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Irwin Kellner
Nov. 24, 2009, 12:10 a.m. EST · Recommend (3) · Post:
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Irrational exuberance takes an encore
First Take "º
H-P results show pricing pain in PC industry
By Irwin Kellner, MarketWatch
PORT WASHINGTON, N.Y. (MarketWatch) -- It's beginning to look a lot like a "W."
After logging the fastest rate of growth in two years last quarter, the economy appears to be losing steam during the current period.
This is no big surprise; the consensus of forecasters surveyed weekly by MarketWatch has long been expecting slower growth during the fourth quarter.
Their latest projections call for a growth rate of 2.5% -- a percentage point slower than the government's preliminary take on the previous quarter. (See Economic Calendar.)
There's plenty of evidence that our panel may be right -- if not a tad optimistic. For one thing, total consumer spending -- the biggest single chunk of the economy -- fell in September for the first time in four months and by the biggest percentage since December 2008.
In October, retail sales excluding autos grew 60% slower than they did during the previous month, while preliminary reports for November show that consumer sentiment unexpectedly fell.
If you look closely you can see why consumers are pulling in their horns.
For one thing, personal incomes are barely growing as businesses have trimmed hours worked and cut wages and salaries. For another, employment continues to fall as the jobless rate edges ever closer to the postwar record of 10.8% set in November 1982.
The duration of unemployment as a percent of the labor force is the highest in at least a quarter of a century. More people are being forced to work part-time and/or beneath their skill level while the job openings rate is the lowest in recent memory.
This will continue as long as business can rely on increased productivity and outsourcing to take care of its needs.
Consumer spending is also being suppressed by the $13 trillion in wealth people have lost because of the decline in prices of homes and stocks, along with their high debt loads and depleted savings accounts.
Industrial production barely budged in October compared with a 0.7% gain in September. New-home construction took a header in October, while prices of new and existing homes continue to tumble.
Home prices have a lot further to fall because supplies figure to keep rising. A record 14% of homeowners with a mortgage were either behind on payments or in foreclosure at the start of last month. This is the ninth straight quarter that this figure set a record.
Services are not immune, either. The ISM's measure of the economy's service sector fell unexpectedly in October after rising for a number of months.
In addition, many firms are worried over the rising cost of health care and energy not to mention talk of higher taxes. Washington is not focusing on creating jobs the way it should. ( See Nov. 10 column.) And states and local governments are raising taxes and cutting spending as they struggle to balance their budgets.
If all this were not enough there's the Catch-22 facing policymakers when it comes to economic policy.
Washington's budget deficit has exploded while the Federal Reserve has injected gobs of liquidity into the markets.
If these policies are reversed too quickly, they run the risk of pushing the economy back into recession. If they are not reversed quickly enough, interest rates will soar -- pushing the economy back into recession.
Holiday fear? You betcha.
Irwin Kellner is MarketWatch's chief economist.
- AmericanPatriot | 1:27 a.m. Today1:27 a.m. Nov. 24, 2009
Latest results demonstrate that while PCs are indeed selling again, the lowest-priced items appear to be the most popular, as the low-priced trend hits revenue in H-P's personal-systems group.
5:30 p.m. Nov. 23, 2009 | Comments: 3
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