I’m starting to like this 78-day presidential transition period more and more. That’s because in another 30 days or so, the economy might (emphasis might) generate sufficiently convincing evidence that it’s fixing itself.
Of course it’s way too early to tell now, but there are some positive signs below the press’s non-stop topside gloom and doom:
- The Fed’s interest rate reduction, which will be its last (unless banks want to pay us to borrow money), has brought about mortgage rate reductions. That has in turn led to what looks to be a flock of refi applications. At a minimum, most of these will lower monthly payments and free up monthly cash flow. Many others will be cash-out refis where the cash received at settlement will be used to make major puchases or pay down other debt. The idea that there has been some kind of “freeze” on credit to worthy borrowers has struck me as absurd for the three months. The reported activity proves just how absurd.
- Gas prices have of course plummeted even beyond what I last noted, generating a stimulus, if you will, of available money to the tune of roughly $140 or so a month per vehicle driven 1,500 or more miles a month. Gas for a 25 mpg vehicle driven that far costs under $100 a month at $1.60 a gallon, vs. $240 a month at $4. That’s effectively an annual increase in after-tax pay of over $1,600 or so per year.
- Prices are otherwise under control, or declining just a bit; in fact, you could argue that the Fed’s cut earlier this week overdid it. Uncle Sam’s Consumer Price Index drop of 1.7% masked the ex-food and energy, which came in at a big fat zero. I don’t think that the CPI picked up the full extent of the energy price decline, which means we could see another flat to negative number in December.
- All of this plays out in Uncle Sam’s Real Earnings Report, which tells us that “Real average weekly earnings rose by 2.3 percent from October to November after seasonal adjustment, according to preliminary data released (Tuesday). This gain stemmed from a 0.4 percent increase in average hourly earnings and a 2.1 percent decrease in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). A 0.3 percent decrease in average weekly hours partially offset these positive influences.” 2.3% is a historically big one-month number.
- This is a less-negative instead of a positive news story, but Christmas shopping season news may end up not being as bad as originally thought (which probably explains why you haven’t heard it) — “America’s Research Group said it now expects retail sales to drop by 2.8 percent, compared with its earlier expectation of a decline of 3.5 percent.” Talk about unintended consequences — You’ll see at the link that the store lefties love to hate is benefiting from this, and to an extraordinary extent. The anecdotal evidence I heard and have seen is that the malls are very, very crowded; the extent of open wallets may of course be another matter.
Other things to look for in the coming few weeks that would bode well:
- ISM’s Indices — with November’s Manufacturing at 36.2% and Non Manufacturing at 37.3%, you would think they’re as low as they can go. Good news, such as it is, would be that they somehow recover to above 42% or so — which ISM paradoxically sees as contracting (50% or above means expansion) but nevertheless not recessionary.
- An upside (really less downside) surprise in the jobs lost figures when they are released on January 9.
- The Department of Labor’s January 9 revision to its total population estimates from the Census Bureau. If it shows, as I suspect it will, a slowdown in the growth of the adult population, it will indicate that the reported unemployment rate, though it is never officially revised, might have been overstated for much of the year. If this happens, I think it will be because the Bureau gets surprised by the reduced level of net immigration. Again if this happens and if it’s big enough to matter, it has the potential to be a psychological boost.
All of this is important because if the POR (Pelosi-Obama-Reid) economy is shown to be recovering in spite of the Terrible Triumvirate’s attempts to talk it down and/or wreck it in the name of electoral success, the air will or should go out of the idea that a massive, $850 billion New Deal redo is necessary. The New Deal’s public works spending spree didn’t work to lift the economy. Japan’s similar efforts in the 1990s kept that country in stagnation for over a decade. There’s no good reason to expect that an ObamaDeal will work.
Obama has already signaled that he’s going to leave tax rates alone for the time being. I don’t seem him going back on that until a recovery is firmly established.
They’re in a big hurry to pass their spending spree, with Pelosi and Reid promising to have it ready for signature within two weeks of Obama’s inauguration — which is why I’m relieved that he has to wait until January 21 to get in.
In the meantime, “Go Economy Go.”
Now if we can just stop the GM-Chrysler bailout, or force the binding admissions detailed here on P-O-R, the Big Three’s CEOs, and the UAW. …..