Is the latest consumer confidence release yet another example of elite disconnect? One of the things that has become striking is the degree to which the chattering classes in New York and Washington DC seem utterly unaware of what is happening in the rest of the country. New York City is doing reasonably well based on the heroic efforts by the officialdom to prop up the major capital markets firm; DC is recession immune and more recently awash in lobbying funds. The influences range from visual signals (I had a friend visiting from Boston remark how striking it was that there were so few shuttered storefronts here in NYC) to continued Administration cheerleading (a constant since the 2009 bank stress tests). And since major media stories about the economy are driven by sources in these two cities, it feeds into business reporting.
We’ve had seven weeks of initial jobless claims over 400,000, unemployment stable only by virtue of more exits from the workforce, high oil prices, rising food prices, and housing prices in pretty much every area of the US continuing to fall with no prospect of relief. The Bloomberg story on the latest consumer confidence figure managed to separate the degree of the miss by supposed experts. This bit comes a full sixteen paragraphs into the story:
Estimates for consumer confidence ranged from 60 to 71 in the Bloomberg survey of 68 economists. The measure averaged 98 during the expansion that ended in December 2007.
This is the start of the story:
Consumer sentiment unexpectedly decreased in May to the lowest level in six months as Americans grew concerned over the outlook for jobs and the economy, while a measure of home prices dropped to a nine-year low.
The Conference Board’s confidence index dropped to 60.8 from a revised 66 reading in April, figures from the New York- based private research group showed today. Home prices decreased 5.1 percent in the first quarter from the same time in 2010, according to data from S&P/Case-Shiller. A separate report today showed manufacturing cooled.
The release came in at the very bottom of the estimates made by a very large number of economists (a more typical Bloomberg survey is in the teens to twenties). So the gap between the forecasts and the results points to a serious miss. And note weakening home prices aren’t a surprise; these results, and the continued pushing out the time frame for “when is housing going to bottom” which was deemed to be 2011 but the seers are now moving to 2012, have been in the news for weeks. Yet we see more optimism in the story:
The economy has slipped into a soft patch,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “In the second half, we’ll do better than we’ve been doing. As economic activity picks up, the labor market will improve as well.”
With Federal, state, and local budget cuts in the offing, what in the private sector can compensate? A weakening dollar will help, but it will take time for manufacturing to return to the US, and in the meantime, a soft dollar (ex other factors) will make oil prices worse, putting more immediate pressure on consumer budgets and mood.
With regard to the future of US economy and its rosy uptick, dial me in at around 2017 when housing has hit bottom.
The economy has slipped into a soft patch,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York
This is what passes for a “chief economist” ?
The economy never got out of the soft patch in the first place ! Aaargh.
“The economy never got out of the soft patch in the first place ! Aaargh.”
I agree we never really left the first recession, so NBER can call it whatever. Annoying today listening to all the excuses as to why, and nary a word from any of the talking heads about the labor market.
Bottom line is we are in recession, let NBER tells a year from now.
That said however, it will not stop the powers that be from trying to shape public opinion and convince everyone otherwise, aka spew propaganda. There has been plenty of that today from MS news outlets.
The economy has slipped into a soft patch,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York
Its called “quick sand” Mike.
It is not only consumers, but public opinion of people like Mark Zandi reflect the gloomy outlook for housing and jobs and general recovery from the finance collapse. I don’t see much light at the end of the tunnel cliches by newspaper columnists, bloggers or anecdotal reports of small businesses.
“The five-year-long housing crash is not over. Nationwide, prices have fallen a stunning 33 percent from their peak. While the Philadelphia area’s housing market has held up as well as any in the country, prices in this region are off 17 percent. Given the millions of foreclosure and short sales in process nationwide, house prices will decline further.
It is hard to be enthusiastic about the economy’s prospects as long as house prices are falling. A house is most families’ most important asset, and the crash has cost the typical American homeowner nearly $85,000 in housing wealth. The loss is particularly hard on middle-income households, who have benefited less than their higher-income neighbors from rising stock prices.
Shaky house prices have also made it difficult for the owners of small businesses to use their homes as collateral. Bank lending to small businesses has picked up over the past year, but it is hard to see how credit will flow freely until house prices rise again. Since small businesses are a key part of job creation, this is a significant impediment to a stronger job market.
Local governments, meanwhile, struggle as falling house prices hit property-tax revenues.”
What middle class? Must be the same one schmuck Robert Reich continues to refer to.
“I don’t see much light at the end of the tunnel…”
Come again? You don’t see it? Look again and listen carefully: this strange soft hissing interpolated with “clack-clack” sound, that explain the light.
It’s the freight train of the Great Recession 3.0 coming at us full speed ahead!
Alternatively, as I see it…, its the privatization train and only first class carriages are utilized. In fact, if problems arise with speed and fuel consumption, the rear cars will be cut loose as needed…choose your accommodation with care.
Skippy…do not look too closely at the rail road ties, the cordage may spoil your vistas. Its not a depression for every one….eh.
> but it will take time for manufacturing to return to the US
How much longer do you intend to prop up that delusion?
Not. gonna. happen.
The result is going to be a major adjustment in lifestyle.
“Not. gonna. happen.”
Just like it didn’t happen after the Plaza Accord. Except that it did.
The plaza accord didn’t have 2 billion new entrants to the global work force applying pressure to global labor rates.
Again. Not. Gonna. Happen.
So you think that the US can run large trade deficits forever? Or is there something else we can export (or use as an import substitute)?
> So you think that the US can run large trade deficits forever?
> Or is there something else we can export (or use as an
> import substitute)?
Are you under the impression that there are not other
“Are you under the impression that there are not other
> Such as?
What part of “major adjustment in lifestyle” did
you not understand?
You’ve already agreed that the US can’t run large trade deficits indefinitely and that manufacturing is the only plausible sector in which to make a major rebalancing, so your “major adjustment in lifestyle” is simply the degree to which the USD must fall and/or US industrial labor rates must fall to achieve that rebalancing.
In other words, you’ve already agreed that manufacturing must come back to the US, and are simply disagreeing over the adjustment cost.
I think you’re unduly pessimistic about labor rates since (as has been cited here many times) direct labor costs make up less than 10% of manufacturing costs in many important industries. Hence a further fall in the USD is more what’s needed. Not that that’s costless, as it will raise the price of imports (some of which we can’t easily substitute for) but at least it’s more equitable than saying US manufacturing workers will have to work for $0.05/hr. Furthermore, the longer we delay this inevitable rebalancing the more difficult it will be.
> You’ve already agreed….that manufacturing is the only
> plausible sector in which to make a major rebalancing.
I said nothing of the sort. If you are going to make things
up, please don’t attribute them to me.
> direct labor costs make up less than 10% of manufacturing
> costs in many important industries.
May your retirement funds be as fully invested in that
assertion as your confidence in it. You’ll excuse me if
I believe my lying eyes…
“I said nothing of the sort.”
Hmmm. To my “so you think that the US can run large trade deficits forever?” you replied “nope”, and to my “or is there something else we can export (or use as an import substitute)?” you replied “nope”. So what is going to rebalance the large trade deficit that you agreed can’t run forever? Your logic is certainly difficult to follow.
“You’ll excuse me if I believe my lying eyes…”
Pray tell what evidence or data are your lying eyes looking at? Have you done some accounting on manufacturing costs that we’re not privy to?
I hate to enter the fray, but I think you guys are missing something important, namely, the military. The U.S. has military bases all over the world. It uses this muscle to export inflation, topple unfavorable democracies, and generally get its way.
The U.S. DOES NOT rely on economic fundamentals to improve its economy. Instead, it exacts tribute, resources, and treasure from other countries. Everyone knows that’s what Iraq, Libya, Afghanistan, and every other armed conflict the U.S. is fighting or will fight is about. That’s also why there is so little resistance to endless wars.
If you want to understand more, read Michael Hudson’s super-imperialism book.
> So what is going to rebalance the large trade deficit
> that you agreed can’t run forever?
“stop” == “reverse”, in your world? I guess you can’t imagine something simply stopping, but not reversing?
Try to think more in terms of how Greece will stop getting money from the Germany, France, the US (via the IMF) at some point, but they won’t reverse course and suddenly become a huge exporter to the rest of the EU…heck, they
won’t reverse course *even if* they keep getting truckloads
of free money. Why is this concept so hard to grasp?
> superimperialist voter
So you are saying our internal economy will
be rebalanced through military employment?
Talk about a cure that is worse than the disease.
“it exacts tribute, resources, and treasure from other countries”
The problem with the imperialist theory of US foreign policy is that we’re pretty bad imperialists. What are we getting from these “colonies”? The idea is to make money from them, but we wind up spending much more on invasions and what not than we get back. What kind of a way is that to run a business?
Well, there will be more mercenaries hired and some spoils diverted to certain energy, defense and construction firms. But the really big gains will be from control of resources, coupled with the fact that the U.S. can force other countries to pay for this precisely by becoming more indebted. It’s ironic, and I didn’t believe it could happen before I read Hudson’s persuasive book.
he idea is to make money from them, but we wind up spending much more on invasions and what not than we get back. What kind of a way is that to run a business?
I agree that it appears to be this way, and it’s a good way to justify imposing austerity on Americans as yet another scheme to enrich elites, but the reality is that the rest of the world is paying us to dominate them.
KnotRP: “stop” == “reverse”, in your world?
Where did I say anything about reverse?
“they won’t reverse course and suddenly become a huge exporter”
Nor do we need to become a huge exporter in order to rebalance our trade, as becoming a huge exporter would just be an imbalance in the other direction.
“the really big gains will be from control of resources”
You mean like the Russian outfits extracting Iraqi oil and the Chinese mining in Afghanistan? If the US is planning on good old-fashioned control the resources imperialism, we’re pretty inept.
As for us “forcing” the rest of the world to pay for our military by the US going deeper into foreign debt, Hudson has a rather eccentric interpretation. If that’s the goal, then why did Reagan want the Plaza Accord? He loved to spend money on the military, yet seemed eager to stop “forcing” the poor Japanese (Germans, etc.) to pay for our military expenses.
True, you didn’t say reverse…you said rebalance,
which implies a reversal of the deficit to address the
net trade debt over time. I will grant that rebalance
may have an entirely different meaning to you, in
which case I don’t understand your definition well
enough to address your question.
“you said rebalance, which implies a reversal of the deficit to address the net trade debt over time”
No it doesn’t necessarily imply that, although I’ll agree that without further qualification “rebalance” is ambiguous.
Paying off our foreign debt within any foreseeable future would be imposing the Rubin/Summers/Geithner/IMF “solution” to the Asian Crisis on ourselves, which we’re not going to do (the US obviously only plays brass-knuckled collection agent to other countries). Nor do I think it likely that we’ll outright default. I don’t know what’s going to become of our foreign debt, but I do know that the first thing to do when you’re in a hole is to stop digging.
I’ve been down so long…
I’ll really start worrying when NCs sponsered links start showing up for Sturm & Ruger, Smith & Wesson et. al.
“New York and Washington DC seem utterly unaware of what is happening in the rest of the country.”
Hmmmmm, I believe Louis XVI and Marie Antoinette suffered from a similar cognitive dissonance. N’est-ce pas?
I just spent a few days over the weekend in DC, and had to bite my toungue as my hostess recounted her first class travels on my taxpayer dime as a mid level cog in the great machine down there. The town is doing quite well, and an entire cultural life is 99% free thanks to the rest of us.
I noticed one interesting phenomenon – I listened to more than one person tell me with a straight face that DC had a ton of private business that also drove their economy. As though that private industry would exist in that sweltering swamp if our tax dollars weren’t churning down the street.
Not just DC proper but the whole area. I know I’m nitpicking a bit and people often say DC to refer to the whole area (including adjacent parts of NoVa and MD) but I think the emphasis is worthwhile. I travel to adjacent parts of Maryland frequently on business and never fail to be struck by how much money and how many jobs are shoveled into that area by the Federal government. Federal spending is good for thee but not for me?
Yes, even this area has people living in Rock Creek Park. DC (the areas including No VA, MD) have pockets of abject poverty, down the street from the foreclosures, Out of sight, out of mind apparently!
Nobody is saying there isn’t poverty and other economic problems even in Bethesda (or Montgomery County in general), but the fact remains that the problem is a lot less there, with a local economy that’s heavily driven by federal spending. As of April 2010 unemployment in Montgomery County was 5.1% as compared to 9.9% nationally:
Want to bet how different that picture would be without all the federal jobs and spending in that area? Do you wonder why people who live in places where net money flows to the federal government instead of from it are just a bit resentful sometimes?
OK, I can name one private business in the DC area. Discovery Channel in Bethesda. There are probably at least two others there that are not dependent directly or indirectly on Federal largesse.
Discovery is a partner with government, educational and nonprofit organizations throughout the world……Discovery’s Global Education Partnership (DCGEP) is a 501 nonprofit charitable organization…..Discovery partnered with the National Park Foundation, the official charity of America’s national parks, to produce 14 one-of-a kind high-definition documentary visitor films, etc…….
I’d hazard a guess that Discovery receives federal largesse directly and indirectly whether it’s vehicle is local, state, and/or federal contractual agreements and/or tax deductions. Also tax breaks via its non-profit media charitable organizations divisions and the partnered nonprofit foundations that allow donors charitable tax deductions. I wonder if any “private” enterprise exists that doesn’t have a finger in the public cookie jar?
wunsacon – +1 (made me laugh)
I wonder when we will see economics re-write our narrative to cover such concepts as a steady state economy instead of growth beyond what the human race can possibly colonise in the next 1,000 years (as in those other inhabitable planets aren’t within our technological reach).
I want to know what a steady state economy would look like. Any suggestions? Because let me tell you I’d choose that over this ongoing depression any day of the week.
Dr. Housing Bubble is not what I would call, an optimist. Here are some of his buzz-kill calculations:
Note: I too have been doing some calculations (on the back of a very small envelope), and this is what I came up with:
By no later than 2056, after some up and downs, housing prices will finally bottom out. By 2060, a new — tightly controlled — housing bubble will form. By 2065, homeowners will once again feel confident enough to use their homes as ATMs, and they will cha-ching the ailing corporations like they haven’t in 50 years; and as a result, WaHome-DeMart will turn a profit — in back to back sixteenths* — for the first time since the 2030 merger.
(btw: All calculations are based on oil prices staying well below 30 adjusted dollars per barrel — if they rise above that, all bets are off. What are they at now? I haven’t checked lately — similar to Japan, I’ve experienced my own, personal, Lost Decade — but I’m assuming everything is ok in that department)
* Young people — in the 2060s — will astonished to learn that we thought we could gauge time by distantly separated quarterlies. “What hubris!” they will say of us.
“The economy has slipped into a soft patch,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “In the second half, we’ll do better than we’ve been doing. As economic activity picks up, the labor market will improve as well.”
Some quartering can be fun:
1) “In the second half, we’ll do better than we’ve been doing”
Really? How so? Any basis other than wishful thinking sustain such a prognostication? Does the Xmas season is shaping up to be da gangbuster of the century?
2) “As economic activity picks up”
Propelled by what? Finance (scorn dripping heavily here) perhaps? Lobbying? National Security industrial complex? Are we finally replacing our decadent infrastructure? With which money? Reichpubliscums are willing to default on the national debt to cut everything social and constructive. And the gentleman from JPM see a pick up in economic activity?
3) “the labor market will improve as well.”
Which labor market are we talking about here? Brazil? Canada? Bangladesh? Israel?
What’s that you say? The US labor market will improve? How so? Who’s gonna hire around here? Restaurant? Home care?
No wonder everyone in the middle class is depressed…Madison Avenue is giving up on anyone not making over $200K a year..
There is no disconnect. It’s just the natural distinction between looter and lootee.
To show how rigged the stock markets are the Dow Jones rose 128 points today despite all this bad news from the real world.
As for moving the bottom of the housing market from 2011 to 2012, how is this any different, or more believable, than the guy who moved the end of the world from May to October?
According to the Case-Shiller report, average national home prices are back to mid-2002 levels. Eyeballing their chart on page 2,
You can access it from here:
it looks like the housing bubble took off in 1998 price-wise. Prices would need to fall another ~32% to reach those levels. Even if you work in inflation, that’s probably a ~24% decrease we could still see. And, of course, in the event of another crash, we could see prices go through the 1998 floor. The take home here is that there is still a lot of potential bottom to this bottom left.
I travel to Los Angeles all the time. There are many shuttered storefronts in West Hollywood, Beverly Hills, Westwood, etc. Restaurants and stores that have been around forever have disappeared. Given the entertainment industry, you would think the town would be somewhat immune.
Given the entertainment industry, you would think the town would be somewhat immune.
The entertainment industry is dead. The stuff they make is utter crap but heavily marketed. Their business model consists of suing their customers for copyright infringement. Everyone who actually wants to see the entertainment they produce waits until it’s available at netflix.
The profits they make, like all corporate profits, are whisked away from the local economy. The people who work in the industry, while relatively well paid, couldn’t afford to live in these swank places.