In the late 1980s, America witnessed the "savings and loan" crisis, which buried the real estate market. From the grave, the real estate market tried to pull the US economy into the grave as well. And for three quarters, from July 1990 through March 1991, it worked. The economy slumped -1.5% over that period, bringing about painful job loss. There was an excess of office space, successfully discouraging office construction through most of the 1990s. Housing sales sagged and, of course, unemployment soared. 2007 seems eerily familiar, but few will honestly shed what the bad news entails.
Ben Bernanke, the Federal Reserve Chief, told Congress March 28th:
"To date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation."
While he admitted "uncertainties" were on the rise, the above quote manifests the familiar, stubborn optimism. He seems to be injecting the bright side into the debate, by asserting that the slowdown will reduce inflation, but not be too slow as to send the nation into recession. This is the same thing he has said months before the most recent data. He continues to insist that there will be "moderate" growth and that good times will return as early as "later this year." This just seems utterly ridiculous to me. What is "moderate?" My assumption is anywhere above 2% annual GDP growth. Interestingly, Q3 of 2006 grew by 2%, but the conditions were no where near as bad. And indeed, the fact that the housing bust was getting charged up alone was blamed for shaving an entire 1% off the growth. Job growth has slowed considerably now. In February, 62,000 construction jobs were slashed. That could have been partially blamed on bad weather, but I feel the poor housing market played a big role. Retail sales have grown by 0% this year. What evidence is there that supports this view of "moderate" growth?
Housing sales, particularly for new homes, are plummeting. The pace of this drop is accelerating. In January, new home sales collapsed by a hellbound 20%. Every so often, usually after each negative piece of data on the housing market is released, the same old mantra is spewed out: "The housing market has bottomed." Not so. Not even close, according to an increasing number of economists.
http://www.bloomberg.com/...
Michelle Meyer, an economist at Lehman Brothers:
"We're probably not going to see the pickup in housing by the end of the year that we were looking for. Housing imbalances will take longer to correct because inventories aren't declining very fast."
``As ugly as these numbers are, they don't reflect the tightening of lending standards, which means sales are going to get worse,'' said Christopher Low, chief economist at FTN Financial in New York. ``The longer it takes for housing to recover, the more the risk it could spill over to other parts of the economy.''
Then there is the news that non-military durable goods orders fell 0.1% in February. In Janaruy, they fell 7%. Both the February and January numbers were worse than expected.
http://www.bloomberg.com/...
David Resler, chief economist at Nomura Securities International Inc. in New York:
"This report appears to justify the growing anxiety that declines in capital spending -- along with the on-going slump in the housing sector -- could jeopardize the economic expansion.The `possibility' of recession by year-end looks somewhat less remote than when Mr. Greenspan first asserted such risk a month ago."
This graph shows the number of new orders for durable goods, minus for defense.
It may also help to see the durable good orders as a two-month average, to smooth out fluctuations and reveal some of the emerging trends. Durable good orders have clearly been on the decline in 2007, after topping out in 2006.
And when will they stop blaming the weather for the poor sales and simply admit the horrendous circumstances. These past two years have not exactly been unique in terms of weather, though February was markedly cold. But every year, there are blizzards, spells of warm weather in winter, rain, small snowstorms, floods, bitter cold... seriously, get real. Weather alone could not have produced this dismal data:
Source: http://www.economagic.com/...
*Note, first 2 months of 2007 can be found on the U.S. Census website.
The graph above is alarming, in my judgment. It is important to note that the noticeably sharp declines in new home sales (1974, 1980-1982, 1990-1991) happened during recessions. The decline during 2006 and 2007 is almost congruent with the fall of housing sales during the 1980-1982 depression. The most startling part may be that the housing downturn still has several months ahead before there is any significant bottoming. If this is the data that Bernanke says will bring "sustainable growth", intuition tells me I have to really question the motives or the competence of these people. The drop in housing sales is incredibly deep.
Then there are housing permits. The steep drop in housing permits implies that there will be fewer homes built in the future, allowing a further slump in housing starts.
The employment figures for Michigan have exemplified the failed policies of Washington these past 6 years. Another recession has been about the only thing allowing employment numbers to float around 4,400,000 since 2003. Oops! Guess I spoke too soon. Michigan's total employment figures, even after applying the magical "seasonally adjusted" factor, have steadily eroded. But since late 2005, they have now been in free fall. Jobs declined 8.2% from June 2000 to February 2007. Fine work, Mr. President. I see the tax cuts have really spurred job growth.... in foreign lands. Not surprisingly, this trend is occurring in a few states of the midwest (including Indiana and Ohio.)
The euphemism for manufacturing's fall has typically been, "It's a transforming economy." If this is the "transformation" in action, we have reason for concern. Apparently there is no job growth offsetting losses in manufacturing, and we will need to manufacture products if we hope to have a shot in hell at keeping the US intact, economically and socially. That is not limited to cars, furniture, and appliances. We will need to manufacture electronic goods as well. Advertisements on television, radio, and websites by corporations praise their work. They announce their contributions to society, like they were the prodigy of Andrew Carnegie or something. But even Carnegie showed his double-face went it came to the treatment of his employees. Then with some tweaking of the English language, they mention they will cut jobs, then adding the sinister reassurance that it will be more beneficial than harmful... whether that be GM, Ford, Citigroup, or Circuit City. I can see, from the case of Michigan, where they get the idea that their works were "beneficial." Mission Accomplished.
*Data above can be found on economagic.com. All figures were seasonally adjusted.