There is a huge reality gap between the happy talk about green shoots, banks passing stress tests, the rise in unemployment slowing -- and what's happening out in the real economy, especially if you take a close look at banking and housing, ground zero of the economic crisis. Credit remains tight for all but the most blue-chip borrowers. Despite the Fed's policy of keeping short term interest rates at just above zero, average rates on conventional 30-year mortgages, now above 5.5 percent, have jumped nearly a full point since April.
But, he's far from the only one going against the grain when it comes to providing a negative outlook for our economy. Let's take a look at what the San Francisco Federal Reserve published, just out this week, with regard to renewed skepticism about there being any significant, near-term recovery in unemployment (h-t to Zero Hedge for bringing this to our attention):
UNEMPLOYMENT, San Francisco Federal Reserve
Even more dramatic, however, has been the break from past patterns in the number of workers who are involuntarily employed part-time. Numerous reports tell of workers being furloughed for a set number of days in a month or asked to work fewer hours each day.These anecdotes are supported by the monthly data. Indeed, the number of workers employed part-time against their wishes is at historical highs.The fraction of the labor force that reports working part-time for economic reasons has increased from 3.0% in December 2007 to 5.8% in April 2009.This increase has been broad-based, occurring in a wide range of occupations. Moreover, the reduction in hours has not been trivial, with more than half of such workers experiencing reductions of five hours per week or more.
What does all this mean for the labor market? We combine data on involuntary part-time workers with the standard unemployment rate to arrive at an alternative measure of labor underutilization. We plot this measure in Figure 3, which shows that the labor market has considerably more slackthan the official unemployment rate indicates.The figure extends this labor underutilization measure using the Blue Chip consensus forecast for the unemployment rate as a benchmark and then adding a share of involuntary part-time workers based on the proportion of workers in that category to the unemployed during the current recession. This projection indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-WorldWar II period, implying a longer and slower recovery path for the unemployment rate. This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing workforces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates.
In short, the "recovery," as we're now hearing from many, will be a "jobless recovery." This is the Federal Reserve--light years away from the progressive thinking of someone like Robert Kuttner--telling us this.
But, as even the Federal Reserve tells us elsewhere, a jobless recovery really is not a recovery, because unemployment is a coincidental indicator (not a lagging or a leading indicator) of the current state of the economy. Or, paraphrasing what I said the other day in an earlier diary: the term, "Jobless Recovery," is an oxymoron.
REAL ESTATE/MORTGAGES/HOUSING, Robert Shiller
The opinions of Yale University finance professor Robert Shiller, widely considered to be one of our nation's leading experts on real estate valuations, and creator of the home-price indices that bear his name (the Case-Shiller Index), are discussed today over at Bloomberg Media in: "U.S. Home Prices May Fall for Years, Shiller Says."
U.S. Home Prices May Fall for Years, Shiller Says
By David Wilson
June 8 (Bloomberg) -- U.S. housing prices are in the midst of a decline that may last for years, according to Robert J. Shiller, a finance professor at Yale University.
"Prices may continue to fall, or stagnate, in 2010 and 2011," Shiller wrote.
Indications that the housing market has stabilized look like "the mother of all head fakes," Whitney Tilson and Glenn Tongue, co-founders of T2 and co-authors of the book "More Mortgage Meltdown," wrote in a June 2 report.
The folks over at T2, quoted immediately above, were credited with supplying all of those wonderful graphics delivered by gjohnsit in his recent, highly-recommended diary: "Subprime meltdown over; now comes the bad part."
ON OPTIMISM ABOUT OUR CURRENT AND FUTURE ECONOMIC REALITIES, Joseph Stiglitz
IMHO, Nobel laureate Joseph Stiglitz, aside from being a true progressive, in the Democratic sense of the term, is the most brilliant economist in this country. Perhaps in the world. Here are some of his latest comments, intertwined within a Bloomberg article that focuses upon refuting the banking industry's claims that they're "on the mend" in, "Bank Profits From Accounting Rules Masking Looming Loan Losses."
Bank Profits From Accounting Rules Masking Looming Loan Losses
By Yalman Onaran
June 5 (Bloomberg) -- Big banks in the U.S. say they're on the mend. The five largest were profitable in the first quarter, rebounding from record losses for the industry in the fourth quarter. Share prices have jumped, with the KBW Bank Index doubling since March 6.
The revival may be short-lived. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are.
The government probably wants to win time for the banks, keeping them alive as they struggle to earn their way out of the mess, says economist Joseph Stiglitz of Columbia University in New York. The danger is that weak banks will remain reluctant to lend, hobbling President Barack Obama's efforts to pull the economy out of recession.
"There's a chance that it might work," Columbia's Stiglitz says of the government's attempt to boost confidence. "If it does, then they'll look like the brilliant general. But all these efforts also bank on the economy recovering and housing prices not falling too much further. Those are not safe assumptions."
Then there was this wake-up call from Sunday's NY Times: "The Economy Is Still at the Brink."
The Economy Is Still at the Brink
By SANDY B. LEWIS and WILLIAM D. COHAN
New York Times Op-Ed
Published: June 7, 2009
WHETHER at a fund-raising dinner for wealthy supporters in Beverly Hills, or at an Air Force base in Nevada, or at Charlie Rose's table in New York City, President Obama is conducting an all-out campaign to try to make us feel a whole lot better about the economy as quickly as possible. "It's safe to say we have stepped back from the brink, that there is some calm that didn't exist before," he told donors at the Beverly Hilton Hotel late last month.
Mr. Obama thinks that the way to revive the economy is to restore confidence in it. If the mood is right, the capital will flow. But this belief is dangerously misguided. We are sympathetic to the extraordinary challenge the president faces, but if we've learned anything at all two years into the worst financial crisis of our lifetimes, it is that a capital-markets system this dependent on public confidence is a shockingly inadequate foundation upon which to rest our economy.
Why is so much effort being put into propping up those at the top of the economic pyramid -- the money-center banks, the insurance companies, the hedge funds and so forth -- when during a period of deflation like the one we are in, any recovery will come only by restoring the confidence of the people down at the bottom of the pyramid?
We are in one of those "generational revolutions" that Jefferson said were as important as anything else to the proper functioning of our democracy. We can no longer pretend that our collective behavior as a nation for the past 25 years has been worthy of us as a people. Many of us hoped that Barack Obama's election would redress the dire decline in our collective ethic. We are 139 days into his presidency, and while there is still plenty of hope that Mr. Obama will fulfill his mandate, his record on searching out the causes of the financial crisis has not been reassuring. He must do what is necessary to restore the American people's -- and the world's -- faith in American capitalism and in our nation. Answering our questions may help us get back on track. But time is wasting.
SO, WHAT'S REALLY CHANGED?
So, here we are in June 2009, and the overriding question about our economy pushes itself to the fore: "What's really changed?" As Lewis and Cohan acknowledge, immediately above, it's too early to tell.
In considering this basic question, I thought I'd leave you tonight with a link to a fascinating piece by one of the bigger "nattering nabobs of negativity," Charles Hughes Smith, who posts over at "Of Two Minds."
While I definitely do not agree with everything he says, in general, he's widely considered to be one of the more prescient purveyors of doom when it comes to our economy. (In fact, I can honestly say he's quite a bit more negative about most of this than yours truly. So, I guess that says a lot!) His historical references and comparisons between what's occurring today in our economy, but within the context of Galbraith's historical commentary on the Great Depression, are quite amazing, as conveyed in Smith's piece from just a few days ago: "Why the Present Depression Will Be Deeper than the Great Crash of 1929."
Lastly, I leave you with a quote from another great progressive Democrat, George Soros:
"Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited."