Tag: Indicators

How Bad Can The Economy Get?

This was from an article written in the WSJ by Mark Gongloff.

A full year into the miserable journey of the credit crisis, the economy and financial markets have come to a crossroads, beyond which lay several possible destinations, not all of them pleasant.

So far, despite bank losses of some $400 billion, a crumbling housing market and oil prices at $130 a barrel, the economy has managed to avoid a deep recession — at least according to the common definition, which is two quarters of negative gross domestic product growth.

But federal tax-rebate checks have supported consumer spending, which drives 70% of the U.S. economy. That jolt will soon fade, potentially leading to a hangover.

A resilient export sector — driven by a weak dollar that makes U.S. goods cheaper and more competitive overseas — has also kept the economy going and lifted the profits of many multinational corporations. But several big overseas economies are starting to feel the bite of inflation and the troubles in the U.S., and their appetite for American goods might wane.

Meanwhile, major U.S. stock indexes remained near bear-market territory despite a big drop in oil prices that sparked an impressive three-day rally. The Dow Jones Industrial Average rose 396 points, ending the week up 3.6%. The Nasdaq and S&P 500 also rallied last week.

As heartening as last week’s turnabout in oil prices was, however, the economy is still a long way from healthy. And there could be a lot more stock-market pain to come.

I would expect the WSJ to paint a fairly optimistic view of the economy, but if you live on Main Street in Poodunk, USA–the rosy is just not gonna explain why you are losing the house and cannot feed the kids.

Does This Look like A Strong Economy?

The economy showed the depth of its twin problems on Tuesday, slow growth and rising inflation, as the nation wrestled with a teetering financial system, a slumping dollar and rising prices for food and fuel.

The Labor Department reported that soaring costs for gasoline and food pushed inflation at the wholesale level up by a bigger-than-expected 1.8 percent in June, leaving inflation rising over the past year at the fastest pace in more than a quarter-century.

Over the past 12 months, wholesale prices are up 9.2 percent, the largest year-over-year surge since June 1981, another period when soaring energy costs were giving the country inflation pains.

Core inflation, which excludes energy and food, was better behaved in June, rising by just 0.2 percent, slightly lower than expectations.

A separate report from the Commerce Department showed that all the economy’s problems were weighing on the consumer. Retail sales edged up by a tiny 0.1 percent in June, weaker than had been expected, as consumer spending was held back by a sharp plunge in sales at auto dealerships.

The weak retail sales performance was a bad sign for future growth, given that it came in a month when the government was pumping out another $28 billion in economic stimulus payments, bringing the total payments to $78 billion at the end of June. Analysts said even this massive infusion of government support was not enough to overcome all the problems weighing on consumers.

If you listened to the speech today by the Prez then you should be thoroughly confused.  Who to believe?  The stats or a person trying to play a political card?

Social Misery Approaches

Millions of people in the US, and not merely those with the lowest incomes, are being hammered by a combination of job losses, rising prices for basic items such as food and gasoline, and the drop in the value of their homes.

Home prices continued to fall last month, according to the S&P/Case-Shiller home-price indexes, a widely followed measurement. In 20 US metropolitan areas home prices declined in April by the most on record, 15.3 percent from a year earlier, following a 14.3 percent decline in March. The drop in prices has erased gains made since 2004.

The figures for selected major metropolitan areas are staggering. Las Vegas and Miami saw annual price declines of 26.8 percent and 26.7 percent, respectively.

Meanwhile, now that the warmer weather is upon us, combined with the growing economic distress, private utility companies are cutting off electricity and natural gas at rates 15 percent higher than last year. There are restrictions on the ability of the utilities to halt service to homes during the winter months.

USA Today reported Tuesday that “utilities are disconnecting many more customers who fall behind on their bills, and even moderate-income households are getting zapped…Totals for some utilities have more than doubled.”

Utility disconnects are up 56 percent for Detroit Edison; more than one in five of its customers were behind in their electric bills in May.

All in all, it’s no wonder then, as the Wall Street Journal reported Tuesday, that “consumer confidence dropped like a stone in June, and expectations hit an all-time low, according to the latest survey from the Conference Board.” Lynn Franco of the Conference Board told the paper, “Perhaps the silver lining to this otherwise dismal report is that consumer confidence may be nearing a bottom.”

June’s confidence figure, based on a survey of 5,000 households, was the fifth lowest reading ever. Only 11.5 percent of those surveyed said business conditions were good.

One of the most telling social realities, and one with considerable implications, is detailed in the section somewhat blandly entitled, “Heightened Housing Challenges.” The Joint Center study notes that in 2006 nearly 40 million households in the US were at least “moderately cost burdened”—paying more than 30 percent of income on housing—and nearly 18 million “were severely cost burdened (paying more 50 percent)”. The number of severely burdened households “surged by almost four million” from 2001 to 2006, or some 20 to 25 percent.

“The weight of high housing costs falls especially heavily on households in the bottom income quartile. Fully 47 percent of low-income households were severely cost burdened in 2006, compared with 11 percent of lower middle-income households and just 4 percent of upper middle-income households. On average, households with children in the bottom quartile of spenders with severe housing cost burdens have just $257 a month left over for food, $29 for clothing, and $9 for healthcare. With food and energy costs climbing, these households will have less to spend on bare necessities.”

While low-income and minority households have been hard hit, “Affordability problems are edging up the income scale,” the study observes. “A rising number of middle-income homeowners also face cost pressures….For homeowners earning more than the median income, the likelihood of being housing cost burdened nearly doubled between 2001 and 2006.”

The conditions for millions of children are a national disgrace. More than one in six children in the US lives in households paying more than half their incomes for housing. The poorest quarter of American households “spent 32 percent less on food, 56 percent less on clothes, and 79 percent less on healthcare than families with low housing outlays.”

Americans are in dire straits–with the high cost of gas, housing and food–these are essentials not luxuries and there seems to be no relief in sight.  Will the candidates eventually get around to offering real solutions to these problems or will we continue to hear the stuff that does not make sense, it is said to gain votes not solve problems.

When will the American people learn?

The Economy As Of May 2008

All media economic reporters are gonna tell the viewer just how good the economy is, but as usual they are talking to people with NO monetary problems.

A record number of US homeowners faced foreclosure on their properties in May, according to statistics published Friday. That same day, the Bureau of Labor Statistics released data showing a sharp increase in consumer prices for the month of May.

The latest foreclosure data released by the real estate research firm RealtyTrac showed a 4 percent increase in foreclosure filings in May over the previous month, representing a 65 percent increase over April 2007. One in every 519 properties in the US received a foreclosure filing in May.

As homeowners’ wealth plummets together with their home values, the cost of living has continued to increase. Consumer prices increased 0.6 percent in May, or at an annualized rate of 7.2 percent, significantly higher than the 4.2 percent rise seen during the past 12 months. The price increases were sparked by a sharp rise in energy and transportation costs. Energy costs—driven by spiraling oil prices—surged by 4.4 percent in May alone. Transportation costs spiked by 2 percent in May, as airlines and trucking firms passed high oil prices on to their customers.

Despite high “headline” consumer prices, the most recent figures were portrayed as reassuring by economists, who noted that “core” inflation remained under control. Core consumer prices—which are calculated by stripping out food and energy costs—rose only 0.2 percent in May, and in general have stayed at a relatively low 2.3 percent year-to-year rise.

It is important to understand the relationship between the population’s real income and the various measures of prices. Inflation—or more specifically the differential between its core and headline measures—is one of the major indices of the class struggle. From an individual standpoint, “core” (as opposed to headline) inflation is essentially meaningless because, after all, everyone eats and most people drive. But, on a social level, core inflation is more sensitive to wage demands. When rising prices lead workers to successfully struggle for higher wages, producers tend to pass on the extra costs in the price of finished products, thus pushing up core inflation.

If you are a working class occupant, then your economic future is not as rosy as the future for the monied few.