'Recession Is Over': Positive Economic Data Abounds

Fed Chief Ben Bernanke said Tuesday that indeed the recession of the past year is over. And positive economic data continues to punctuate assertions that the Q3 growth will be anything but lackluster:

1. On Tuesday, the popular ICSC-Goldman report's year-on-year measure jumped into positive ground -- 1.6 percent for the best showing in a year. The companion Redbook measure also showed sizable improvement in the Sept. 12 week, for the best reading since the spring.

2. A positive producer price report followed showing that the core rate of inflation continues to be quite tame at +0.2 percent, following a 0.1 percent decline in July.

3. More good news followed in the government's retail sales report for August. Consumer spending made a healthy showing mostly boosted by the clunkermania and higher gas prices. But other retail segments also signaled general health. All said, retail sales jumped 2.7 percent in August.

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4. Manufacturing activity in the NY region continues to bounce. On Tuesday the Empire State index was reported to rise nearly 7 points in September to 18.88. New orders rose 6-1/2 points to 19.84 continuing to point to significantly increasing activity in the second half of the year.

Comments

[CautiousInv...:]

Here is a slightly more nuanced view of the economy I posted previously that looks at the activities within the three major spheres of our economy. I'm far less optimistic than the author.

The Real Economy
Two days ago it was improved retail sales, yesterday it was expanding industrial production today its new home sales. ISM surveys are improving, housing is recovering, and consumer confidence seems to be improving. At the margin trade is improving. Unemployment claims are ebbing, job losses are slowing but pernicious unemployment remains and is likely to creep up to 10% or more. Zachs expects earnings to improve on a YOY basis as result of cost cutting and measuring today against a horrible yesterday.

Financial Economy
Credit card chargeoffs exceed levels assumed in the adverse scenario of the stress test; all foreclosures underway increased 88% month over month; personal bankruptcies were up 22% in August YOY; small business bankruptcies are on track to double this year; measures of the money supply are contracting; and total outstanding bank credit is contracting at a 14% rate through the last three months ending August..........the fastest pace since the depression. Amid mounting losses, fraudulent accounting compromises have and will allow banks to report glowing levels of profits while luring investors to help them recapitalize. All the credit spreads have narrowed; panic has been replaced by an unwillingness to lend. Casino activities have reumed.

LaLa Land
The Fed and congress have unleashed unprecedented stimulus to avert from us falling into a financial abyss; the abyss has been averted but we could easily stuck at the precipice. The dollar is sliding amid rising federal borrowing; estimated cumulative deficits have grown to $9 trillion through 2019 while our creditors, particularly China and Japan, grow increasingly worried about our structural imbalances in fiscal policy……really a policy of craven politicians avoiding reality. There is constant discussion of replacing the dollar as the world’s preeminent reserve currency. Cumulative projected world borrowing outstrips cumulative global savings.

Synthesis
It may not be until the second quarter of next year before disconnects between various measures of economic activity and health are reconciled with various measures of economic malaise and financial sickness. Most if not all improvement in reported economic activity is a result of the combined effects of liquidity and fiscal spending. Structural imbalances still remain and unemployment will remain stubbornly high, compounding a desire for consumers to retrench, save and liquidate debt. The reality of a new normal has not set in.

Unlike Bernanke and almost all so-called experts in the Fed and government, Rosenberg has opined that "rampant fiscal stimulus" accounts for all of this year's growth and 80% of next year's. In the second quarter of this year, the total economy purportedly contracted by a 1% annual rate; Rosenberg said it would have plunged by 6% without that stimulus. The consensus is for 2 to 3% growth this quarter. Rosenberg says it would be zero without all that money pouring out of Washington.

Financial reform is likely to be muted and largely symbolic, toxic assets still haunt bank balance sheets and CRE is a looming financial nightmare capable of pushing over the financial sytem over the edge and into a permanent free fall. From an interview with Nassim Taleb: "After finishing The Black Swan, I realized there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions.

They're all still here. Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient's symptoms – and transformed the tumor into a metastatic tumor. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.

Sep 17 01:50 PM

[Mark Bern:]

"Fed Chief Ben Bernanke said Tuesday that indeed the recession of the past year is over." Actually, Mr. Bernanke said that it was very possible (or probable - I don't recall which, but not definitely) that the recession could (he didn't say it was over with certainty) be over. He used several words that allowed him room to recant in the future should things worsen. He also said (in the previous sentence) that there appeared to a consensus by several economists (not all) that the recession was probably (not certainly) over.

CautiousInvestor - Good list of the facts.

I will admit that we may be on the verge of a government-aided recovery that could not sustain itself without additional government spending. I also admit that the government has every intention to continue spending and even increase its spending as the 2010 election draws nearer. What I won't admit is that our economy could sustain growth without further government intervention. When we do reach that point, I will happily agree that the recession is over. But, as long as the economy continues to be dependent upon government aid and cannot grow otherwise, I cannot buy into the concept that we are in recovery.

For the moment, the recovery being over it is still just an opinion, not fact. I respect opinions and everyone's right to have one. I just don't happen to share the opinion proposed by the author at this time.

Sep 17 05:26 PM

[KIT:]

Transfering todays debt to future people is brilliant. It should not be to our childern or grandchilder though as this still has some personal attachment. We need to write the debt out 500 years. This way inflation will compact even 10 trillion to the value of a pack of gum in 2510 dollars. Not only will no one be mad in our lifetimes but no one will care 500 years from now when a gallon of gas is 700,000 trillion dollars



> But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient's symptoms – and transformed the tumor into a metastatic tumor. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.

Sep 17 10:35 PM

[Silentz:]

I am strongly tempted to add a sign onto all of those ARRA road project signs that I see these days. It seems like every little road project that we couldn't find justification to pay for last year is getting done. All at once. The sign I'd put up would say, "Hug your grandchildren. They're paying for this"


On Sep 17 10:35 PM KIT wrote:

>
>
> Transfering todays debt to future people is brilliant. It should
> not be to our childern or grandchilder though as this still has some
> personal attachment. We need to write the debt out 500 years. This
> way inflation will compact even 10 trillion to the value of a pack
> of gum in 2510 dollars. Not only will no one be mad in our lifetimes
> but no one will care 500 years from now when a gallon of gas is 700,000
> trillion dollars
>
>

Sep 18 01:45 PM