noticed that voters keep telling pollsters that jobs and the economy matter to them. Jobs and the economy may matter to you! You may have seen that political scientists have found that presidential re-election is closely linked to economic performance, and thus deduced that the fate of a whole range of national policy issues hinges on economic growth. Well then I bet you are probably interested in the fact that a wide range of credible experts (with PhDs, even) believe the world’s central banks could be doing more to boost employment.

-snip-

Completely apart from the fact that the “science” of economics is a good deal less developed than what you see in real sciences, the fact is that economic policy is economics plus politics. For example, according to Ben Bernanke, the Fed could reduce unemployment by raising its inflation target but this would be a bad idea because it runs the risk of causing inflation expectations to become un-anchored. That’s a judgment that contains some “economics” content but it’s largely a political judgment. It’s part of his job to make those judgments, but it’s the job of citizens to question them.

We don’t all have PhD’s in economics, nor should we. The world benefits by having people with different academic training thinking about the same large-scale problems from different angles and by having people be interested in more than one thing, even if that means they aren’t highly credentialed in everything they ever pay attention to. For instance, Jared Bernstein, Vice President Biden’s economic policy advisor, doesn’t have formal training in economics, yet he’s held jobs at a think tank and under two presidential administrations doing economics. Clearly a PhD is not the be-all and end-all of understanding the economy.

Also, as Yglesias says, the world benefits by having citizens who question “experts” and fight to ensure that the government identifies the problems that plague working people and implements solutions that actually help working people. That is the essence of democracy.

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Oil Spill Impact Begins to Register

The fishing ban in the Gulf of Mexico has been expanded:

The National Oceanic and Atmospheric Administration greatly expanded the fishing ban in the Gulf of Mexico on Tuesday in response to spreading oil from the BP well blowout. The prohibited area now covers 19 percent of the gulf, nearly double what it was, according to the agency.

the impact of the spill is beginning to kick in:

Officials are already seeing some impact on fish and wildlife in the region. Rowan W. Gould, the acting director of the Fish and Wildlife Service, said 156 sea turtle fatalities had been recorded in the gulf since April 30, about 100 more than usual at this time of year.

Mr. Gould also said that a small number of oily birds, 35, had been recovered, including 23 dead birds directly linked to the spill.

“It’s important to note that the visibly oiled birds are a small part” of the effects of the oil spill, Dr. Gould said in a teleconference on Tuesday.

“What concerns us most is what we can’t see,” he said, adding, “We are preparing for the likelihood that it will exist in the gulf ecosystem in years to come.”

The economic impact is already being felt along the coast. In Pensacola, FL:

The spill has scared off charter fishing customers at the marina here, even though the water they’d normally trawl is still open. The 30 boats were almost all tied to their slips Tuesday and Jerry Andrews, the captain of the Entertainer, had the dock to himself.

“Usually you’d see 15 or 20 people walking up and down out here asking about the fishing. Three-fourths of these slips would be empty,” said Andrews, a Pensacola native who has been fishing here for 34 years.

and

Andrews said before the spill he was getting between 30 and 40 calls and e-mails a day asking about chartering his boat and his customers were catching their full quotas of vermilion snapper, triggerfish, amberjack and grouper.

But in the month since the spill, he gets hired for one or two trips a week, tops. Most of his customers, who come from Alabama and Georgia, are now going to the Carolinas.

In Louisiana many of the fishermen hired by BP to help try to contain the spill are getting frustrated:

Louisiana fishermen, thrown out of work by the massive oil spill that has closed coastal waters, are jockeying for jobs to contain the mess. But just who gets those jobs is a source of mounting tension. Some workers are getting paid to go out on the water multiple days in a row, while others aren’t allowed to go out at all, according to some fishermen.

They said that BP, which had promised to pay each fisherman $5,000 a month for compensation, is dallying on handing out checks. And they said that men who haven’t fished in years are getting paid to work on prevention teams, even though they’re not affected by the oil spill.

“It’s all about who you know,” said fisherman Oliver Rudesill, who was sitting in the shade beside the St. Bernard Parish home of a friend on Sunday. He has not earned a cent since the spill started, he said, while others are making hundreds of dollars a day.

His friend, David Palmer, a 33-year old fisherman with three kids, has been told his turn won’t come until June. “It’s so messed up it’s not even funny,” said Palmer, whose home sits on pylons to avoid the swampy grasses. “A person can’t wait 30 to 40 days to go work.”

No one can say with any certainty how this disaster will impact the gulf coast. The long term impact could be devastating:

If the oil penetrates deep within the estuaries around the Mississippi delta, it could devastate the salt marshes and bays that support as much as 90 percent of commercially fished species in the Gulf. That would spell long-term disaster for Louisiana’s $1.8 billion fishing industry, not to mention the other Gulf Coast states.

“You have to question what is going to come from this,” said David Wyld, a professor of management at Southeastern Louisiana University in Hammond. “Not just during the next few months, but also during the next few years and even a decade out.”

On top of it all, there’s the economic ripple effect. No fishing means fewer people chartering boats, and closed beaches lead to abandoned vacation plans and cancelled hotel bookings. All of that may only deepen the future economic misery for Gulf Coast residents to the tune of billions of dollars in lost revenue.

All the more reason to push for more job creation and more economic stimulus money to help states that have been hard hit, and aid the unemployed.

Folksingers have occupied a noble place in our history, singing about economic hard times, mining disasters, exploitation of workers, and of course, the Great Depression. In the great tradition of folk singers like Woody Guthrie and Pete Seeger, NH musicians Beverly Woods and Seth Austin have written a song called Deepwater Horizon Disaster:

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Why So Glum? Well, for Starters…

The New York Times’ Floyd Norris spends more than 1,200 words wondering why on earth people aren’t more cheerful about the economy. Well, not people. Specifically, President Obama. Norris thinks that since economists say that the recession is over, Obama should take up that message and go forth with it, talking it up in his speeches. Since Obama is not doing that, Norris is looking for explanations. Or, as he puts it:

But there are, I think, a number of reasons for the glum outlook that are unrelated to the actual economic data.

So his explanations for this mysteriously “glum” decision to ignore “actual economic data”?

First, the experts didn’t see the recession coming, and

Having been embarrassed by missing impending disaster, there is an understandable hesitation to appear foolishly optimistic again.

Second,

Both Republicans and Democrats have good reasons to be negative. Republicans are loath to give President Obama credit for anything, and no doubt grate when he points to his administration’s stimulus program as a cause of the good economic news, as he did in North Carolina.

Democrats would love to give the president credit. But much of the Democratic Party wants another stimulus bill to be passed, notwithstanding worries about budget deficits. Chances for that are not enhanced by the perception the economy is getting better.

Dear Mr. Norris: Without getting into the partisan slant of those two paragraphs, I would propose a third reason people are not optimistic.

THE UNEMPLOYMENT RATE IS 9.7% Fifteen million people are unemployed. More than 9 million people are working part-time when they want to be working full time. More than 6.5 million people have been jobless for six months or more.

Basically, the issue is that Floyd Norris doesn’t give a damn about working people, and he’s bewildered by the things President Obama is saying…because he doesn’t get that at least some of the time, that’s who Obama is talking to. And when people are barely keeping their heads above water, unemployed or without the full-time work they need in many cases for more than half a year, and the Treasury Secretary has said that unemployment is going to be “unacceptably high for a long period of time,” you don’t go to them and say “well, economists tell me that the recession is over! Problem solved!” The problem is not solved for tens of millions of people. So unless you just don’t think those people matter, the question “why so glum” is not one that really needs to be asked. The answer is obvious.

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States Facing Deeper Budget Cuts in 2011

The Center on Budget and Policy Priorities recently released a report on state budget cuts caused by decreasing tax revenues. Over 45 states have already made deep cuts, and in 2011, another round of cuts is expected:

With tax revenue still declining as a result of the recession and budget reserves largely drained, the vast majority of states have made spending cuts that hurt families and reduce necessary services. These cuts, in turn, have deepened states’ economic problems because families and businesses have less to spend. Federal recovery act dollars and funds raised from tax increases are greatly reducing the extent, severity, and economic impact of these cuts, but only to a point.

The cuts enacted in at least 45 states plus the District of Columbia in 2008 and 2009 occurred in all major areas of state services, including health care (29 states), services to the elderly and disabled (24 states and the District of Columbia), K-12 education (29 states and the District of Columbia), higher education (39 states), and other areas. States made these cuts because revenues from income taxes, sales taxes, and other revenue sources used to pay for these services declined due to the recession. At the same time, the need for these services did not decline and, in fact, rose as the number of families facing economic difficulties increased.

These budget pressures have not abated and, in fact, are increasing. Because unemployment rates remain high — and are projected to stay high well into next year — revenues are likely to remain at or near their current depressed levels. This is likely to cause a new round of cuts. Based on new, gloomy revenue projections, governors have begun issuing their budget proposals for the 2011 fiscal year (which begins on July 1, 2010 in most states), and the proposed cuts go even further than those that states have enacted to date.

So, as the need for services increases, the budgets for programs that help those who are most vulnerable are cut.

This slideshow gives a brief and helpful overview of the situation, and an idea of how long it’s likely to take to dig out of this.

This website has a lot of useful information, including a look at the ABC’s of State Budgets, an intro to the Federal Budget Process and some all round helpful information and definitions of terms that we hear all the time, (like Pay as You Go, Budget Reconciliation, or Earned Income Tax Credit) but may not fully understand unless we are budget geeks.

Bottom line – the news isn’t good, and the only way out is to create jobs, as quickly as possible.

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Housing and Hope

Not surprising to readers of this blog:

Demand is escalating for multi-generational housing as buyers scale down during the deepest housing crisis since the Great Depression, according to a survey by Coldwell Banker Real Estate in Parsippany, New Jersey.

Thirty-seven percent of the company’s real estate agents polled in January said that in the past year, buyers were increasingly shopping for homes that fit more than one generation. Almost 70 percent of the agents said they expect economic conditions will drive still greater demand for this type of housing over the next year.

Remember that last summer our Lost Decade poll found that:

34% of the young workers surveyed still live with parents—theirs or a spouse’s. For those making less than $30,000 per year, 52% were still living with parents. That doesn’t just affect young people, either.

Another thing that poll found was a loss of hope among young workers. In 1999, 77% of young workers said they felt “hopeful and confident about being able to achieve economic and financial goals over next five years.” In 2009, just 55% felt that way.

This housing trend of families gathering together to buy houses that will fit multiple generations is yet another sign of a loss of optimism. People aren’t thinking that having adult children living with their parents is just temporary—they’re planning for it to continue for years to come. Do you think they’d be doing that if they thought things were going to get better any time soon?

(h/t Alison Omens)

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How Good Was Friday’s GDP News?

Friday brought a quarterly estimate of Gross Domestic Product (GDP), and it exceeded expectations, growing at a rate of 5.7%, up from 2.2% the previous quarter. That sounds excellent, and it’s certainly not a bad thing. For a visual, check out the graph at Tapped.

But there are a couple of important caveats before we get too excited.

First, will it last? Meteor Blades writes,

Few, if any, analysts believe the fourth-quarter number can be sustained. But if all four quarters of 2010 average even somewhat less than half that percentage, at least 2.3%, the history of previous recessions indicates a job recovery may soon be under way, with perhaps only one or two months more of net job losses. See New Deal dem’s analysis of this here. If hiring does exceed layoffs starting in February or March, that alone might improve morale for the millions who have been seeking work without success for six months or more.  

What’s uncertain, however, is whether half of today’s percentage can be averaged in 2010. One reason is that GDP was held down in previous quarters because businesses sold goods in their inventories but didn’t order new goods. The pace of fourth-quarter growth was heavily driven by a slowing of this inventory liquidation. Which means that businesses, whether they were dealers in software or motor vehicles, ordered new goods to restock their shelves. Thus, 3.39% of the GDP total for the fourth quarter came from this inventory cycle. In the third quarter, private inventories came in at just 0.69%.

Second, the question of jobs. It doesn’t really help to produce more if people still don’t have jobs.

The economy has been able to grow even without adding workers because employers have found ways to accomplish more with fewer workers. Productivity grew at a robust rate of 8.1 percent in the third quarter of 2009, the most recent data available.

So what’s the outlook there?

Without a much stronger GDP performance than most analysts have been predicting for 2010, we’ll be lucky to see restored a fourth of the 8 million jobs lost in the past 25 months. If something along the lines of the timid jobs bill that passed the House in December gets an OK from the Senate, it may provide modest relief, just as the small business tax incentives and export initiative President Obama outlined Wednesday may do. But these are simply not enough. The beneficial impact on growth from the existing stimulus package is already fading, even though more than half of the $787 billion remains to be spent, as explained here.

So we should be optimistic, in a cautious way. And we shouldn’t let up on the pressure for a strong jobs bill with major investment in infrastructure.

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Wrong Wrong Wrong

This is a helpful reminder to come back to next time you’re trying to decide who’s right and who’s wrong on economic stimulus:

The GOP said the stimulus package would fail to create jobs. We now know the Republicans were wrong.

The GOP said the recovery efforts would fail to generate economic growth. We now know the Republicans were wrong.

The GOP said the stimulus “failed.” We now know the Republicans were wrong.

The GOP said the government should cancel unspent recovery funds. We now know the Republicans were wrong.

The GOP said tax cuts are more effective at stimulating the economy than government spending. We now know the Republicans were wrong.

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Cautionary Tales

Just in case you were thinking of looking around the economy and feeling like things were peachy keen.

Paul Krugman:

During the good years of the last decade, such as they were, growth was driven by a housing boom and a consumer spending surge. Neither is coming back. There can’t be a new housing boom while the nation is still strewn with vacant houses and apartments left behind by the previous boom, and consumers — who are $11 trillion poorer than they were before the housing bust — are in no position to return to the buy-now-save-never habits of yore.

What’s left? A boom in business investment would be really helpful right now. But it’s hard to see where such a boom would come from: industry is awash in excess capacity, and commercial rents are plunging in the face of a huge oversupply of office space.

Can exports come to the rescue? For a while, a falling U.S. trade deficit helped cushion the economic slump. But the deficit is widening again, in part because China and other surplus countries are refusing to let their currencies adjust.

So the odds are that any good economic news you hear in the near future will be a blip, not an indication that we’re on our way to sustained recovery. But will policy makers misinterpret the news and repeat the mistakes of 1937? Actually, they already are.

Neil Irwin of the Washington Post:

It was, according to a wide range of data, a lost decade for American workers. The decade began in a moment of triumphalism — there was a current of thought among economists in 1999 that recessions were a thing of the past. By the end, there were two, bookends to a debt-driven expansion that was neither robust nor sustainable.

There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.

Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 — and the number is sure to have declined further during a difficult 2009. The Aughts were the first decade of falling median incomes since figures were first compiled in the 1960s.

And the net worth of American households — the value of their houses, retirement funds and other assets minus debts — has also declined when adjusted for inflation, compared with sharp gains in every previous decade since data were initially collected in the 1950s.

Meteor Blades at Daily Kos:

But the long-term reality is that little-to-nothing has been done over the past few decades to deal with the real killer in all this, structural unemployment, the kind that permanently eliminates jobs. Some structural unemployment caused by changing technology and innovation and a shift in consumer preferences is inevitable. Driven by the right policies, equally well-paying jobs come around to replace them. But some structural unemployment comes from eliminating jobs without replacing them with anything. At least not by anything in the U.S. Workers displaced in this way, especially older but-not-yet-financially-able-to-retire workers, can find themselves in tough straits for a long time. The country’s full of those. They aren’t, of course, the only victims as any twentysomething college graduate with $35,000 in student loans and no job can attest.

America needs a transformation to put the brakes on our race to the bottom. This ought to include a lot things, not the least of which are a permanent federal jobs program, decent pay for a shorter standard work week (which hasn’t been changed for 75 years), and incentives, including legal ones, for cooperative enterprise ownership.

An essential ingredient of this transformation is an industrial policy whose components include fairer trade policy and a labor-market strategy. Most countries – including almost all of America’s leading trading partners – have such policies, each of them designed, even by the Red capitalists of authoritarian China, to make life for their citizens better.

So, in the coming weeks, while eagerly watching the news about unemployment, the GDP and all the other statistics that indicate the immediate direction of the economy, it’s well to remember that America’s fate now rests in the hands of other countries’ industrial policies. Not having our own is, ultimately, an economic suicide pact courtesy of the promoters of the same policies and behavior that got us into this gigantic economic mess.

This is where we stand as we enter a new decade. This is what we have to fight to change, and really change, not just settling for positive blips.

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