Why It’s Worse Than You Think

[Gunny]

By Daniel Gross | NEWSWEEK
Jun 16, 2008 Issue

The forgettable first half of 2008 is stumbling to a close. On Friday, the Labor Department reported that American employers axed 49,000 jobs in May, the fifth straight month of job losses—an event that signals a recession sure as the glittery ball dropping on Times Square augurs a New Year. The report, which inspired a 394-point decline in the Dow Jones Industrial Average Friday, was the latest in a run of bad news. Auto sales, the largest retailing sector in the U.S., were off 10.7 percent in May from the year before. And housing? Ugh. Nationwide, according to the Case-Shiller Index, home prices in the first quarter fell 14 percent.

Yet hope springs eternal that the second half will be better than the first. Economists polled by the Federal Reserve Bank of Philadelphia in May believe the economy will grow at an annual rate of 1.7 percent and 1.8 percent in the third and fourth quarters, respectively. Lawrence Yun, chief economist at the National Association of Realtors, tells NEWSWEEK that "home sales and prices in most of the country will improve during the second half of 2008." (Yun is the Little Orphan Annie of forecasters. He's always sure the sun will come out tomorrow.) Last month, Treasury Secretary Henry Paulson said, "We expect to see a faster pace of economic growth before the end of the year."

The cause for optimism: the U.S. has called in the economic cavalry, which has responded in textbook fashion. The Federal Reserve has aggressively cut interest rates, bringing the Federal Funds rate down from 5.25 percent last September to 2 percent. Earlier this spring, Congress and President Bush, in a rare moment of bipartisan accord, passed a stimulus package, which will shove nearly $100 billion into the pockets of American consumers by mid-July.


But this downturn is likely to last longer than the eight-month-long recession of 2001. While the U.S. financial system processes popped stock bubbles quickly, it has always taken longer to hack through the overhang of bad debt. The head winds that drove the economy into this dead calm— a housing and credit crisis, and rising energy and food prices—have strengthened rather than let up in recent months. To aggravate matters, the twin crises that dominate the financial news—a credit crunch and the global commodity boom—are blunting the stimulus efforts. As a result, the consumer-driven economy may not bounce back as rapidly as it did in the fraught months after 9/11.

As it seeks to regain its footing in the second half, the U.S. economy faces two significant obstacles, neither of which was evident in 2001. The first is entirely homegrown: the self-inflicted wounds of the promiscuous extension and abuse of credit in the housing and financial sectors. The second is a global phenomenon that has comparatively little to do with American behavior: rampant inflation in commodities such as oil, food and steel. These trends have conspired to inflict genuine economic pain and deflate consumer confidence. The Conference Board's Consumer Confidence Index in May slumped to a 16-year low.

The Economy: Why It?s Worse Than You Think | Newsweek Inside Business | Newsweek.com

 

[editec]

It's not called the dismal science for nothing, is it?

 

[Gunny]

It's not called the dismal science for nothing, is it?

Just doing my part for morale.

 

[maneal]

We may very well be heading into a recession, but we are not in one. Annalists said the same thing in the first quarter of 2008, but then the "experts" were STUNNED when the first quarter showed .6% growth. Now, is that a big number? No, its a pretty small growth percentile. However, its not a recession, because we grew. Recession is defined as 2 consecutive quarters of economic DECLINE, NOT a slowdown. The growth slowed down, but it still grew.

I am optimistic for our economy. The economy expands and contracts often. This isn't the first time its happened, and it will not be the last. The economy can not be a healthy one without BOTH expansion and contraction. They work hand in hand. That should have been taught in High School Econ.............

This is one less issue the Liberals can use against us. The basic laws of Econ (haha).

 

[Diuretic]

We may very well be heading into a recession, but we are not in one. Annalists said the same thing in the first quarter of 2008, but then the "experts" were STUNNED when the first quarter showed .6% growth. Now, is that a big number? No, its a pretty small growth percentile. However, its not a recession, because we grew. Recession is defined as 2 consecutive quarters of economic DECLINE, NOT a slowdown. The growth slowed down, but it still grew.

I am optimistic for our economy. The economy expands and contracts often. This isn't the first time its happened, and it will not be the last. The economy can not be a healthy one without BOTH expansion and contraction. They work hand in hand. That should have been taught in High School Econ.............

This is one less issue the Liberals can use against us. The basic laws of Econ (haha).

Isn't this one of those occasions when trends are important?

 

[editec]

Recession is a word which is bantered about as though it was a meaningful concept for people's HOME economics.

It desribes the national economy, not the PEOPLE's economy.

The nation may not be in a recession, but the PEOPLE certainly are.

 

[maneal]

Recession is a word which is bantered about as though it was a meaningful concept for people's HOME economics.

It desribes the national economy, not the PEOPLE's economy.

The nation may not be in a recession, but the PEOPLE certainly are.

Ok, you said it. So prove it.....

 

[Zoomie1980]

Recession is a word which is bantered about as though it was a meaningful concept for people's HOME economics.

It desribes the national economy, not the PEOPLE's economy.

The nation may not be in a recession, but the PEOPLE certainly are.

Some idiots live their entire life in a recession, so what?

 

[Swamp Fox]

I've got a house thats worth what I owe on it, a good paying job, a wife that cooks and likes sex, and plenty of guns and ammo. I'm not too worried about this.

 

[manu1959]

I've got a house thats worth what I owe on it, a good paying job, a wife that cooks and likes sex, and plenty of guns and ammo. I'm not too worried about this.

sounds good......what industry are you in......

 

[Toro]

We may very well be heading into a recession, but we are not in one. Annalists said the same thing in the first quarter of 2008, but then the "experts" were STUNNED when the first quarter showed .6% growth. Now, is that a big number? No, its a pretty small growth percentile. However, its not a recession, because we grew. Recession is defined as 2 consecutive quarters of economic DECLINE, NOT a slowdown. The growth slowed down, but it still grew.

No that is not the definition of a recession, though this is a common misconception.

The National Bureau of Economic Research is the final arbiter on when a recession begins and ends. This is their definition.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades. ...

FAQs

Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?

A:: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. According to current data for 2001, the present recession falls into the general pattern, with three consecutive quarters of decline. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.

The NBER’s Recession Dating Procedure

 

[editec]

National Bureau of Economic Research

Are those the same genuises telling us inflation is only 5%, unemployment is also only about 5%?

Yeah, they've really got a firm grasp of reality, don't they?

 

[Paulie]

National Bureau of Economic Research

Are those the same genuises telling us inflation is only 5%, unemployment is also only about 5%?

Yeah, they've really got a firm grasp of reality, don't they?

According to the numbers I've been reading about, inflation is over 10%.

Even Toro knows that the CPI and PPI are skewed.

To have the best idea what inflation is, you need to read the M data. Too bad the Fed stopped publishing M3 in 2006.

I wonder why?

 

[editec]

To have the best idea what inflation is, you need to read the M data. Too bad the Fed stopped publishing M3 in 2006.

I beginning to love this place.

Do you have any idea how few educated people know why the Fed no longer publishing the M3 is an odious sign of the times? The international currency market gets it though. That's exactly why they've shorted the dollar.

Yeah, they're basically lying to us. They have been since at least the 1980s.

Substitution my ass. When the price of steak goes up, that's inflation. Being able to buy hambuger doesn't mitigate the numbers except in the behind the looking glass world of the OMB.

They distort the methodology to compute the CPI so that social security checks and union contracts (pegged to CPI) don't keep up with inflation.

They lie about the employment numbers because if people relized that they are underemployed because the economy really is in the crapper, (instead of because of some flaw of their own) working people might clamor for the idiots in office to stop shipping our jobs offshore.

Remember when we used to joke about how the Soviets lied to their people?

I'm no longer laughing.

 

[Toro]

National Bureau of Economic Research

Are those the same genuises telling us inflation is only 5%, unemployment is also only about 5%?

No.

 

[Paulie]

I beginning to love this place.

Do you have any idea how few educated people know why the Fed no longer publishing the M3 is an odious sign of the times? The international currency market gets it though. That's exactly why they've shorted the dollar.

Yeah, they're basically lying to us. They have been since at least the 1980s.

Substitution my ass. When the price of steak goes up, that's inflation. Being able to buy hambuger doesn't mitigate the numbers except in the behind the looking glass world of the OMB.

They distort the methodology to compute the CPI so that social security checks and union contracts (pegged to CPI) don't keep up with inflation.

They lie about the employment numbers because if people relized that they are underemployed because the economy really is in the crapper, (instead of because of some flaw of their own) working people might clamor for the idiots in office to stop shipping our jobs offshore.

Remember when we used to joke about how the Soviets lied to their people?

I'm no longer laughing.

Sounds good to me. Just so long as you understand that money supply expansion is the actual "inflation", and rising prices are merely the effect.

Some do not know that, or refuse to admit that it's true, for whatever reason.

 

[editec]

Just so long as you understand that money supply expansion is the actual "inflation", and rising prices are merely the effect.

Some do not know that, or refuse to admit that it's true, for whatever reason.

Maybe it's just because of how your phrasing it?

The government isn't responsible for the inflation in pricing when a real shortage occurs.

There's just the same amount of money chasing a diminishing amount of goods, so prices rise accordingly.

 

[Paulie]

Maybe it's just because of how your phrasing it?

The government isn't responsible for the inflation in pricing when a real shortage occurs.

There's just the same amount of money chasing a diminishing amount of goods, so prices rise accordingly.

You misunderstand.

Inflation is the increase in the supply of money. The effect of that, is higher prices.

Like you stated above, the inverse is inflation. An increasing amount of money chasing a steady amount of goods.