Last week I detailed how air, trucking, and rail shipping is down 20% year-over-year. Global trade is down about 30% in the major exporting countries ...
Last month saw the number of unemployed rise by 345,000. What was not in the headline data was that 217,000 of those jobs were estimated from the "birth-death" ratio. ...
In other words, the Bureau of Labor Statistics (BLS) entered an estimate that 217,000 new jobs were created. Does anyone really believe that? Without that fudge factor, unemployment rose by 562,000!
In earlier recessions hiring picked up as manufacturers expanded production. In a service economy the re-hiring process is much slower. That's what happened in 1992. The nationalization of the US auto industry does not bode well for a consumer-led manufacturing recovery.
... should labor market conditions instead proceed along the path taken in the 1992 recovery, the unemployment rate could peak close to 11% in mid-2010 and remain above 9% through the end of 2011."
That is not in any Congressional budget forecast. Want to run an election campaign at 10% unemployment levels?
... 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-World War 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."
Thanks to the fear of losing their homes and jobs people are increasing their savings at an incredible rate.
From a negative 3% in late 2005 (the result of massive borrowing, primarily mortgage equity withdrawal and credit cards), we have risen to a positive 6.9%. That is the highest rate since 1993.
It bears repeating: the recovery will not be on the backs of the consumer. And with credit hard to find and even harder to get, it will be slow to come from industry.
Final thought for today. The Congressional Budget Office released another report this week, saying that the current deficit levels are unsustainable. They suggest that either taxes must increase by $440 billion or spending must be cut by a like amount, or some combination. If you assume some of the new health-care and other programs are enacted, the number comes closer to $700 billion.
This is not a Congress that wants to cut other parts of the budget by $700 billion. Raising taxes by $700 billion (over 4% of GDP) will dip us back into recession. Not raising taxes will result in debt that cannot be funded at anywhere close to today's rates. A recent IMF study is very sobering about the worldwide problem of growing country debt. Finding a trillion dollars in the market every year, when every other country is also trying to raise debt is simply not going to happen. It will destroy the dollar. There are few good choices in front of us, and fewer still good choices that are likely.
Team Obama, Pelosi and Reed are Mad Hatters that have seized the wheel of the ship of state and have no idea of the carnage they are unleashing on the American economy. Over the next year they are going to push and pull on economic levers and they will find them disconnected. Forget about the economy returning to normal. We are facing a New Normal and God help us because the government can't.