recovery

/ / , , , , , /

More Mixed Messages

Today’s report from Case-Shiller suggests the housing market is recovering. Finally. The latest figures are for June and show a second straight month of price gain. Clearly home prices have hit bottom and are bouncing back at least a bit. That ought to bolster the economy later in the year as households breath a sigh of relief that their major asset is no longer fading but is strengthening. Even if only a little.

The June gain, at 2.3%, was strong enough to push prices into their first year-on-year gain for two years. Even though that annual gain of 0.5% was low, it marks a significant turning point in the market. Better yet: every one of the twenty major cities covered by the survey registered gains with, as we would expect, some of the most depressed showing the most rapid price increases. Detroit, for instance, saw prices rise by 6%, whilst Minneapolis saw a rise of nearly 5%. The good news is that the gains were so widespread. This is the first time for a while that prices rose consistently across the entire nation. Couple this with the results of other surveys – CoreLogic’s data has the year-on-year gain at a more robust 2.5% – and the upbeat tone in new home construction, and it is obvious that real estate, so long a drag on the economy, has found a bottom and is crawling out of the hole.

But let’s not forget how deep that hole was. Even with June’s gain prices are still about 31% below their peaks, and are not likely to recapture those levels for many a year. Nonetheless the depressing factor that home prices exerted on the economy is abating. That’s good news.

Today’s bad news is that consumer confidence continues to ebb. The Conference Board released its latest survey results this morning – its index dropped to 60.6 in August, a nine month low, compared with July’s 65.4. August’s disappointment continues a downward trend of three straight quarters and suggests that households will be less inclined to spend as the year progresses.

The air of negativity and uncertainty stems from the 42 month long spell of unemployment being above 8%, the lack of wage increases, and the endemic political conflicts in Washington.

The latter ought not be ignored. The collapse of compromise and the unrelenting attacks on Obama by the hard right of the Republican party have produced a pervasive feel of hopelessness across the country. The crisis was met not by an air of cooperation in order to fix the nation’s ills, but by a kind of political trench warfare that engulfed everything. Progress cannot be made until the air is cleared and until the extremists are eliminated from the discussion. Unfortunately that cleansing is not yet underway, although the longer term evidence suggests that this election is likely the high point for the right wing: if they don’t win now they will start to face an ever more difficult fight as demographics shift markedly against them. The extremist libertarian agenda, designed as it is to destroy the American post-war social contract and replace it with a viciously anti-social quasi 1850’s vision that undermines recent gains for women and minorities, is self defeating in face of those demographics. After all it is exactly the groups most hated by the current Republicans who will begin to dominate the electorate beginning around 2020. Many of the more savvy right wing strategists are aware of this emerging problem, but their party, having sold its soul to the religious, libertarian, and racist extremists faces a steep and difficult makeover if it is to return to any semblance of centrist politics. The probability of success diminishes daily as some new face emerges on the right to express an ever more extreme or oddball viewpoint. Meanwhile Romney, who, given the economy, ought to be romping away with the election, is hobbled by the grab bag of positions that clutter his party platform. He has failed totally to face down the right which suggests he cannot govern from the center. This implies that a Romney win will simply invert the current impasse with the Democrats this time playing the role of obstruction. An Obama win, in contrast, holds the vague hope that we may break the deadlock. After all were he to win he can claim to have repudiated the Republican platform and to have won the right to continue with whatever they objected to the most.

The longer the obduracy and hatred persists in Washington the longer it will be before the average voter regains confidence in the political process. This, in turn, prolongs the feeling of malaise, disaffection, and uncertainty.

Which is why we keep getting days like today: full of more mixed messages.

/ , / , , , , , /

It’s The Wages Stupid

Such is the breadth and depth of the Romneyfication of our economy that otherwise sensible people make silly faux pas or repeat false thinking without a hint of knowledge of their error.

Take Sebastian Mallaby for instance. I was pleased with his two recent articles on banking. He offered us all a strident argument for the break up of the biggest. His logic was impeccable. His conclusions irrefutable. Of course this glowing reference of mine might be due to my prior identical argument. So, he rose in my estimation. Only to trip up.

In his article in today’s Financial Times he goes to great lengths to criticize the Fed’s rather anemic approach at present. Despite the manifest failure of its previous efforts to bring down unemployment, and despite the recent gathering of darker clouds portending a weakening of the economy, the Fed is stuck in a dithering pattern. This is largely because there are one or two strict advocates of depression austerity on the board who manage manfully to scupper progress most of the time. I think, also, that Ben Bernanke, being a stout Republican, is loath to do too much to help Obama.

So Mallaby hits away at this ineptitude. Good so far.

But.

Buried towards the end of his article we find this gem:

“Banks, having sold Treasuries, must choose to reinvest the proceeds in riskier assets rather than just adding to their huge cash piles. Corporations, facing lower borrowing costs, must resolve that this is the moment to invest. Consumers, seeing rising stock and bond markets, must summon the confidence to spend. If the Fed won‰Ûªt take the risk of going beyond what it has tried already, private actors won‰Ûªt take risks either. Monetary policy is like faith healing. The patient must believe.”

So. The path to success and to our final breakout from this lingering depression of ours is to engender confidence. That, apparently will solve everything.

No it won’t.

While I agree that confidence play a large role in shaping economic activity via the formulation of expectations and the encouragement of ‘animal spirits’, I am not sure that they are the critical element at play dragging us all down at present.

Ponder, for instance, on the way in which consumers are supposed to get back on track. According to Mallaby they need to see the stock and bond markets in glowing health. That will, apparently, cause them to cast aside their cares and go out on a shopping spree. Only a true child of the Romney era could ever think this. Us less educated types think that the lack of spending power may be a tad more important. And for the large majority of non-Romney people spending power flows from wages not stock or bond appreciation. It is the lack of wage growth for decades now that has caused the seizure of our economic motor, not the failure of stock prices to continue into orbit.

Now, I will grant that the middle class is too obsessed over house prices and that the crash in such prices has a lot to do with the enervation of our willingness to spend. But the reason we are so obsessed is precisely because homes are the largest assets most families own. Not stocks. Where the average family owns stock it is usually tied up in some form of retirement account and is managed by someone else. So whilst the financial media reports every little blip in stock prices, and I am sure many people take notice of them, when pinch comes to shove and a decision to buy something looming, it is cash in the bank that counts more than anything. And, as I have pointed out, that cash is most likely derived from wages.

This is, I am afraid, where the entire Romney generation gets off track. So enthralled are they by shareholder value, rational expectations, efficient markets, and market magic in general, that they entirely miss the point. They have done well. They do, in fact, have stock portfolios. They are concerned over stock prices. They worry about the things that Romney worries about. They have similar educations and world outlooks. They represent the failures of the Reagan/Bush delusion that free markets fix everything. And that for free markets to get on with this fixing of everything all we need is to inject a burst of confidence.

Rubbish.

Cash helps too. In fact it dominates all else.

During the last three or four decades our economy has shifted its weight behind profit and away from wages. It has been Romneyfied. Business firms have defended profit at all costs. They have Romneyfied the economy by gutting, deconstructing, outsourcing, offshoring, breaking contracts,and generally trampling on the workers who, in their role as consumers, those very firms rely upon for sales. It is no surprise therefore for the game to come to an end someday. When workers as consumers have no more cash, or when they have to reduce debt from flat wages, they spend less. Demand falls. Or its growth is meager. All the confidence in the world will not generate a spurt in spending if people have nothing extra to spend.

So it would be nice for confidence to grow. But it would be nicer were wages to grow first. But that means profits would have to fall relatively. And that doesn’t fit the Romneyfied narrative. So we don’t hear people like Mallaby talk about it.

Shame. Those banking articles were quite good.

/ / , , , , , , , /

Weak Sales

The economy has clearly hit a weak patch. Today’s report on retail sales has them falling 0.5% in June. Not only is this much worse than most people had expected – the par expectation seems to have been for growth of around 0.2% – but it means that sales have fallen for three straight months. The last time we had three consecutive declines was in 2008 during the recession.

Obviously this is not a good thing.

The only upbeat aspect of the report is that gasoline sales fell reflecting the recent drop in oil prices. Consumers will benefit from this, but they show no inclination to spend what they save at the pump elsewhere. Very few retail sectors showed any increase, and this that did – clothing, food, liquor, and general internet stores – all made only very slight gains.

Since all three months of the second quarter saw falling retail sales I think it is safe to say that the overall economy weakened from the first quarter’s already weak growth. If the sales figures are reflected in the personal consumption data within the GDP calculation, remember: the relationship is not one-for-one, then they will act a significant drag on growth. Since the first quarter came in at only 1.9%, and rings appear to have slowed down since then, the overall pace will be somewhere in the 1.0% to 1.5% range, depending on how trade holds up, and on how much negative impact comes in from the slowdown in government spending.

The issue then becomes what we can expect for the second half.

At the present pace things are not looking good. There is nothing in the wings with any certainty of turning upthat we can look to as a positive factor. All then risks appear to be on the downside. Our domestic policy possibilities are now highly limited. The election has stalled our already stagnant policy activity. The Fed spoke last week about its concerns, but there are sufficient policy hawks there to stall action until things are much worse. So we are rudderless. Add in the extraordinary self inflicted wounds in Europe and their damage to trade and word business activity, and the range of positives shrinks to negligible proportions.

Given this gloom I think GDP growth of any more than 1.5% is a stretch. This is well below anything that might make a dent on unemployment. Indeed the possibility will emerge, if things stay the way they are, that unemployment could tick up later in the year.

Under normal circumstances such weakness would spell doom for Obama. His weakness in leadership, not so much in action, but in terms of making a strong case for stimulus, ought to bring him down. But Romney represents the past and a continuation of the Reagan/Clinton/Bush obsession with deregulation and market magic. Since it was that obsession that brought us to the crisis, electing Romney would merely postpone the date of recovery by four years. So even with a rotten economy mired in depression it might be that Obama wins re-election. Quite what that means I am not sure. Especially with the strong likelihood of a Republican Congress able to prevent any remedial action being taken.

We are adrift. And we look set to stay that way.

/ / , , , , /

Housing Vagaries

My last post was headlined “Housing Climbing Back”.

Oh well.

So much for that.

Today we learned that pending home sales fell for the first time in four months – the index that measures them dropped to 95.5 in April from March’s 101.1. So we are reduced, once more, to making brave statements about how this reduced level is still above its dismal performance of a year ago. Indeed, so bad has the recent past been that even with April’s decline we are still 14.4% better off than last year.

Was it really that bad?

Yes it was.

We also heard today that the Case-Shiller index of home prices was unchanged in March, and was 2.6% down on last year reaching a new post recession low.

Upon reading this data the stock market went into one of its swoons, as if no one there had realized that the real estate market sucks. So much for efficient hypotheses and other such nonsense.

The endless sideways drift in housing, sideways with a slight upward tilt, is emblematic of our entire economy. Things are getting better, but at such a halting and sluggish rate that it is sometimes difficult to tell in which direction we are drifting. We should expect more bumps as we meander about. Especially in real estate which was at the epicenter of the crisis and which depends so heavily on consumer sentiment and willingness to make longer term bets.

Add in the determined effort in Europe to self-destruct, the slippage in growth in both China and India, and we have a brew supporting low growth here in the US.

Rotten economic policies have real consequences. While we have not been quite as bad as the Europeans – no one surely could – we have done precious little to bolster our economy. Instead we have been content to watch as large chunks of future potential wealth are carved away to produce a diminished trajectory. All those idle resources we seem to be happy to abandon, all that investment we seem to be happy not to make, all that cheap debt we are happy not to borrow, and all those long term unemployed we are happy to impoverish, will come back to haunt future generations of Americans. We decided, carefully, deliberately, and with well thought out precision, to make ourselves poorer.

If you like that scenario – well done.

If you are like me and detest it, then the vagaries in the housing market are just one more emblem of the utter failure of our elite to provide us with assured, strong, and capable leadership.

Sad.

/ / , , /

Housing Climbing Back

I would be remiss if I passed on making a quick comment regarding real estate. The steady climb back continues.

This is not a rapid recovery, but it is consistent and prolonged. Sales of existing homes rose 3.4% in April, making it the tenth straight month of growth, and bringing the level of activity to 10% higher than a year ago. What’s better is that the portion of activity represented by distressed sales has shrunk, leaving regular sales as the driver of growth.

All this is good news.

There is one oddity in April’s numbers: prices rose 10% over last year’s level. While it helps to get house prices to level off and to stop falling, it cannot help if they suddenly start a renewed boom. That won’t happen while so many households continue to reduced debt, but we need to keep a sharp eye on these numbers over the upcoming selling season. The decline in distressed sales will have caused prices to appear to jump simply by removing those houses with depressed prices. As that distressed inventory is reduced further we may well see one or two more months of apparent price spikes as the statistics start to reflect only “normal” sales.

It seems that sellers are getting the message: the number of homes available for sale rose also, with the unsold inventory now standing at 2.45 million homes, or between six and seven months of sales at the current pace.

Of course all the normal caveats apply: the level of sales is still way below its peak, and is also way below where it would be were the economy ticking along smoothly.

But let’s not naysay.

Things are getting better.

< 1 2 3 4 5 >»