In The Blogs
Business Week's Mike Dorning thinks the economy is on the mend:
While no one would claim that all the pain is past or the danger gone, the economy is growing again, jumping to a 5.6% annualized growth rate in the fourth quarter of 2009 as businesses finally restocked their inventories. The consensus view now calls for 3% growth this year, significantly higher than the 2.1 % estimate for 2010 that economists surveyed by Bloomberg News saw coming when Obama first moved into the Oval Office. The U.S. manufacturing sector has expanded for eight straight months, the Business Roundtable's measure of CEO optimism reached its highest level since early 2006, and in March the economy added 162,000 jobs — more than it had during any month in the past three years.
Floyd Norris of the New York Times agrees that a lot of people are being too pessimistic:
“Go back and read what people were saying in 1982 or 1975,” said Robert Barbera, the chief economist of ITG. “Nobody was saying, ‘Deep recession, big recovery.’ It is quite normal to expect an abnormally weak recovery. It is also normal for that expectation to be wrong.”
....In 1982, Democrats scoffed at a surging stock market and thought a severe recession would last for a very long time....Change a few words (Reagan to Obama, Democrats to Republicans, 1984 to 2012) and you have an accurate description of the current political climate. Could the Republicans be as wrong now as the Democrats were then?
There's a lot to this. But just off the top of my head, here are the things that gnaw at me when I hear stuff like this:
I don't expect all of this stuff to be as dire as it sounds, and overall I suspect that we are indeed going to see steady if unspectacular growth over the next few years. But I'm not entirely sure of that, and these are the reasons why. Just thought I'd share.
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I read the Floyd Norris piece, and he sounded like a technical stock analyst. I don't know why he didn't go into the archives of HIS OWN NEWSPAPER and read what its NOBEL-PRIZE-WINNING ECONOMIST says about this recession, namely that it's driven by a financial crisis, and the recovery from such a recession is always drawn out slowly as the rest of us have to wait around for banks to heal. This recession doesn't echo US in 1980 - it's Japan in 1990.
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I read the Floyd Norris piece and disagreed vehemently. As Kevin notes, the 1982 recession was much different that what we are experiencing today. Interest rates were extremely high. Household debt levels were much lower. The dawning of the Reagan era was accompanied by lowering of taxes and loosening of regulation, which led to increased corporate profits in the short run. Our trade and fiscal positions were more balanced. And arguably the biggest factor in the booming economy of the 90s was the fall of the Soviet Union. None of these factors are going to boost our economy in the economy years. In fact, opposite forces are at work.
The magnitude of the current recession hasn't really dawned on people such as Norris and Dorning. What they don't seem to realize is that the economy is suffering from structural problems which were masked during the aughts by the housing bubble. Why so glum? Unemployment and underempl0yment are sky high, the housing market has collapsed, and the Republican party is determined to keep things bad, while the Democrats are worrying too much about the fiscal deficit instead of the real problems facing the economy...
I don't think Norris is claiming that society has been righted once and for all. I think he's merely saying that we are past the bottom and climbing up. Now, that climb may be long....but it is a climb. Even Kevin Drum says we're in growth territory. I also agree with Kevin's list that this is nothing to get excited over in the long run - problems need to be solved.
But Jeebus, it's OK to feel a little bit better. Struggling along with 2 percent-ish growth is waaaaay better than being in a recession, people.
I'll take what I can get, and slowly improving is a huge relief compared to continuing to fall violently. It's also better than stasis, actually.
I heard an interview with a good community banker today, who said his bank's consumer deposits have been increasing dramatically in the last year because, yes, people are saving rather than spending, but they're pulling their deposits out of both big national banks and investments and putting them in community banks.
This is interesting, and suggests we ought to be looking at how community banks are doing for an indication of what's happening on that mythical but real Main Street. This guy also said his loan portfolio has risen something like 30 percent in the last year, and that they haven't changed one iota of their conservative underwriting standards.
I think we may be, and ought to be, seeing some real reorganizing of the financial system here andthat these solid, very conservative community banks, which have mostly been coming through this recession in good shape, maybe are what we should be looking at for harbingers of recovery or lack thereof.
If that's the case, from what I'm hearing, the recovery is well under way-- not a bout of irrational exuberance that will zing the economy back up in a hurry, but modest and steady growth that may be better for us in the long run.
"Consumer confidence" is really a big part of what's holding things up, I think. People who do have a little spare cash are too scared to spend it and are so shell-shocked by the financial/stock market collapse that they're parking their dough in savings accounts at small banks, rather than investing it or buying Treasuries, never mind actually spending it.
When fewer than everyone in the country has lost the immediate terror of losing their job, things will be on their way to improving more rapidly, seems to me (and this banker).
With everyone from Ed Schultz to Rush Limbaugh hawking the stuff for the past couple of years with warnings of Armageddon is it any wonder that it's price is at an all time high?
I think it's hilarious that both the left and the right are shilling for gold. What do they think this is, the 1800s?
I'm surprised that your community bank friend is so optimistic. After all, banks are failing at a very high rate this year, as commercial real estate loans have gone bad in a big way.
And I agree with another commenter (Art Eclectic, I think) that a lot of the Floyd Norris style optimism is a belief the stock market is onto something positive. I'm afraid the stock market is out of whack again. Perhaps the very pessimistic consumers know more that than the money managers on Wall Street?
The title of Norris's column is "Why So Glum? Numbers Point to a Recovery." I disagree with his thesis, which is that we are headed back up, a la 1982. Here's what I would title my column, "Why so Happy? Numbers Don't Point to a Recovery." In other words, I think he's overly optimistic.
We've lost 8.4 million jobs this recession. I'm not confident those jobs are coming back anytime soon, and in fact we could lose more. And I'm glum because the Obama Administration seems to think like Floyd Norris.
Remember, Obama and friends (Rubin, Greenspan, Geithner) didn't see this coming...
"Our current account balance remains pretty far out of whack. Fixing this in the short term will hinder growth, while leaving it to the long term just kicks the can down the road. " Huh ?
It depends on how the current account balance is reduced. If the dollar falls growth with be stimulated. Net exports are a component of demand and have no where to go but up.
Now if the exchange rate markets don't do it on their own, one approach to driving down the value of your currency is loose monetary policy. A sensible fed will keep interest rates low even if the economy is recovering in an effort to deal with the current account imbalance.
Only if the current account imbalance causes tighter fiscal policy (already listed as point 5) or somehow causes high long term interest rates without causing a weak dollar (don't ask me how -- I didn't claim this is actually possible) is the current account deficit a possible cause of slow growth.
I'd say point 7 is an argument for a strong recovery not an argument against.
The current account balance (large trade deficit) is a cause of the high joblessness we now have. Jobs have migrated overseas to lower wage countries. (Or you could say the out migration of jobs and work caused the current account deficit.) As Kevin says, fixing that could be painful as it could entail a devaluation of the dollar, and thus increased inflation. And it could cause trouble for trading partners such as China who rely upon exports to the U.S. On the other hand, if we continue to kick the can down the road, our economy will continue to stagnate for lack of jobs here at home.
So I think #7 makes sense...
The thing that scares me about the long term prospects of the economy are jobs. We've off-shored so many jobs that used to support middle and working class families. Then we replaced those jobs with construction and real estate jobs for an 8 year Mr. Toad's Wild Bubble Ride.
Where are the low-skill people supposed to work with their jobs now in Mexico, India and China? The majority of our workforce in not high skill. The next generation might be , but today's working class didn't grow up with digital devices and computers as a 21st century appendage. Society has to provide some for of employment for the low-skilled. Either making stuff for people to buy or selling stuff to people at the store. We can't compete internationally when it comes to making stuff, so we are left with jobs at the retail level and Walmart only needs just so many cashiers.
I also worry considerably about our consumption based economy. If consuming is what keeps us afloat, then stagnant wages and rising housing costs are going to cut into consumption in a big way. People skirted around this for the past 10 years via the home ATM, but the fact remains that education costs for parents are killing them financially, a place to live in a good school district costs double what it did a generation ago and wages are stagnant. Not to mention, consumers are thinking twice about putting goodies on credit cards with ever increasing interest rates. None of this bodes will for a consumption based economy.
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