Editore"s Note
Tilting at Windmills

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January 27, 2006
By: Kevin Drum

FOURTH QUARTER GROWTH....Hmmm. Economic growth was an anemic 1.1% in the fourth quarter. It would have been even worse except that businesses were busily building up their inventories in the hopes that someone will buy all their stuff next quarter. Maybe.

No one seems to be very upset about today's announcement, even though 1.1% is way below the consensus forecasts of 2.8%. It's not entirely clear to me why. With oil still over $60 per barrel, the housing market starting to cool a bit, and household debt still at record levels, it's hard to see just where the consumer demand is going to come from to get things back on track. Perhaps the blogosphere's economists can weigh in to reassure me.

Kevin Drum 1:07 PM Permalink | Trackbacks | Comments (85)

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Frist?

Posted by: scott herbst on January 27, 2006 at 1:11 PM | PERMALINK

At least the S&P 500 is below where it was when W took office.

None of us need to retire, anyway! And we got a few bucks from a tax cuts.

Time to welcome our Chinese overlords.

Posted by: Gore/Obama '08 on January 27, 2006 at 1:16 PM | PERMALINK

No one seems to be very upset about today's announcement, even though 1.1% is way below the consensus forecasts of 2.8%. It's not entirely clear to me why.

Very simple reason. The report you're talking about is only a preliminary estimate based on incomplete data. It's expected when we get more data, we'll revise the GDP growth to be much higher. As Senator Robert Bennett pointed out

"GDP Growth Rate Slows to 1.1% in the Fourth Quarter of 2005

The Bureau of Economic Analysis released an advanced, estimated measure of inflation-adjusted (real) gross domestic product (GDP) for the fourth quarter of 2005. The complete text of the release can be found at http://www.bea.doc.gov/bea/dn/home/gdp.htm. In the 3rd quarter of 2005, real GDP grew at a 4.1% annualized rate. Fourth quarter growth was substantially lower than the consensus expectation of 3.0% due largely to an unforeseen drop in government defense spending. The BEA also emphasized that the advanced estimate was based on data that is either incomplete or is subject to further revision. Many analysts expect fourth quarter GDP to be revised upward in the preliminary release scheduled on February 28, 2006. "

Posted by: Al on January 27, 2006 at 1:17 PM | PERMALINK

My money tree should come in handy this year.

Posted by: Mitch on January 27, 2006 at 1:17 PM | PERMALINK

tax cuts? what if we eliminate taxes on the wealthy altogether and actually start paying them? that'll stimulate the economy.

Posted by: mudwall jackson on January 27, 2006 at 1:18 PM | PERMALINK

I thought lefties didn't care about growth. I thought they just cared about jobs.

And new jobless claims have been incredibly low lately. (283,000 last week and 272,000 the week before - remember than anything under 350,000 indicates an expanding job market.)

I know what Kevin's point is - he'll post whatever the bad news at the moment is... and ignore the good news. If growth is incredible, he'll post about the job market. If the job market is rocking, he'll post on growth.

Who was it that said that Dems were just rooting for a bad economy?

Posted by: Al on January 27, 2006 at 1:20 PM | PERMALINK

It's nice to see Wall Street going crazy with this good news, like hyenas howling over the carcass.

Posted by: brewmn on January 27, 2006 at 1:22 PM | PERMALINK

Perhaps, the market expects that these numbers will be revised upwards later.

Let me add to your list of other sources of potential drags on the economy:

- Potential conflict with Iran and its effect on oil prices
- Slightly decreased military spending in 2006 as US starts to wind down its military operations
- Severe cuts from GM/Ford (> 100,000 manufacturing jobs will be cut by just these two companies, and these workers probably may not find a job where they can apply their lifelong skills)
- Increasing trade/budget deficit

Let us hope that the hurricane season in 2006 is less disruptive than 2005.

Kari

Posted by: Kari on January 27, 2006 at 1:24 PM | PERMALINK


Wall Street is happy, because slow growth discourages the Fed from making further increases in the Fed Funds rate.

Posted by: Ottnott on January 27, 2006 at 1:24 PM | PERMALINK

Couple that anemic growth scenario with this commentary earlier this week by the head of a major national trucking company. I don't know what reasons he has for his projections, but he seems pretty certain:

American Shipper/Internet - 1/26/06
Schneider Warns of Severe Recession and Truck Shortage:
The United States economy is headed for a severe recession within 18 months, and when it finally rebounds shippers will end up paying much higher rates for trucking because the contracted industry fleet will be unable to meet demand, predicted Noel L. Perry, the chief economist at giant motor carrier Schneider National. Speaking on a panel at the Transportation Research Board's annual conference in Washington, Perry boldly stated that the nation will soon experience its "worst recession since 1983," adding in response to questioning that he would even put down money on the likelihood of a severe downturn in the economy.

Posted by: dweb on January 27, 2006 at 1:27 PM | PERMALINK

I thought lefties didn't care about growth. I thought they just cared about jobs.

Yes, Al, but you know that one about 2,200 dead soldiers and we don't even get cheaper oil out of it? This is like that. If you can't hang on to American jobs, and you claim you're shedding them to encourage "productivity" and "growth", then the least you could do is come up with the growth.

It's not like anyone wants a gang of robbers to be able to shoot straight, but there's an extra level of pathetic when they can't even do that competently.

Posted by: derek on January 27, 2006 at 1:27 PM | PERMALINK

With jobless claims at incredibly LOW levels, we should also worry about the bursting of the housing bubble... NOPE!

"New-Home Sales Hit All-Time High in 2005

By JEANNINE AVERSA
The Associated Press
Friday, January 27, 2006; 12:39 PM

WASHINGTON -- New-home sales for all of 2005 climbed to an all-time high, marking the fifth year in a row of record sales.

The Commerce Department reported Friday that sales of new single-family homes clocked in at 1.28 million units last year, representing a 6.6 percent increase over last year's 1.20 million units, the previous all-time high.

Sales of new homes as well as existing homes _ the biggest chunk of the housing market _ have logged records five years running.

In December, new-home sales rose 2.9 percent from November's pace _ defying analysts' expectations for sales to go down last month."

http://www.washingtonpost.com/wp-dyn/content/article/2006/01/27/AR2006012700568.html

Damn that crappy economy... incredibly strong job growth AND record sales of new homes!

Posted by: Al on January 27, 2006 at 1:31 PM | PERMALINK

SLow growth helps the global warming problem, well, as long as we declare a consensus.

Posted by: Matt on January 27, 2006 at 1:32 PM | PERMALINK
I thought lefties didn't care about growth. I thought they just cared about jobs.

We actually care about the distribution of gains and losses; both growth and jobs (and wages and...) are (individually, rather limited) measures of part of that complex picture.

Posted by: cmdicely on January 27, 2006 at 1:36 PM | PERMALINK

Dear Al:

Well known Maoists such as Barry Ritholtz (The Big Picture) have pointed out that this "recovery" is almost entirely supported by mortgage equity withdrawals. Wages are stagnant and income/wealth disparities are rising at a staggering rate.

See also Comrade Robert Rubin's Op-Ed in the Wall Street Journal wherein he also emphasizes the above and notes that income disparities impact us all, no matter what your bank balance. As Henry Ford first noted, you can't have a booming economy without a middle class able to buy the products it makes.

Instead we have a "Company Store" economy (a la Tenessee Ernie Ford) entirely driven by a consumer using mortgage equity withdrawals and credit cards to keep up the dizzying cycle.

This "recovery" ain't got no legs underneath it, it can't continue indefinitely and other than the Larry Kudlow cheerleader types, most analysts get this.

Posted by: Amur on January 27, 2006 at 1:41 PM | PERMALINK

a lot of big companies put out strong earnings this past week or so. look at what the Dow has done in response - up like 300pts this week.

stocks are rocking right now, no need to worry about mundane things like jobs.

Posted by: cleek on January 27, 2006 at 1:41 PM | PERMALINK

The reason no one seems to unhappy about the announcement is very simple; it gives the Fed 1 more reason to slow down the increase in interests rates. Any slowdown in those increases is good for the markets and the people in them.

Posted by: Balta on January 27, 2006 at 1:43 PM | PERMALINK

Don't ya know, Kevin, that this is the greatest economic news ever?

Why do you have to be pessimistic about what is really evidence that the economy is booming?

Posted by: rdw mockery on January 27, 2006 at 1:43 PM | PERMALINK


the future will be better tomorrow.


this ride in a handbasket is fun!!!!!!


Posted by: thisspaceavailable on January 27, 2006 at 1:43 PM | PERMALINK

Hey that's great Al. Why, unemployment is almost down to where it was halfway through Clinton's term, although of course nowhere near as low as it was when he left office.

And, of course, jobs don't pay as well any more. Or offer as much health insurance. But hey, they're jobs, right?

Yeah, your boy sure has done great work on the economy. Heck of a job, Georgie!

P.S. Where are you getting those weekly unemployment claims numbers? I'm not seeing them at the BLS.

Posted by: S Ra on January 27, 2006 at 1:46 PM | PERMALINK

I think what we're seeing is that the US lifestyle (remember the one that Cheney said was "non negotiable") is two extravagant for the economic value the US economy produces. Let's put it this way, does the average US worker really produce so much more than the average EU worker. Yet we live in houses that are about twice the size, have more and bigger cars, pay less taxes and have more of everything. Due to outsourcing, off-shoring, lack of R&D and poor education many US workers work in jobs that produce very little (with no long term benefit i.e. retail, real estate agents, mortgage finance, credit, marketing). We've just been living on Chinese credit for the last few years, and just like a wild spender working a low wage job the debt hangover is going to be nasty.

Posted by: Adventuregeek on January 27, 2006 at 1:49 PM | PERMALINK

Well known Maoists such as Barry Ritholtz (The Big Picture) have pointed out that this "recovery" is almost entirely supported by mortgage equity withdrawals.

Really, I swear, every other commercial I see is for Ditech or similar company. That's not the sign of a particularly vibrant economy. And increased jobs doesn't tell me much without knowing what type of jobs, with what pay and benefits.

But hey, let's just cut taxes some more for the Paris Hiltons of the world. Lord knows they need it, and you'd see a boom in the luxury items market that would improve these numbers.

Posted by: Ringo on January 27, 2006 at 1:49 PM | PERMALINK

cleek: Stocks are "rocking" if you are referring only to the last few days. They are not, actually, rocking if you are looking at them over the month, or over any number of recent years.

Posted by: S Ra on January 27, 2006 at 1:54 PM | PERMALINK

S Ra:

http://www.washingtonpost.com/wp-dyn/content/article/2006/01/26/AR2006012600551_2.html

http://news.yahoo.com/s/nm/20060119/bs_nm/economy_dc

Posted by: Al on January 27, 2006 at 1:57 PM | PERMALINK

the dow...

around 1:30 today: 10882


on 1/20/01 : 10587


5-years and an added 3-trillion in federal debt...

the chinese say....its a bargin...

Posted by: thisspaceavailable on January 27, 2006 at 1:58 PM | PERMALINK

After having failed miserably in their pathetic and unsuccessful attempt to tar the Bush regime with their scurillious interpretations of the President's eminently well thought out plan to save us from terrorists by monitoring the calls from Al Queda, the liberals have now turned to telling the Americans that, despite a robust and stellar economy, a single raw statistic is a harbinger of utter doom, gloom and total finanical ruin.

Yup. they will buy it just like they bought the bush lied people died meme in 2004.

Posted by: tbrosz on January 27, 2006 at 1:58 PM | PERMALINK

Kevin Drum needs to get a grip on his constant "the-sky-is-falling" hysteria.

Unemployment is 4.9%, for Pete's sake.

Posted by: GOPGregory on January 27, 2006 at 1:58 PM | PERMALINK

...it's hard to see just where the consumer demand is going to come from to get things back on track.

You mean you aren't getting 3 letters a week from credit card companies offering to defer and transfer your debt... interest free for another two years?

You mean the Home Depots & Circuit Cities near you aren't offering no interest until 2011?

You mean you think this great big hamster wheel of endless consumption that everyone is spinning is about to finally hit the wall?

Posted by: koreyel on January 27, 2006 at 2:00 PM | PERMALINK

shorter GOP trolls:

LALALALALALALALALA! I can't hear you! i'm not listening to you! LALALALALALA!

Posted by: Troll on January 27, 2006 at 2:03 PM | PERMALINK

Just read the previous post by tbroz.

I laughed at the comment about the Democrats always whining about "doom, gloom, and utter financial ruin."

Brings to mind that song from Hee Haw a few decades ago.... ".....deep dark depression, excessive misery.... Gloom, despair, and agony on me."

Posted by: GOPGregory on January 27, 2006 at 2:03 PM | PERMALINK

sorry, that troll was me.

Posted by: D. on January 27, 2006 at 2:04 PM | PERMALINK

executive pay in 2004 rose 15% to an average of $9.6M. There are 20-executives who made over $40M in 2004.

Meanwhile, the pay of the average worker rose 2.9%, to $33,176.

Also, the percent of corporate profits going to the top 5 executives more than doubled from 1993 to 2003, rising from 4.8% to 10.3%.

PERSPECTIVE....In the 70s, the average CEO made something like 40 times the pay of the average worker; in 2000, the average CEO makes 500 times the pay of the average worker.

- Providence Journal 12/17/05

and...

the median keeps falling...

while the poverty rate rises...

trickle that...

Posted by: thisspaceavailable on January 27, 2006 at 2:05 PM | PERMALINK

GOPGregory: So what is it when the Republicans are always whining about "the terrorist threat"?

Posted by: S Ra on January 27, 2006 at 2:06 PM | PERMALINK

Sometimes I'm convinced that Al is a parody and then there are posts like these that suggest "It" is for real.

"The housing boom in the United States is over," said Lynn Reaser, the chief economist for Bank of America's investment strategies group. "It at this point appears to be on the soft-landing plane, with sales slowing, some growth of inventory and sellers not receiving their full asking price."

The economy has become increasingly dependent on the growth generated by home sales, mortgage refinancings, and the related spending on furnishings and other goods. A housing slowdown is figuring prominently into many analysts' forecasts for slower economic growth in 2006.

http://tinyurl.com/csaw9

The GDP numbers are out. Hallucinating that they may be different in the future doesn't change the reality. Often as not they revise down.

Ford is laying off 30,000 workers and closing numerous plants. Wal-Mart took applications for 400 jobs in its new store outside of Chicago and almost 30,000 people showed up to apply. For those that are working wages are way down, while energy and health care costs have skyrocketed.

Posted by: trex on January 27, 2006 at 2:06 PM | PERMALINK

It's expected when we get more data, we'll revise the GDP growth to be much higher. As Senator Robert Bennett pointed out Posted by: Al

As per usual, Al, you have your partisan head up your partisan ass. These are the revised figures, adjusted way down from the nonsensical 3%+ initially cited by the WH.

Posted by: Jeff II on January 27, 2006 at 2:18 PM | PERMALINK

Perhaps the blogosphere's economists can weigh in to reassure me.

Cheer up, Kevin! Durable goods orders are way up. Federal tax receipts were so high in December that the government ran a record surplus (it usually records a surplus in December.) Although housing turnover was much slower than a year ago, prices are up, and short-term mortgage interest rates, for buyers with good credit histories, are still low. The federal deficit is 2.5% of GDP, and when added to the state budget surpluses government deficits are about 2% of GDP, less than for almost all developed countries.

Chinese and other foreign business leaders are sequestering lots of their profits in Swiss and Caribbean bank accounts as insurance against the next possible confiscatory policies of their governments, and the large capital flow is keeping most commercial interest rates low. Should the dollar decline, American investments will be especially attractive, and more of that money will flow in, keeping interest rates low.

You have to quit thinking of economic statistics piecemeal, and instead try to retain masses of them in your mind altogether. There are always flowers among the thorns, and thorns among the flowers.

Posted by: contentious on January 27, 2006 at 2:18 PM | PERMALINK

GOPGreg:
Unemployment is 4.9%, for Pete's sake.

Have you seen the labor force participation rate numbers lately?

Posted by: bg on January 27, 2006 at 2:18 PM | PERMALINK

Tbros would never use the word 'scurillious'. I mean he could use it but he wouldn't

Posted by: cq on January 27, 2006 at 2:18 PM | PERMALINK

But Beijing West continues to thrive - flights in and out of Bentonville are packed.

Posted by: thethirdPaul on January 27, 2006 at 2:27 PM | PERMALINK

Interesting poll results from CNN today:

51 percent of those polled said they were more likely to vote for a candidate in congressional elections who opposes Bush, while 40 percent said they were likely to vote for a candidate who backs the president.

53 percent said they believe his administration deliberately misled the public about Iraq's purported weapons program before the U.S. invasion.

58 percent said Bush's second term has been a failure so far, while 38 percent said they consider it a success.

52 percent consider his entire presidency a failure to date, with 46 percent calling it successful.

64 percent said things in the United States have gotten worse in the past five years, while 28 percent said things have improved.

39 percent considered economic conditions good or excellent, while 59 percent rated the economy fair or poor.

35 percent said they believed the economy is improving; 54 percent said it is getting worse.


It would seem that a majority of Americans are Bush-hating moonbats.

Posted by: SecularAnimist on January 27, 2006 at 2:32 PM | PERMALINK

Hey, if China surpassing us and taking the helm as the #1 economy and superpower of the world can get me some decent General Tsao's, I'm all for it.

This stupid country is crumbling. Pat yourselves on the back, all you republican-voting a-holes.

Posted by: The Tim on January 27, 2006 at 2:39 PM | PERMALINK

Here's an amazing fact about the US economy (thanks to
MaxSpeak
) Since 2001, the US economy has created about 2.0 million jobs. That figure includes 2.8 million government jobs. That's right: the private sector lost 800,000 jobs since 2001, and the only reason that job growth has been positive is because there has been a huge increase in government spending under this conservative, free market, entrepreneurial President.

A little ironical, no?

Posted by: Daryl McCullough on January 27, 2006 at 2:42 PM | PERMALINK

aptly named con: Federal tax receipts were so high in December that the government ran a record surplus (it usually records a surplus in December.)

..

lets add more perspective...

In dollar terms, federal receipts from personal income taxes, at $802 billion in 2004, are still lower than they were in 1998 ($826 billion) and much lower than in 2001 ($994 billion)...

SOURCE: "Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates." - Congressional Budget Office 12/10/05

Federal reciepts (measured in contant dollars) were less in 2004 than 2000

http://www.taxpolicycenter.org/TaxFacts/Tfdb/TFTemplate.cfm?DocID=200&Topic2id=20&Topic3id=23


by the way....

Tax revenues generally hit "all-time highs" on a regular basis because the economy is constantly growing. Like home ownership.

Revenues hit "all-time highs" under Clinton too.

DID YOU KNOW.....Clinton had "all time highs" in Federal tax revenues 8-years in a row, before and after Republican congresses, before and after tax increases.

DID YOU KNOW that Federal tax revenues FELL in 2001, AGAIN in 2002, and DOWN even more in 2003. That hasn't happened since the GREAT DEPRESSION.

DID YOU KNOW....the Republican congress and Republican president are hitting "all-time highs" on borrowing and spending.

Posted by: thisspaceavailable on January 27, 2006 at 2:44 PM | PERMALINK

Al writes: I know what Kevin's point is - he'll post whatever the bad news at the moment is... and ignore the good news.

So what's the good news, Al? The fact that the private sector lost 800,000 jobs since 2001, or the fact that government employment has gone up by 2.8 million since then?

Posted by: Daryl McCullough on January 27, 2006 at 2:46 PM | PERMALINK

Keep your pants on, boys. One slow quarter does not a recession make, as you much as you'd like one before the midterm elections. Most likely, this is the aftershocks of Katrina at work.

Posted by: Leonidas on January 27, 2006 at 2:46 PM | PERMALINK

The Tim wrote: This stupid country is crumbling. Pat yourselves on the back, all you republican-voting a-holes.

You don't need to tell them that. The Bush bootlickers are here gloating over their hero's destruction of America every day.

Posted by: SecularAnimist on January 27, 2006 at 2:50 PM | PERMALINK

Leonidas: Most likely, this is the aftershocks of Katrina at work.

Thanks to anthropogenic global warming, there will be one or more Katrina-sized hurricanes in the Gulf region every year, for the foreseeable future. What then?

Posted by: SecularAnimist on January 27, 2006 at 2:52 PM | PERMALINK

Amur: See also Comrade Robert Rubin's Op-Ed in the Wall Street Journal wherein he also emphasizes the above and notes that income disparities impact us all, no matter what your bank balance.

Comrade Rubin also mentioned the current account deficit. A bit political, since he didn't worry about it when he was SecTreas, but admittedly it wasn't nearly as bad then. Regardless, it's nice to have some big names talking about this (Paul Volcker did a while ago in WaPo).

Adventuregeek: I think what we're seeing is that the US lifestyle ... is too extravagant for the economic value the US economy produces.

Thankfully not quite as bad as you paint it, but are living too high on the hog by 6.5% (the 2005 current account deficit). It will catch up with us.

Due to outsourcing, off-shoring, lack of R&D and poor education many US workers work in jobs that produce very little ...

Produce very little in the way of exportable value.

We've just been living on Chinese credit for the last few years, and just like a wild spender working a low wage job the debt hangover is going to be nasty.

Hear, hear!

Question #1: what happened to Republicans as the party of financial responibility? When did it change to "party today and screw tomorrow"?

Question #2: why are Dems so inept that they can't make a campaign issue out of this (and maybe even do something).

Posted by: alex on January 27, 2006 at 2:52 PM | PERMALINK

nice bite-size pieces, just right for trolls....

.

Inflation-adjusted hourly and weekly wages are still below where they were at the start of the recovery in November 2001.


Median household income (inflation-adjusted) has fallen 5-years in a row and was 4% lower in 2004 than in 1999, falling from $46,129 to $44,389


The indebtedness of U.S. households, after adjusting for inflation, has risen 35.7% over the last four years.


The level of debt as a percent of after-tax income is the highest ever measured in our history. Mortgage and consumer debt is now 115% of after-tax income, twice the level of 30-years ago.


The debt-service ratio (the percent of after-tax income that goes to pay off debts) is at an all-time high of 13.6%.


The personal savings rate is negative for the first time in more than half a century.


happy days are here again....

.

Posted by: thisspaceavailable on January 27, 2006 at 2:54 PM | PERMALINK

Al, is absolutely correct about good news being out there.

Why, Beijing West (W-M division), just opened a new store in Evergreen Park, just outside Chicago's city limits. Created 300 + new "full-time" jobs.

So, everyone in the Chicago area, go out and buy more crap from Communist China. Keep the Red Flag flying!! It's the "American" way.

Posted by: thethirdPaul on January 27, 2006 at 2:55 PM | PERMALINK

From the article:

"Analysts said there are several reasons to expect the economy to bounce back in the first quarter. Government spending should increase because the war in Iraq and the huge investments in hurricane-devastated areas on the Gulf Coast."

So it would seem that there's an up-side to the administration's continued floundering in Iraq & their inability (or unwillingness) to have mitigated the effects a natural disaster. Who knew that incompetence was good for the economy?

Posted by: chaunceyatrest on January 27, 2006 at 3:03 PM | PERMALINK

Shorter Al - If the number of job being lost slows down, that's job growth!

Is the difference between 283K and 272K unemployment applications even outside the margin of error?

Posted by: Crissa on January 27, 2006 at 3:05 PM | PERMALINK

Comrade Rubin also mentioned the current account deficit. A bit political, since he didn't worry about it when he was SecTreas, but admittedly it wasn't nearly as bad then. Posted by: alex

Alex, you are either very young or have no long term memory. We had declining current accounts deficit when Rubin was Secretary of the Treasury. And, as I recall, we ran budget surpluses for five years straight, and we were paying down the national debt. Something put to an end by old Al "Political Weathervane" Greenspan who inexplicably told Congress that paying down the national debt was a bad thing. So, go ahead and cut taxes. Asshole.

We may have had a trade deficit during Rubin's tenure, but that, ultimately, has nothing to do with the government. That is purely a reflection of consumer spending and what your economy is producing.

Posted by: Jeff II on January 27, 2006 at 3:11 PM | PERMALINK

cq:

Tbros would never use the word 'scurillious'. I mean he could use it but he wouldn't

Cripes, I couldn't even spell it!

Posted by: tbrosz on January 27, 2006 at 3:15 PM | PERMALINK

What are the job market participation numbers these years?

Dept Labor doesn't display them anymore...

Posted by: Crissa on January 27, 2006 at 3:17 PM | PERMALINK

The stock market is up, presumably because this low number will persuade the Fed to stop tightening.

Posted by: bob h on January 27, 2006 at 3:42 PM | PERMALINK

Crissa:

Not sure the exact number you're looking for, but you might find it here.

Posted by: tbrosz on January 27, 2006 at 3:43 PM | PERMALINK

interesting...

unadjusted labor participation rates

1995 - 67.1

1996 - 67.2

1997 - 67.5

1998 - 67.3

1999 - 67.3

2000 - 67.3

2001 - 67.0

2002 - 66.8

2003 - 66.5

2004 - 66.3

2005 - 66.3

source: bls.gov

gwb....the master of low expectations again.....

.
DOH!

Posted by: thisspaceavailable on January 27, 2006 at 3:58 PM | PERMALINK

Jeff II: Alex, you are either very young

Old enough to take "very young" as a compliment.

or have no long term memory.

No, at my age it's short term memory that's bad.

We had declining current accounts deficit when Rubin was Secretary of the Treasury.

No, see figure 1 of
http://www.clevelandfed.org/Research/Com2004/1001.pdf

We may have had a trade deficit during Rubin's tenure

The trade deficit is about 90% of the current account deficit. I think you're confusing the current account deficit with the federal budget deficit.

but that [trade deficit], ultimately, has nothing to do with the government.

Which government? It certainly has a lot to do with the Chinese and Japanese governments, whose central banks bought (and in China still are buying) lots of dollars to keep their currencies artificially low. And at home, Rubin was (in)famous as a proponent of the strong dollar. So much for the free market.

Posted by: alex on January 27, 2006 at 4:12 PM | PERMALINK

So we've lost a percent and gained less immigrants.

Interesting...

Posted by: Crissa on January 27, 2006 at 4:14 PM | PERMALINK

(Takng tbroz's link, thanks!)
So in the last five years:

~300,000 Asians have lost their jobs, and lost them again.
~1,000,000 Blacks have lost their jobs (a steadily increasing number.)
~4,500,000 Whites have lost their jobs.

So, to say our unemployment rate is at an all-time low: you're saying we just happened to add six million people to our population in the last five years?

Posted by: Crissa on January 27, 2006 at 4:22 PM | PERMALINK

Question #2: why are Dems so inept that they can't make a campaign issue out of this (and maybe even do something).

Ask Jimmy Carter and Walter Mondale. Treating voters like grown-ups, and laying that unpleasant "Goods and services cost money" line on them, isn't exactly a recipe for political success.

It's hard to beat a party that simply doesn't give a damn, and treats the public treasury like a pinata. And don't talk to me about "moderate Republicans" or "grown-up Republicans" or any of that. Aside from a few high-profile exceptions, they're even more gutless and two-faced than the Congressional Democrats. In any case, they have essentially zero influence in their own, Dixified party.

Posted by: sglover on January 27, 2006 at 4:40 PM | PERMALINK

Moral of the story: You cannot borrow your way to prosperity!!!

Posted by: Stephen Kriz on January 27, 2006 at 4:43 PM | PERMALINK

Crissa:

So, to say our unemployment rate is at an all-time low: you're saying we just happened to add six million people to our population in the last five years?

Actually, if you go by the 2000 census numbers and the best current estimates, I believe it's more like 12 million.

There are now 1.9 million more payroll jobs in the U.S. than there were at the previous all-time high in February of 2001. If another 78,000 jobs are added in January, it will be an even two million.

Posted by: tbrosz on January 27, 2006 at 4:54 PM | PERMALINK

BTW, who said the unemployment rate is at an "all time low?" Not true. Been lower than 4.9 percent many times in our history.

Posted by: tbrosz on January 27, 2006 at 4:56 PM | PERMALINK

just to correct one aspect of our buddy Al, there is not strong job growth. Strong job growth would have been what bush promised the 2003 tax cuts would create: 5.5M new jobs between july 1, 2003 and december 31, 2004. here we are, one year on, and 1M jobs short.

alex, whatever in the world makes you sneer at a strong dollar? A strong dollar is an excellent idea and much to be desired. The reason that Rubin didn't worry that much about the current account deficit during his tenure was that he was busy worrying about the fiscal deficit: plug that, and you go a long way towards plugging the current account deficit.

as for kevin's initial point, after-tax debt service is at an all-time high as a percentage of household income. real wages are declining in 80% of american households. Health care coverage has now fallen below 60% of workers, and costs for that coverage are up. The bankruptcy bill increased the monthly minimum payments on credit cards. Home equity lines of credit interest rates are ratcheting up, sharply crimping that form of household liquidity. Higher oil prices look here to stay.

in short, it is hard to see where consumer demand is going to come from.

Posted by: howard on January 27, 2006 at 5:00 PM | PERMALINK

sglover: Ask Jimmy Carter and Walter Mondale. Treating voters like grown-ups, and laying that unpleasant "Goods and services cost money" line on them, isn't exactly a recipe for political success.

It's all in how you phrase it. Emphasize the things people want to hear (eg America needs to be productive, and it can't be if we're shipping jobs and factories overseas) more than the things they don't like to hear (eg we have to spend less).

It's hard to beat a party that simply doesn't give a damn

I think that, if the media hits them over the head with it enough, people appreciate the need to be responsible. IIRC polls showed that most people would have preferred cutting the budget deficit to more Bush tax cuts. Of course the budget deficit gets much bigger headlines than the trade deficit, even though the trade deficit is about twice as big.

Posted by: alex on January 27, 2006 at 5:39 PM | PERMALINK

No, see figure 1 of
http://www.clevelandfed.org/Research/Com2004/1001.pdf

Yes we did because we had both declining trade and budget deficits, which, while lumped together, are independent of one another.

Which government? It certainly has a lot to do with the Chinese and Japanese governments, whose central banks bought (and in China still are buying) lots of dollars to keep their currencies artificially low.

That would be the federal government. State and local governments rarely run deficits significant enough to affect the national economy, even in the aggregate, and many run surpluses as often as they run deficits.

However, the Chinese and Japanese aren't buying dollars per se. They are buying U.S. Treasury issues in dollars. Big difference as this involves increasing U.S. government debt. This is discreet from personal and national debt, which comprise the trade deficit (the measure of national consumption beyond what our national economy sells to other countries).

Anyone can buy and sell (most currencies). The yuan is not undervalued because the Chinese are buying dollars. It is undervalued because the Chinese government won't let it float. That being said, the international currency market has been so large for more than a decade now that no government can significantly effect it's currency value for any length of time before the market "corrects" this intervention.

Posted by: Jeff II on January 27, 2006 at 5:48 PM | PERMALINK

howard: alex, whatever in the world makes you sneer at a strong dollar?

A strong dollar is great unless it's so strong that you run a big current account deficit.

The reason that Rubin didn't worry that much about the current account deficit during his tenure was that he was busy worrying about the fiscal deficit: plug that, and you go a long way towards plugging the current account deficit.

Reducing the budget deficit helps to reduce the C.A. deficit, but it's only one factor. Our C.A. deficit was climbing when we ran budget surpluses.

See figure 1 of
http://www.clevelandfed.org/Research/Com2004/1001.pdf

Our C.A. deficit was climbing through the Clinton years, and has continued to climb through the Bush years. Would Clinton/Rubin have done something about it if they were still in office? Who knows. But I do know that Bush doesn't give a shit about it.

Posted by: alex on January 27, 2006 at 5:57 PM | PERMALINK

Jeff II: we had both declining trade and budget deficits

Take another look at the graph. We had an increasing trade deficit.

while lumped together, are independent of one another

They're only lumped together in the sense that they interact. Hence the term "twin deficits".

the Chinese and Japanese aren't buying dollars per se. They are buying U.S. Treasury issues in dollars. Big difference

No difference. "Buying dollars" is just a figure of speech.

as this involves increasing U.S. government debt

Even if US gov't debt were decreasing their would still be plenty of dollars (treasury securities if your prefer) to buy. The US federal debt is $8T. The Chinese have "only" about $1T, so that leaves them plenty to play with.

Even if there was no federal debt, nothing stops China or other countries (via either their central banks or private means) from buying state, local or corporate bonds or all manner of other investments.

The yuan is not undervalued because the Chinese are buying dollars. It is undervalued because the Chinese government won't let it float.

Both. The yuan is still effectively pegged to the dollar, so they buy dollars to defend their peg (ie keep the dollar from falling to the point where they'd have serious problems with a pegged yuan or have to unpeg it).

Also, the yen floats, but Japan bought plenty of dollars to keep it low. Admittedly the BoJ stopped buying last spring, but AFAIK they're still not selling.

That being said, the international currency market has been so large for more than a decade now that no government can significantly effect it's currency value for any length of time before the market "corrects" this intervention.

How long is "any length of time"? China is now spending 15%/GDP buying dollars, so they're working pretty hard it. Eventually it will have to give, but how much damage will have been wrought?

Posted by: alex on January 27, 2006 at 6:25 PM | PERMALINK

alex, let's put this differently: i don't care about a current account deficit if it's not funding the federal government. i'll take the benefits of the strong dollar over the potential risks of a capital-flow driven current account deficit.

Posted by: howard on January 27, 2006 at 7:08 PM | PERMALINK

"I thought lefties didn't care about growth. I thought they just cared about jobs.
Posted by: Al on January 27, 2006 at 1:20 PM | PERMALINK


Al, despite all our talk and explanations you refuse to listen. Has it ever occurred to you that you're deaf or something?

We care about growth -- but we would also like some of the growth to get passed around to more than 1% of the people.

Posted by: MarkH on January 27, 2006 at 7:24 PM | PERMALINK

'Al' posted:

"Sales of new homes as well as existing homes _ the biggest chunk of the housing market _ have logged records five years running"

You omitted that bankruptcies and home forecloses have logged record highs five years running.
.

Posted by: VJ on January 27, 2006 at 9:42 PM | PERMALINK

'GOPGregory' posted:

"Unemployment is 4.9%, for Pete's sake."

6.6% if the National Labor Participation Rate was where it was in 2000, but there are less workers in the national workforce now than then.
.

Posted by: VJ on January 27, 2006 at 9:46 PM | PERMALINK

Interesting reading about all of the new jobs being created and then watching Lou Dobbs today. Yeah, a lot of LOWER paying jobs are being created. Let's see - Lose a 40 to 50 thou job with benefits, including health care, but pick up for somewhere in the lower 30s, with no bennies - Right TBrosz, great tradeoff.
Productivity is rising - wages are falling, the middle class is slipping further behind - credit holding this "great economy" together - WOW, this is really a great ride - No Bumps ahead, for sure, for sure - When this Bubble bursts, watch out. Who the hell is going to buy all of this great productivity?
As I posted earlier, the airport at Bentonville (Beijing West) is booming.

Posted by: thethirdPaul on January 27, 2006 at 10:28 PM | PERMALINK

Alex wrote this: Produce very little in the way of exportable value.

I don't know why people keep writing this. The US exports more manufactured goods than any other single nation. Jet aircraft and turbine engines, automobiles, communications equipment and fiber optic cable.

Manufacturing is growing faster in the red states than the blue states, which may be why liberals think that manufacturing is declining: it's declining where they live and vote.

The US economy has its problems, but actual declines in manufacturing are not among them. We could use more entrepreneurs and engineers, but I doubt that's what liberals really want. Liberals want further increases in the cost of US manufactures. If only we could induce China to impose costly regulations on its industries to clean up water and air.

Personally, I wouldn't want to be living in China holding US government bonds. When the dollar declines, they won't be worth much, except possibly for investing in the US export-oriented industries.

Posted by: contentious on January 28, 2006 at 12:29 AM | PERMALINK

thisspaceavailable on January 27, 2006 at 2:44 PM,


all good points except the "constant dollar" bit. There is unfortunately no such thing. A much depreciated $1,000,000 can buy much more music than it could in 1965, and it can buy much more computing power. When the costs of goods that are bought by people in middle income brackets falls faster than the median income, the people in the middle income brackets are acquiring greater material wealth.

Kevin asked for reasons not to be dejected, and I gave him some. Perhaps you wish him to remain dejected. I warned of thorns among the roses, and you highlighted some of the thorns.

Posted by: contentious on January 28, 2006 at 12:36 AM | PERMALINK

Question #2: why are Dems so inept that they can't make a campaign issue out of this (and maybe even do something).

Ask Jimmy Carter and Walter Mondale. Treating voters like grown-ups, and laying that unpleasant "Goods and services cost money" line on them, isn't exactly a recipe for political success.

It's hard to beat a party that simply doesn't give a damn, and treats the public treasury like a pinata.
Posted by: sglover


"The men American people admire most extravagantly are the most daring liars; the men they detest most violently are those who try to tell them
the truth."-H. L. Mencken

Posted by: CFShep on January 28, 2006 at 7:43 AM | PERMALINK

To contentious:

You got a late response in another thread about your claim of the US being the biggest exporter of manufactured goods.
Please explain to me.
For what I know, Germany (84M people!)is the biggest exporter way ahead of the US.
China is 3rd, and will go ahead of the US very soon.

Posted by: Le passant on January 28, 2006 at 8:57 AM | PERMALINK

The facts don't bear out Al's contention about incredibly strong job growth, except for 2005, when it was good, but not i.s.j.g. Just one good year out of five for young Bush.

You can check the data at the Bureau of Labor Statistics:
http://www.bls.gov/webapps/legacy/cpsatab1.htm

Posted by: Bob M on January 28, 2006 at 9:22 AM | PERMALINK

Le Passant,

Unless things change, I am sure that China will soon indeed be the world's biggest exporter.I don't know where I read that the US was the world's largest exporter of manufactured goods, but it was recent and reliable (i.e., possibly incorrect, but something like The Economist or The Financial Times who are usually right about numbers.)

I read, and this might be less reliable, that the Chrysler-Daimler plant in S. Carolina exports more Mercedes Benzes than Germany does.

Posted by: contentious on January 28, 2006 at 12:08 PM | PERMALINK

oops, that's Daimler-Chrysler

Posted by: contentious on January 28, 2006 at 12:09 PM | PERMALINK

Hold on a sec. Most economists, including this one, actually expected a much higher level of inventory investment. This actually is what the great majority of the differential consisted of. Inventory investment was tens of billions below its historical norm. Also, remmeber that the personal consumption component of the GDP report was stronger than the 0.4 pct point consensus. Yes, 1.1 percent increase in PC is nothing to get excited about, but the spike in energy prices, residual effects of the hurricanes (especially on the trade front, when we had to import more as a result of the hit to energy production in the Gulf after the hurricances), a sharp decline in motor vehicles sales that most expect to be temporary, and a very odd and wholly unexpected decline in defense spending, make this number one to take with a grain of salt, and not necessarily a harbinger of poor growth to come. Economic fundamentals look relatively sound.

That said, it is a low number, and fears of a slowdown are not entirely unjustified. Economic forecasting is, after all, a dangerous business. The real dangers to the economy, as many in this thread have pointed out, seem to really be the following:

1. Perpetually higher energy prices, which will cut into personal consumption and business investment and worsen the trade deficit if the dollar doesn't depreciate.

2. A real, national slowdown in housing, which could hit consumption heavily. The (negative) wealth effect here is the most likely candidate, but a decrease in the growth rate of spending as a result of lower mortgage equity withdrawl as housing values level out or fall, is a possibility, albiet probably not one with a substantial magnitude. However, remember that housing markets are decidedly regional, and interpreting macro housing indicators is a tricky business. Plus, housing indicators on a national level are giving very mixed signals about the degree of a slowdown, if any. For example, starts have been weak, but new home sales are still high.

3. Greater past structural drags in the economy than has been previously assumed. By this, I see the chief candidate as being weak business fixed investment. BFI has consistely been underperforming this business cycle, regardless of very strong corporate earnings, and this is a trend that many have expected to reverse. However, if it doesn't, this could continue to be a drag on growth more than many expect. A decline in consumer confidence as a result of the most recent spike in energy could help prevent BFI from coming back to trend by cutting into business expectations for consumption.

4. A "hard landing" on the trade deficit. Almost all agree that the current rate of increase, and even the level, of the current account is unsustainable. A key question, however, is the following: how likely is it that this characteristic of our economy will undergo a sharp correction, rather than equilibrate more slowly over time? Here's one scenario: the way in which our current account is financed, i.e. through capital inflows from foreign institutions and individuals, undergoes a shock. For example, it is unclear exactly how much of this financing is coming from the official institutions (especially Asian central banks) that are accumulating US assets. No one doubts it's a large number, ut exactly what portion of the CA it's financing is unclear. To some degree, at least, it appears to be holding US interest rates (especially long-term ones, many suspect) down more than they otherwise would be. Indeed, this is one partial explanation that has been offered for the "conundrum" of the low level of long rates. Many suspect, and this was reinforced by a stunningly strong op-ed by renouned Harvard economist Martin Feldstein in the Financial Times a few weeks ago, that the level of foreign official holdings of US assets consists of an overwhelming portion of the total flow of capital from abroad. To the extent that this is the case, should China, for example (the composition of whose foreign reserves portfolio is alrgley unknown), decide to quickly diversify its assets into other currencies more than it is now (esp. the Euro), this could cause a spike in US rates, thereby depressing domestic investment (and exacerbating any decline in housing!!!!). It would also cause the dollar to weaken, obviously, thereby leading to a surge in import prices and thus more burden on the consumer (and perhaps even more inflation fears from the Fed). Our exports would be cheaper in local currency terms, so our trade deficit might be further helped if you belive the J-curve), but the contribution to growth from a less-drastic "drag from trade" would be greatly offset by reductions in business investment and consumer spending on domestic goods. The big thing that missing from this discussion, however, is that China, Japan, and other Asian countries whose central banks are so actively purchasing US assets have no desire, of course, to see the domestic currency value of their US dollar denominated assets drastically decline. And a depreciation of the dollar would do just that! Also remember that the dollar is the international "vehicle" currency: it's actively exchanged on a dail level in mind-boggling amounts, and indeed is used as an intermediary for FX trading all around the world. It's stable value is a necessary component of the global economy as we currently know it, so global growth (and China depends on that more than anyone with the amount they export) is dependent on a stable dollar to a large degree....So a big depreciation of the dollar as a threat to the US economy? I see it as unlikely. The US is more likely to have a soft landing on the current account front, with the dollar undergoing a gradual depreciation as the Fed's cycle of interest rate hikes comes to an end, fueling a gradual decline in the trade deficit over time. No one gets too hurt too quickly that way. But you never know...

5. A quick worsening of domestic financial conditions. This is very related to #4, where in our scenario rates rise sharply as a result of a redistribution of assets among foreign institutions. But we could see an increase in the risk premium in US assets, especially as more economic uncertainty enters the picture. This would lead to higher borrowing costs. Should this happen in conjunction with the above scenarios (and one could trigger another -- esp on the housing market front), we could be in for a real slowdown. However, I see a dramatic rise in risk premia as unlikely, as least at the degree that would slow down growth substantially. And remember, people at the Fed are more worried about above-trend growth continuing, rather than below-trend, even after the poor Q4 GDP number...

But remember, we have good monetary policy, and a history of very stable growth in the last 20 years. Yes, the Maestro is leaving, we should be in good hands with Ben Bernanke at the healm.

Oh, and a more responsible fiscal program would help too, to say the least...

Posted by: EconoMike on January 28, 2006 at 1:01 PM | PERMALINK

100 years ago it took nearly 50% of the population to "manufacture" our food supply. Today only 5% or less is needed.

The same thing is happening today in manufacturing in general. Fewer workers are needed to produce more goods, leading to the impression that manufacturing is declining in absolute terms.

That doesn't factor in the outsourcing problem, which is not an impression, but reality.

That double whammy is why our median salaries and account deficits are moving in opposite directions.

Posted by: gs on January 28, 2006 at 1:05 PM | PERMALINK




 

 

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