What is wrong with the US economy?

[russ_watters]

You think people hope that unemployment will rise?

Hardcore liberals who badly want a democrat in the White House most certainly do want the economic problems to hold on/worsten for the next six months.

 

[russ_watters]

But Turbo - if you weren't paying attention, you'd be optimistic!

Given the bombarrdment of misleading press we get and the persuasive power of useless anecdotal evidence, guys like tubo-1 and Astronuc can be forgiven for thinking the economy is doing worse than it really is. Here's what USA Today said today:

"The economy has clearly slipped into a mild jobs recession because the housing meltdown and credit market turmoil has spread to the broader economy," said Steven Wood of Insight Economics. [emphasis added]

But the statistics in the article quite clearly show that the "job recession" has not spread beyond the construction and finance industries:

The nation's employers shed 20,000 jobs in April...

Job losses were once again concentrated in the construction, manufacturing and retail sectors, according to the report's payroll survey.

Construction employment declined 61,000

http://www.usatoday.com/money/economy/2008-05-02-jobs-april_N.htm

The article lists several other negatives, but for those with poor math skills, if the construction industry lost 61,000 jobs and the country overall lost 20,000 jobs, then the sum total of every other industry (including the other negatives listed) gained 41,000 jobs, showing quite clearly that the job losses have not spread to the rest of the economy.

They played similar games with the GDP numbers from two days ago. I don't have actual numbers for the construction and finance industries, but if the construction and finance industries are 20% of the economy and they are contracting at a 10% rate, the rest of the economy put together must be expanding at a 3% rate to result in that .6% overall expansion rate.

 

[russ_watters]

Unemployment is a regional problem, and it's very real here in Maine.

Yah, we get it - you live in one of the bad places. We understand that they exist. But you have got to understand/acknowlege that for every place with 8.5% unemployment, there are two others with 3.5% unemployment (note - we'd have to adjust for population. Typically the really bad areas also have realllllly small populations).

BTW, Maine overall, has 5% unemployment right now. That's not half bad. http://money.cnn.com/pf/features/lists/state_unemployment/

Even better is that virtually everyone in Somerset county wouldn't even have to move to go to work in a place with a much, much better jobs outlook.

 

[turbo]

Given the bombarrdment of misleading press we get and the persuasive power of useless anecdotal evidence, guys like tubo-1 and Astronuc can be forgiven for thinking the economy is doing worse than it really is.

Russ, I don't rely on the news to tell me that my part of the country is in recession, and that unemployment is a huge problem. I have a neighbor who remains gainfully employed and can provide for his family, but he has to live and work hundreds of miles away, and only sees his family on weekends. The collapse of much of the logging and construction industry in this area means that guys like him (skilled heavy-equipment operator) can find work, but it is going to be distant and in locations that change with seasons, projects, etc, so they can't uproot their families and stay together. Another neighbor has an adult daughter and her two little girls (3&4) moved back in with him and his wife because they couldn't make it on their own. These are decent hard-working people (most of the couples on my road both work) who are trying to keep afloat as prices soar and jobs dry up.

It's easy to be complacent and happy as the economy deteriorates as long as you are comfortable personally, and don't care much about others, but I'm not built that way. I have friends and relatives all over this region, and it's painful to watch what some of them are going through. As Slick Willie said "it's the economy, stupid". I do care what's happening nationally, especially when government policy is geared to siphoning money from individuals to feed businesses, but economic problems are regional and industry-specific, and I'm watching Maine take huge hits.

 

[turbo]

BTW, Maine overall, has 5% unemployment right now. That's not half bad. People in Somerset county don't even have to move to go to work in a place with a much, much better jobs outlook. http://money.cnn.com/pf/features/lists/state_unemployment/

To get from our area of 8.6% unemployment to the area of 3.5% unemployment (Southern Maine) you have to accept a 3-4 hour/day commute or try to sell your house in a $40-60K market and move into a $150-250K market. That is beyond the reach of average people here. You have to realize that $8-9/hour with minimal benefits is a really well-paying job in this region.

 

[russ_watters]

To get from our area of 8.6% unemployment to the area of 3.5% unemployment (Southern Maine) you have to accept a 3-4 hour/day commute

Where exactly do you live? Somerset county is pretty big, but according to a population density map I just found, virtually everyone lives in the southern 1/4 of it, less than 60 miles from the coast. The population density of the northern part is less than 1 person per square mile.

Like it or not, turbo-1, Somerset county is waaaaay out on the thin end of the population bell curve. Because of that, the whole rate can get skewed toward the absurd by a single plant closure. Your county's population is smaller than my school district and the actual number of people unemployed is smaller than this years' graduating class. You cannot even make regional generalizations based on such a tiny sample size. Like I said above, your state unemployment rate (and even then, ME is a small state) is pretty good.

 

[russ_watters]

Btw, "good" and "bad" are qualitative and so tough to pin down. But here's the long-term unemployment rates for the US: http://en.wikipedia.org/wiki/Image:Us_unemployment_rates_1950_2005.png

Our memories tend to lose the history (especially if we are too young to remember them), but since WWII, our unemployment rate spent about as much time above 6% as below it. Since our cup runeth over with pessimists here who think we've been living in a dream world for the past 20 years, 6% would seem to be a reasonable threshold for "good" vs "bad", but as an optomist (even with oil prices unlikely to fall below the "bad" prices of the '70s), I don't think it is unreasonable to set the bar a little higher (lower). So how about 5.5%? Still, pessimists seem to think the 5% we have now is unreasonably high. Is that greed, short memory, or some begrudging/twisted optomism?

 

[turbo]

I live in Solon. It's a town that is dominated by logging, trucking, wood-processing, etc. I'm not complaining about my own situation because I am very conservative and frugal and have made some good career choices over the years until I became disabled. My wife and I aren't rich, but we'll get by. We have large extended families, and I'm upset about the way that Washington DC has acted to favor investment banks, giant agri-businesses, oil companies, etc, to the detriment of average working people. Every one of my nieces and nephews are working, as are all their spouses, and they are all feeling the pinch as food and fuel gets more expensive. Some have been forced to move out of state to find work, straining family ties. One of my nephews is a Master CPO on an aircraft carrier, though he has also worked in sub rescue and other fields, and his wife is career Navy, as well, and is shore-based so she can ride herd on their (14-going-on-20) daughter. They are based out of San Diego, and even with modest Navy pay, they are in better shape than most of their similar-age relatives here.

 

[russ_watters]

Russ, I don't rely on the news to tell me that my part of the country is in recession, and that unemployment is a huge problem. I have a neighbor who remains gainfully employed and can provide for his family, but he has to live and work hundreds of miles away, and only sees his family on weekends.

That's fine, turbo, but can you stop acting like that story is at all relevant to this thread? This thread is titled "what is wrong with the US economy", not "what is wrong with the economy of a tiny, sparsely populated pocket of the woods of Maine". Your story does not reflect the US economy as a whole.

 

[turbo]

That's fine, turbo, but can you stop acting like that story is at all relevant to this thread? This thread is titled "what is wrong with the US economy", not "what is wrong with the economy of a tiny, sparsely populated pocket of the woods of Maine". Your story does not reflect the US economy as a whole.

The most fragile economies in this country are the first to be affected by the economic policies coming out of DC. We are the canaries in the coal mine, and the rest of the country would do well to pay attention.

Another point - people in my position (unable to qualify for SS, unable to work) who have saved all their lives lose money every time the US government cheapens the Fed rate and engages in deficit spending. It's an infuriating back-door theft from economic conservatives to feed corporations and banks. One day, you may be in my position and then you will understand. If I had ongoing income, I could target investment "bargains" but I don't, so I can't invest in a downturn, like I should be. I'm stuck, and I'm watching the Bush administration raid my personal wealth to subsidize their handlers.

 

[mheslep]

To get from our area of 8.6% unemployment to the area of 3.5% unemployment (Southern Maine) you have to accept a 3-4 hour/day commute or try to sell your house in a $40-60K market and move into a $150-250K market. That is beyond the reach of average people here. You have to realize that $8-9/hour with minimal benefits is a really well-paying job in this region.

You would expect that income would also rise when moving from the inexpensive north to the more economically active south; that often allows one to buy the more expensive home. Anyway, just two $10/hr incomes can afford a $180K house w/ 10% down. (5.5% / 30yrs / ~$900/mo)

 

[turbo]

You would expect that income would also rise when moving from the inexpensive north to the more economically active south; that often allows one to buy the more expensive home. Anyway, just two $10/hr incomes can afford a $180K house w/ 10% down. (5.5% / 30yrs / ~$900/mo)

The reality is that when one "cashes in" and moves from an economically depressed region to a place with higher wages, there are higher living expenses, higher rents, higher costs in general. Families make such moves to stay together, but they often have to sacrifice their homes, in which they have substantial (locally weighted) equity to move to a place where their equity can't buy them a down-payment. There are a lot of people in this country that are in similar situations, and it will spread. Thanks to Greenspan, Clinton, and Bush who all wanted to keep the economy on steroids, we are screwed.

 

[mheslep]

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

Yes, that's my point.

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?

As long as any major airline is up and flying it contributes significantly to the GDP numbers upon which all the yes-it-is/no-its-not recession discussion depends, and that's more/less true even if they are losing money. Of course the money losers can't keep it up and yes many of them go under.

Wow, I see here why SW was the only major to make money this past quarter: they hedged 70% of their fuel costs to $51/barrel, most of the rest only hedged %20/30/40. UAL 16%. Who would have thought an airline needed cheap fuel. Duh.

Ten years later, Southwest’s investment has paid off. The company reported Monday that 70 percent of its first quarter fuel consumption was hedged, capping its fuel costs at $51 a barrel of crude oil. It estimated that its second quarter jet fuel cost per gallon will be $2.35 versus Wednesday’s $3.50 market price. Topping estimated that hedging saved Southwest $302 million in the first quarter.

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

 

[mheslep]

Thanks to Greenspan, Clinton, and Bush who all wanted to keep the economy on steroids, we are screwed.

The entire history of the US has been plagued w/ wild swings in the inflation rate until 1980 when it came to an end. Volker and then especially Greenspan put an end to big inflation in the US. Beginning w/ Volker the Fed embraced monetary policy where managing the money supply became their number one priority, whereas previously central banks had concentrated on trying to manage employment and growth as its top priority. Central banks all over the world have followed suit.
US inflation
'51: 7.9%
'74: 11%
'75: 9.1%
'80: 13.5%
'81: 10.4%

Volker came in and

by limiting the growth of the money supply, abandoning the previous policy of targeting interest rates. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983.

-wiki

Inflation has average ~3% since '83, peaking at 5.4% in '90.
http://www.measuringworth.com/calculators/inflation/result.php

 

[turbo]

Do you realize that post WW2 the economy was booming? Do you realize that with the return of the WW2 vets, the predominance of females in the work-force was suppressed and the US returned to an economy in which a male worker could earn enough money to support his wife and kids? I don't think that you have any idea about the economy in which I grew up.

 

[amz8601]

Nothing is up with it...(massive sarcasm)

when you live in a country that has a consumption rate so crazy that if everyone on Earth lived the way they do it would need 5 PLANET EARTHS just to sustain it...nothing is up with that...LETS HAVE A PARTY on the rest of the world!

btw i have sources and references for the above, jus havnt been bothered to post it...jus ask if u really don't believe it, however, i doubt anyone is narrow minded enough to do so.

the web link is globalcrisis.org.uk

interesting facts, but i must add that facts and figures are always understated, in any documentary regarding destitue, poor, helpless and oppressed, its no doubt the figures r fabricated and less than the true figures.

 

[Astronuc]

He's more cheerful news
http://www.theaustralian.news.com.au/story/0,25197,23627569-36418,00.html

THE US economy has limped ahead over the first portion of 2008 just enough to avert the onset of recession, but some analysts say the slowdown is causing pain regardless of the definition.

Official data from the Commerce Department showed growth at a 0.6 per cent annual pace in the January-March period, matching the pace of the fourth quarter of 2007.

The first estimate of gross domestic product (GDP) was slightly better than expected and came amid fears that the world's biggest economy is headed for recession, generally defined as two consecutive quarters of declining activity.

"The numbers are still not showing a recession in a technical sense," said Eugenio Aleman economist at Wells Fargo.

"The problem is that because the economy has grown so little, it feels like a recession -- 0.6 per cent is not enough to make up for growth in the US population."

Barry Ritholtz at Ritholtz Research and Analytics said this should be considered a recession considering that growth is failing to keep up with population growth and what he considers "true" inflation measures.

The US population is increasing at rate of about 0.8-0.9%/yr, but the economy only grew 0.6% (it could be revised upward or downward depending on what happens with inventories and deliquencies on receiveables).

I argue that the economy is 'not great', and in fact is rather anemic, and is in a relatively weak state. While many are doing well, e.g. the top 10-20%, far too many are not doing well.

I see the glass as half-full and half-empty. I see those with their cups overflowing that they can't consume what they own or control, and others who have no home or net value, no health care unless they go to the ER, . . . . I'll have more good news later.

 

[Jimmy Snyder]

While many are doing well, e.g. the top 10-20%, far too many are not doing well.

Only 10-20% are doing well? I'm not in that crowd and I'm doing very well thank you.

I see the glass as half-full and half-empty.

That's a politician's answer to a philosophical question. But I don't see how 'only 10-20% doing well' jibes with the 'glass half full' half of your vision.

 

[mheslep]

Buffett to Fans: Opportunity Exists

Warren Buffet thinks the worst of the US financial troubles are past.

Buffett to Fans: Opportunity Exists
http://online.wsj.com/article/SB120990596389565539.html?mod=hps_us_whats_news

Investors, take heart: Warren Buffett sees investment opportunities in the U.S. stock and bond markets, and believes widespread financial turmoil from the credit crunch is behind us.

Mr. Buffett credited the Federal Reserve for helping to avert a more-widespread crisis on Wall Street by orchestrating a bailout of Bear Stearns Cos. that "prevented, in my opinion, the contagion where you're going to have runs on investment banks."

Bank losses "aren't over by a long shot, but a lot of it has already been recognized," he said, adding that the depth of the housing crisis, unemployment and other economic factors would help determine how long the write-downs continue.

"The idea of financial panic -- that has been pretty much taken care of," he said.

 

[turbo]

For the people who think the economy is just fine: Do realize that to project a growth of 0.6% in the GDP theCommerce Department had to use an inflation rate of 2.6% Does anybody here think that their gasoline, food, milk, heating oil and other non-discretionary expenses are inflating at 2.6%? If so, you are living at home with your parents and charging stuff to their debit cards without regard for cost.

First, those are just preliminary numbers. Maybe hold the champagne until the several rounds of revisions are out.

Second, 0.6% growth is horrible, especially when you consider that the population is growing at least 1%. On a per-capita basis, GDP was down.

Third, as the NY Post's John Crudele explains, the much ballyhooed "growth" was the product of three key inputs, none of which is a sign of consumer recovery, and one of which is absurd:

* government spending (deficits),
* inventory growth (companies buying stuff to put on shelves), and, most importantly,
* a 2.6% inflation assumption.

Get that? To calculate that the economy grew 0.6%, the government had to assume that inflation was only 2.6%. Anyone out there who buys gas or food occasionally think that inflation is only 2.6%? Didn't think so.

Move that inflation assumption up to even 4%, says John Crudele, and GDP in Q1 was down. For the second quarter in a row. Which makes this an official recession. As if we didn't know that already.

http://www.huffingtonpost.com/henry-blodget/gdp-grew-in-q1-only-if-yo_b_99598.html

There are several things that have to be kept in mind.

First, the 0.6 percent is simply an estimate that isn't based on many actual, hard numbers. In fact, it's such a squishy guess that the margin of error is an enormous plus or minus 3 percent.

And before you break out the champagne (or Propel if you're driving) the "annualized" growth of 0.6 percent means the economy in the first quarter expanded at a slothful 0.15 percent. (Divide the 0.6 percent by the four quarters of the year to come up with that figure.)

In other words, if the people of Peoria, Ill. had all suddenly gone on the wagon and stopped buying liquor for a day the economy probably would have contracted.

In coming up with the 0.6 percent annual growth figure, the Commerce Department decided that inflation was just 2.6 percent.

That's lower than Wall Street had been expecting and a tad higher than in the fourth quarter.

Still, the 2.6 percent figure for price increases used for the GDP calculation was nowhere near the 4 percent inflation calculated by other government agencies.

If inflation, for instance, had been 4 percent then the nation's economy would have contracted by an 0.8 percent annualized rate.

And not only that, if inflation was being honestly reported the economy would have contracted in the fourth quarter of 2007 as well.

In other words, there would have been two straight quarterly declines in GDP and the debate over whether or not we are in a recession would be settled.

http://www.nypost.com/seven/05012008/business/fed_is_running_out_of_room_to_help_econo_108979.htm

 

[Jimmy Snyder]

For the people who think the economy is just fine: Do realize that to project a growth of 0.6% in the GDP theCommerce Department had to use an inflation rate of 2.6% Does anybody here think that their gasoline, food, milk, heating oil and other non-discretionary expenses are inflating at 2.6%? If so, you are living at home with your parents and charging stuff to their debit cards without regard for cost.

If you don't trust the Commerce Department to get the inflation number right, then why would you trust them to get the GDP number right? If you don't trust these numbers, then what measure of the economy do you suggest we use in it's place?

 

[quadraphonics]

For the people who think the economy is just fine: Do realize that to project a growth of 0.6% in the GDP theCommerce Department had to use an inflation rate of 2.6% Does anybody here think that their gasoline, food, milk, heating oil and other non-discretionary expenses are inflating at 2.6%?

Food and energy costs are excluded from inflation calculations because 1) they are very volatile and 2) in the long run they get factored into the cost of everything else.

 

[Gokul43201]

Gas Tax Pandering:

According to every economist that has voiced an opinion on this (including Hillary worshipper, Krugman) , the gas tax holiday is not only useless, it is damaging.

Useless: Drivers will get nothing. This summer, refineries are already at maximum output; there is no price elasticity on the supply end. A cut in the tax will drive up consumption and the price of gas will float upwards by exactly the same amount as the tax cut.

Damaging: We do not want to encourage greater consumption of gas. This holiday is damaging as far as the impact on the environment and gas addiction goes.

McCain: His proposal will simply reroute Government money (money it doesn't have) to Oil companies - another government handout. Consumers gain nothing.

Clinton: Her proposal is nonsensical for more reasons than I can keep track of. She wants to siphon money from Oil profits (What metric will be used for this is beyond me. Profits in the Energy sector are typically below 10%, while they are often much bigger in Pharma, Finance and IT.), to pay for the tax cuts. So, on paper, this is just a convoluted way of shuffling money around without actually helping anyone. The holiday first transfers money from the Government to the consumer (directly through the cut), then transfers money from the consumer to the Oil companies (through the ensuing rise in prices) and finally from the Oil companies back to the Government (through the windfall profit nonsense). But we know that the Windfall bill will never make it through Congress, leave along the WH, so this just becomes the same deal as McCains. Furthermore, Clinton had previously said that money from Windfall skimming would go into R&D for alternatives, so even if she gets to extract some windfall money, the program that loses out is the push for alternatives.

Both McCain and Clinton have promised that Highway maintenance funds (the thing that is paid for by the gas tax, and it's what the truckers really want to see increase) will not be depleted by the holiday.

Summary: McCain-Clinton gas tax holiday = Election cycle pandering

 

[Jimmy Snyder]

the gas tax holiday is not only useless, it is damaging.

Don't worry, neither of the plans will actually be implemented. McCain tossed off a bad idea and Clinton, not to be outdone, thought up a worse one. But Clinton is good enough a politician to know what will float in the voting booth even if it won't fly on the ground. I have great confidence in the intelligence of the American people though, even Democrats. If she loses today's primaries, I will credit that intelligence. If she wins, I will maintain my confidence, and claim that there was some other reason for it.

 

[turbo]

If you don't trust the Commerce Department to get the inflation number right, then why would you trust them to get the GDP number right? If you don't trust these numbers, then what measure of the economy do you suggest we use in it's place?

I do not trust the Commerce Department to get the inflation number right because 1) there is great political pressure on appointees to keep their reports favorable to the administration and 2) prices in every sector of the retail market are increasing as the cost of shipping goods increases. These price increases will continue. Even if the cost of diesel fuel fell overnight, there are goods in the pipeline and in inventory that were bought with higher shipping costs built in, and unless the retailer wants to eat the loss, prices will continue to stay high until inventory is drawn down and replenished.

If you want a definition of recession that is not politicized, listen to Warren Buffet.

Buffett reiterated that he believes the U.S. economy is in a recession by his definition, even if it hasn't yet met the commonly used criteria of two quarters of negative growth.

He said his definition of a recession is when most people and businesses are not doing as well as they were three, six or nine months ago.

"I would say that we're in a recession clearly," Buffett said.

http://www.huffingtonpost.com/2008/05/05/buffett-economy-is-in-rec_n_100060.html

Larry Beinhart sums things up pretty well:
http://www.huffingtonpost.com/larry-beinhart/bush-bu****-boom-and-bust_b_100157.html

 

[Jimmy Snyder]

As long as we are willing to rely on opinions and not facts we are in a recession of a non-economic sort.

 

[Jimmy Snyder]

He said his definition of a recession is when most people and businesses are not doing as well as they were three, six or nine months ago.

With all due respect Warren, most businesses fail. How can this possibly be your definition?

 

[Gokul43201]

We have had two consecutive quarters of negative income growth (per capita GDP). That is definitely an economic indicator of recession.

 

[Jimmy Snyder]

We have had two consecutive quarters of negative income growth (per capita GDP). That is definitely an economic indicator of recession.

This is not the definition of a recession. Don't give up hope though.

 

[Gokul43201]

This is not the definition of a recession. Don't give up hope though.

I didn't say it was. Was my font size too small?

 

[Jimmy Snyder]

I didn't say it was.

My bad. That's two votes against recession versus one for. You lose Warren.

 

[Astronuc]

This is not the definition of a recession. Don't give up hope though.

No one here is hoping for a recession. I believe we are in one, even if the GDP shows a slight +0.6% annual growth. It's still financed by borrowing. I certainly don't put my mortgage or charges on a credit card down as income, because I have to repay it.

With bankruptcies and foreclosures up, many areas with about a 10% drop in real estate value, more unemployment (although not reflected in the unemployment rate, because some folks are discouraged and no longer count as unemployed), reduced wages (I heard yesterday that GM, Ford, Chrysler have bought out employment contracts of older workers and hired on younger workers are reduced wages - but still need to verify that), more people looking for food assistance, . . . . then there's definitely something wrong with the economy.

It would be nice if the government used appropriate accounting methods such as those codified by FASB.

 

[Jimmy Snyder]

It's still financed by borrowing.

Growth in GDP has always been financed by borrowing. Don't give up hope though.

 

[turbo]

As long as we are willing to rely on opinions and not facts we are in a recession of a non-economic sort.

Are you willing to believe the president of the National Bureau of Economic Research? They are the group the are the official arbiter of recession.

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

http://www.boston.com/business/articles/2008/03/15/recession_is_here_economist_declares/

 

[Jimmy Snyder]

Are you willing to believe the president of the National Bureau of Economic Research? They are the group the are the official arbiter of recession.

He is not the Bureau, just the president of it. They are the official arbiter, not he. Don't give up hope though.