December 18, 2008

Could It Be ….. Recovery? If So, Hurry Up Already

Filed under: Economy,Taxes & Government — Tom @ 12:29 pm

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. …..

Share

10 Comments

  1. Yes, Tom, it is recovering, just in time for the MSM to give all credit and glory to The Messiah. I have long fully expected reports of recovery to commence with the early morning news cycle on January 21, assuming the nets have finished wetting themselves over the Messiah’s installation on the almighty throne.

    Comment by Rob — December 18, 2008 @ 1:54 pm

  2. 10 million total foreclosures predicted before the end of 2010….and you’re talking about recovery?

    Over a half-million newly unemployed each month….yet, you’re talking recovery?

    Comment by The Reverend — December 18, 2008 @ 3:51 pm

  3. #2, we’ll see. Your foreclosure # is very suspect, unles Uncle rewards people for defaulting.

    If Obama doesn’t get in the way wasting money on public works projects, there’s a better chance, If he calls an income-tax holiday for a month or two, he’d cinch it.

    Comment by TBlumer — December 18, 2008 @ 9:54 pm

  4. Of course the economy is improving. The US economy, and especially the financial system backing the US economy, are heavily tied to consumer confidence. With the Presidential race over, we are no longer being bombarded every single day with messages of how bad the economy is and how candidate X is the only person who can fix it. On top of that, the MSM consistently pushes the message of their candidate. Now there are other factors going on. But eventually society generally starts believing this same message they have heard for the past couple of years. Then people stop spending money which leads to industry laying off employees.

    Now industry is getting leaner and more efficient. People are regaining confidence in the economy, at least I think they are because I believe people are generally optimistic. Before we know it, the economy will be humming along again because that is how the economy works–in cycles (like the climate!). Meanwhile BHO will take all the credit. What a country!

    Comment by scottslants — December 18, 2008 @ 10:11 pm

  5. If the economy starts to trend up in GDP it will be because of the price of energy, end of story. With gas down to $1.53/gal in my neck of the woods, down from $4/gal, a huge amount of capital flow is being redirected toward other parts of the economy.

    When I did my analysis of GDP per industry versus jobs, the oil & gas extraction industry uses $1.135 billion of GDP per 1000 workers (Full Time Equivalent), this is many times the rate of most other sectors of the economy. Only real estate has this kind of ratio of GDP to workers. Tom has the spreadsheet.

    The entire basis of the economy going down was the siphoning of GDP from other sectors of the economy to oil & gas extraction, the imbalance of capital flow rushing to one sector destabilized the economy. Now that the imbalance has been reversed, the other sectors of the economy that use MORE workers per GDP will naturally have the resources to employ more people. Think of it in zero sum terms as a good analogy of what is happening. We can squarely blame the POR economy for this since all three of these idiots insisted the price of oil must be high to support their political cash contributors, I mean green agenda.

    All bets are off if OPEC and Russia reduce oil production to jack up the price of oil over $60/barrel. It seems to be the tipping point for economy, there seems to be only so much imbalance in capital flow that the economy can adjust to.

    Comment by dscott — December 19, 2008 @ 9:58 am

  6. [...] only hope now is that the incipient recovery signs I noted yesterday generate decent car sales in the coming three-plus months. Yesterday’s [...]

    Pingback by BizzyBlog » It Could Have Been Worse, But It’s Still a Big, Big ….. — December 19, 2008 @ 11:46 am

  7. Recovery? That’s a good one. Maybe Q3 ’09, but now? Not a chance.

    Comment by Invictus — December 19, 2008 @ 5:27 pm

  8. [...] addition to the “Could it Be ….. Recovery?” list — A small reason for more optimism, or at least less pessimism — Leading [...]

    Pingback by BizzyBlog » Couldn’t Help But Comment ….. (122208, Morning) — December 22, 2008 @ 11:38 am

  9. [...] Here’s the thing. One of the biggest chunks of “energy” that helps keep a economy healthy and growing is consumer confidence. That’s the very thing that’s taken the biggest hit thanks largely to overly-pessimistic reporting by the MSM. Yes, our economy has been slowing down. Yes, we’ve been walking the ragged edge of a real recession. Yes, companies are slimming down. But we’re not nearly in dire straits yet – not even close. Our unemployment is still in single digits, far lower than it was during the late 70s and early 80s and way lower than it’s been for years in places like France and Germany. Real earnings have been moving mostly upwards for nigh on a decade. For the second year running, the United States has been named the most competitive economy in the world by the World Economic Forum in Davos. There are plenty of reasons to believe that we’re ready to start moving upwards again. [...]

    Pingback by Another Day, Another MSM Story Running Down the Economy | The Sundries Shack — December 25, 2008 @ 8:08 pm

  10. [...] Race Against the Economy”. Mr. Blumer links off to two other related articles: “Could It Be ….. Recovery? If So, Hurry Up Already” and “5 Reasons Why the Economy Might Recover Faster Than You Think in [...]

    Pingback by jakew : The economy — December 26, 2008 @ 10:49 am

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.