So Much for the 'Recovery'

Hell of a recovery, isn’t it?

Let’s see. Auto sales as predicted plunge after the artificial C4C stimulus, ISM falls short of expectations, personal consumption expenditures are up but throw out auto purchases and it doesn’t look all that great and the unemployment numbers went the wrong way.

Want to look on the bright side? Construction spending shows some signs of life, the ISM numbers still indicate expansion and pending home sales were up.

I’d like to take the glass half full position but I just don’t see it. With all of the stimulus being thrown at this economy we should be starting to hum at this point in time. Right now, about all you can say is that we aren’t in free fall anymore. That’s scant comfort for those that have been most afflicted by this bear of a recession and I think they’re likely to be wrapped in the cold embrace of a miserable economy for quite some time.

I think that you can expect to see a couple of developments if this trend continues. They might not come into full bloom until after the holidays as there will likely be some boost from the Christmas season but it’s hard to see it carrying through afterwards.

First, Krugman and the “second stimulus” crowd will start braying for more government money. Never mind that given all of the stimulus flowing from the Fed and the Treasury the economy should be starting to buzz right now. One would hope that this crowd would realize that there may be some issues that transcend simple pump priming and get to work figuring out what the structural imbalances might be that threaten to turn this recession into a years long slump. At some point you quit throwing money at a problem and figure out what exactly the problem might in fact be.

Having said that, expect the pols to double down on gimmicks like the housing tax credit. It’s a lock that it will be extended and probably expanded to include anyone who can walk and not necessarily chew gum at the same time. We could see C4C resurrected and who knows what other products they might decide to artificially prop up.

Of course, the American consumer isn’t dumb. They figured out just after 9/11 when the 0% car financing was introduced for a “limited time” that It was really a deal with no expiration. Once it expired they went on a buyers’ strike and sure enough the car companies brought it back. Take away the housing credit and watch demand evaporate. This is how you create an economy built on “blue light specials.” A K-Mart economy, if you will.

It all seems to be too much smoke and mirrors. Blow up little economic bubbles here and there and hope that cumulatively they get things rolling again. Sooner or later maybe we’ll recognize that bubbles got us into this mess and that they won’t get us out of it, but if you face that reality you then have to start making hard choices. Don’t hold your breath.

Note: As I mentioned a couple of days ago, I’m trying to refrain from delving too deeply into the nuts and bolts of the numbers for a lot of these economic reports. For those that want more information on the economic numbers of the day with useful links here are links. They will all take you to the Calculated Risk posts on the subjects. The writer of that fine blog produces the best and most useful data around with great links for those who want to get further into the subject. Links here and here.

Comments

[Leftfield:]

Fewer and fewer can even afford the "deals." And, just imagine how oppressive our government would be if we had to pay them up in full. Such a deal.
When will average Americans conclude that they really have to get beneath the gimmicks and into policies that work? Maybe, try voting out lots of incumbents? Repeatedly?

Oct 02 12:16 AM

[Econ Base:]

Rise is stock market is not recovery. Unfortunately Ben Bernanke and all the bulls have been assuming that is the case.

Real recovery is when meaningful jobs are created. That is very far away. In fact brace yourself for a bigger downturn, once money has been wasted on bailouts and tax payers cannot do any more bailouts.

Oct 02 01:35 AM

[Moon Kil Woong:]

Eventually people will come to expect silly stimulus packages. Why buy a car when you can wait for a dumb government program? Why buy a house unless you get a tax rebate? Why buy a fridge when we are waiting for a cash for kitchens deal (already in the works)?

Tell me, is this really how we want the US to run? Can't there even be a semblance of free market capitalism left? In a market like this the government calls the shots. You still have a choice. Do what they say or get ripped off buying when they don't have a blue light special.

Oct 02 04:58 AM

[CautiousInv...:]

It was almost prophetic that Mohamed El Erian noted this week that it would be dangerous to assume we are reverting to a mean while there are staggering levels of unemployment, government debt, private debt and toxic assets. Too many experts are confusing the short term effects of monetary and fiscal stimulus with organic growth in the economy which is simply not happening.

This week’s news that (1) Robert Schiller believes home price will move sideways for five years at today's prices, (2) approximately 80% of corporate executives expect both hiring and capital expenditures to remain flat for the next six months, (3) the widely watched Chicago PMI dropped almost four points to 46.1% (4) mortgage loan delinquencies increased to 5.3% in the second quarter (5) initial unemployment claims increased to 551,000 in the latest reporting week (6) the ISM manufacturing index fell to 52.6 and (6) consumer confidence in September fell to 53.1, down from 54.5 in August all align with El Erian's cautious view.

Beyond what El Erian has said I think our policy response to the crisis has been abysmal on two counts: we have recapitalized the banks at great expense without addressing the issue of toxic assets and the stimulus plans is nothing more than a farrago pork laden pet projects. The latter suffers from absence of strategy to promote savings, investment and creation of new industries with high employment and export potential; its focus is on government spending, not private sector spending.

We have not resolved our core problems and until we do so we can not reasonably expect for economic activity to resume; additional government spending, which we cannot afford, would simply further debauch the dollar and potentially paralyze our capital markets. And when economic activity does resume it will take place amid higher taxes, growing transactions costs, increased red tape, increasing protectionism and potentially shattering legislation.

Washington has designed and created this economic nightmare.

Oct 02 05:50 AM

[Asbytec:]

It was a rally, never a recovery.

Oct 02 09:42 AM

[Joseph L. S...:]

STOP THE "STIMULUS."

Government doesn't have any money of its own. It only spends money that it confiscates via taxes or confiscates via printing new paper money, thus debasing the value of previously issued dollars. So when it spends on a stimulus program, somebody (that would be us) is paying for somebody (that would be the government) to give our money to the sectors, industries, companies and people they-the-government favor for largesse.

Money we might have spent for cars or bicycles or groceries or a home on our own isn't there for us to spend. The government has given it to bankers, brokers, auto companies, etc. -- in the most inefficient way they could, with no strings attached. After all, it isn't their money, so why worry about it? Their incomes are secure.

P.J. O'Rourke nailed it when he said, "You are smarter than the government, so when the government pays you to do something you wouldn't do on your own, it is almost always paying you to do something stupid."

Oct 02 11:00 AM

[Poor Texan:]

On Oct 02 11:00 AM Joseph L. Shaefer wrote:

Government doesn't have any money of its own. It only spends money that it confiscates via taxes or confiscates via printing new paper money, thus debasing the value of previously issued dollars.

**

In the meantime, those on unemployment work in the underground economy to make ends meet and some turn to 'sharing the wealth' by stealing and pawning. Neither of these pursuits produces tax revenues making dollar devaluation more and more of a reality.

Oct 02 12:12 PM

[Mad Hedge F...:]

stu For the last six months there has been a great big whopping contradiction in the markets. The stock market has been discounting a return to the “Roaring Twenties,” while the bond market has been anticipating the return of the “Great Depression.” After yesterday’s publication of the Labor Dept.’s September nonfarm payroll number showing the loss of another 263,000 jobs, it looks like the bond market now has the upper hand. The really disturbing aspect of this number is that 57,000 teachers were fired, as states chop budgets to the bone. This is really eating our seed corn by the handfull. Stocks have dropped 5% from last week’s peak, as the bond market soared, the ten year yield reaching nosebleed territory of 3.05%. My call to buy the TBT, a leveraged bet that US Treasury bonds would fall, is starting to look a little green about the gills. The dollar still maintains its flight to safety status, which to me, is one of the great ironies of all time. It’s like that reprobate, alcoholic uncle with the bad teeth, who, when your car breaks down in the middle of a downpour in a bad neighborhood, will always let you crash on his sofa. Let’s call him your Uncle Sam. You have to hand it to PIMCO’s inveterate card counter, Bill Gross, who says this is all about transitioning to a “new” normal of 1%-2% real GDP growth. That’s why he was loading the boat with bond yields at 4%, a ballsey move at the time, which now smells like roses. I guess that’s why they call him the “Bond King.” As for me, I’m never wrong, just early. Sometimes way early.

Oct 03 02:17 PM