Editore"s Note
Tilting at Windmills

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February 5, 2008
By: Kevin Drum

MORE DOOM AND GLOOM....Despite December's gloomy news, forecasters continued to predict through January that the economy was still expanding. But although the manufacturing sector grew a bit, the much larger service sector took a huge and unexpected nosedive:

On Tuesday, the Institute for Supply Management reported that its January non-manufacturing index slid to a reading of 41.9, from December's revised figure of 54.4....Readings over 50 indicate growth, and forecasters had expected the overall index to have hit 52.5 in January.

....The survey results are "downright disastrous. These are recessionary readings," said Stephen Stanley of RBS Greenwich Capital. "The tea leaves are quickly accumulating. Payroll employment has flattened. The Christmas retail season was weak. Consumer spending seems to have weakened further in January, as auto sales fell noticeably and chain store reports seem to have been quite soft. And of course the housing sector is a mess."

According to ISM, only three industries reported growth in January: Utilities; Professional Services; and Educational Services. The other 14 all contracted, including: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Construction; Accommodation & Food Services; Transportation & Warehousing; Management of Companies & Support Services; Health Care & Social Assistance; Finance & Insurance; Information; Wholesale Trade; Retail Trade; Public Administration; Other Services; and Real Estate, Rental & Leasing.

In other words: it's not just the financial and real estate sectors anymore. Everyone is suffering. Presidential hopefuls take note.

UPDATE: More here from Paul Krugman. This looks ugly.

Kevin Drum 1:58 PM Permalink | Trackbacks | Comments (43)

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Comments

100 years of war should clear that right up.

Posted by: Gore/Edwards 08 on February 5, 2008 at 2:04 PM | PERMALINK

It's all even keel until it isn't.

….Economist Bob Brusca of FAO Economics said he doubted that the U.S. was in recession a week ago, but now he believes there's about a 75% chance that a recession began in January.
"That's what recessions do. They come upon you all of a sudden," he said. "When you look back at history, you're struck by how even-keel it is until the bottom just falls out."….

Posted by: Mike on February 5, 2008 at 2:07 PM | PERMALINK

Only a madman/madwoman will want to be president now.

Whoever gets the whitehouse will be blamed for the shit that will come - their names will forever live in infamy.

Posted by: mili on February 5, 2008 at 2:08 PM | PERMALINK

Yeah, this is like taking a thermometer outside on a hot day to tell you it's hot. No shit it's hot, I'm standing out here sweating!

Posted by: rusrus on February 5, 2008 at 2:08 PM | PERMALINK

Only questions left: length and depth of the recession. I believe we're going back at least to the 81-82 Reagan recession.

And, if either Obama or Clinton gets elected, they might wind up being a one-term president.

Posted by: SocraticGadfly on February 5, 2008 at 2:08 PM | PERMALINK

I fail to see why these numbers would surprise anyone. People have no more house ATM's. They have no money to spend.
So all the sectors will go down. Duh

Posted by: optical weenie on February 5, 2008 at 2:11 PM | PERMALINK

> In other words: it's not just the financial
> and real estate sectors anymore.

Since 2000 our /entire organic economy/ has revolved around building greenfield subdivisions. Everything else has been purchased from China via Wal-Mart and Target. I exaggerate a little, but truly not all that much. Of /course/ when the greenfield subdivision boom collapsed our economy collapsed along with it, including the Wall Street paperpushers who considered themselves so vital.

But go see what happened to anyone who tried to say so on any of the econoblogs since 2002. I had comments arguing this point around 2005 deleted from DeLong's blog in fact.

Cranky

Posted by: Cranky Observer on February 5, 2008 at 2:11 PM | PERMALINK

I am shocked, SHOCKED, to find that gambling is going on here!

Posted by: Quinn on February 5, 2008 at 2:14 PM | PERMALINK

With the recession starting now, we'll be well into it before the next president takes over. He (she) will have 4 years for the economy to improve and take credit for it. This recession is going to be part of Bush's legacy, not the next president's.

Posted by: tomeck on February 5, 2008 at 2:18 PM | PERMALINK

I knew as soon as I saw the December job numbers that we were neck-deep in shit. When the biggest shopping season of the year leads to no increase in people hired, even as seasonal workers, that's a bad, bad sign for a consumer-driven economy like ours.

Posted by: Mnemosyne on February 5, 2008 at 2:20 PM | PERMALINK

Not to worry! Obama will give a speech and all problems will be solved.

Posted by: emmarose on February 5, 2008 at 2:21 PM | PERMALINK

And, if either Obama or Clinton gets elected, they might wind up being a one-term president.

Socratic, if this one is as bad as '81-'83 it will be about three years duration. Since this one has started already, that puts a tentative recovery around the 2010 mid-terms. That's where the trouble might be IMO. But, what are the Republicans going to offer? The MagicMoney™ of tax cuts and borrowing the difference isn't going to work. If anything it will drive inflation even further through the roof. We need to reconvert from a consumption economy. The boomers are just now starting to retire and that will take even more money from consumption-especially with diminished retirements. Medium to long-term investments are needed (energy projects and infrastructure)

Posted by: Doc at the Radar Station on February 5, 2008 at 2:24 PM | PERMALINK

My brother-in-law, who makes parts for cars, says this is a great time to be a manufacturer in the US. He's undercutting everyone in sight.

Posted by: anonymous on February 5, 2008 at 2:28 PM | PERMALINK

The current population will have a difficult time handling the coming long ecomomic downturn. They have no savings and no appetite for unskilled labor. The need to reduce consumption, raise taxes, raise savings and reduce public spending will be very difficult to obtain politically. The planned economic 'stimulus' package will increase the money supply but will not prevent the economy from recession. The next president will have no monetary or fiscal policies available to prevent or limit the economic pain and will probably be the one held accountable for the terrible leadership of W. Bush's presidency.

Posted by: Brojo on February 5, 2008 at 2:44 PM | PERMALINK

Professional services up? I wonder if those are medical services, or bankruptcy attorney fees?

Posted by: corpus juris on February 5, 2008 at 2:53 PM | PERMALINK

Doc you hit it on the head. We need to start building infrastructure we have long neglected.

The irony is that the US consumption economy drove the rise of China and the rest of Asia. Those economies don't have that many consumers of their own. They are going to be in for a rough time too.

Posted by: corpus juris on February 5, 2008 at 2:57 PM | PERMALINK

"Only a madman/madwoman will want to be president now.

Whoever gets the whitehouse will be blamed for the shit that will come - their names will forever live in infamy."

sort of like 1992. i can't remember who it was we elected president that year, but i seem to recall that years of prosperity followed. elections and policies do matter.

Posted by: mudwall jackson on February 5, 2008 at 3:02 PM | PERMALINK

More tax cuts for billionaires!

I almost wish to McCain elected president so that the 50% of the public who voted for Bush finally see the light.

But of course that's wishful thinking, they'll never admit that their favourite son was never qualified to play in the big leagues.

Posted by: ppk on February 5, 2008 at 3:02 PM | PERMALINK

mili,

Whoever gets the whitehouse will be blamed for the shit that will come - their names will forever live in infamy.

That is why it is SO important for those of us who are living the history tell the story honestly in years to come.

I've been fighting Vietnam myths my entire life.

Posted by: Tripp on February 5, 2008 at 3:05 PM | PERMALINK

Also we shouldn't make the mistake of confusing GDP with the wealth of the nation. GDP is sort of a yearly consumption snapshot.

Factors such as an exploding population will increase GDP as more people buy more goods and services, but decrease the wealth of the nation that comprises natural resources such as farmland, oil, air to dump emissions into, etc., especially if you view this on a per capita basis, and resource management is becoming critical.

Posted by: Luther on February 5, 2008 at 3:09 PM | PERMALINK

I almost wish to McCain elected president so that the 50% of the public who voted for Bush finally see the light.

As you said they will never see the light. First they will not want to see the light and second the powers that be will provide them with plenty of excuses so that they will not have to see the light.

The last time something like this happened it took a Depression to cause a revolution. If this recession is controlled it will simply be delaying the inevitable.

My guess is that we will not hit bottom at this time - we've still got farther to fall before we come to our senses. People in the US have absolutely no experience with this situation and they won't shake out of their stupor until it is really bad.

On the plus side a worldwide recession will also delay Hubbert's peak.

Posted by: Tripp on February 5, 2008 at 3:13 PM | PERMALINK

Isn't this Bush's trifecta?: Huge deficits, Bad war, and now tanking economy.

Posted by: Rula Lenska on February 5, 2008 at 3:14 PM | PERMALINK

Don't forget Katrina...

Posted by: Doc at the Radar Station on February 5, 2008 at 3:23 PM | PERMALINK

Don't forget Katrina...
Posted by: Doc at the Radar Station

We already have.

Posted by: thersites on February 5, 2008 at 3:30 PM | PERMALINK

"Whoever gets the whitehouse will be blamed for the shit that will come - their names will forever live in infamy."

On the economic front? Doubtful, given that this is starting so early. The blame is going to rest squarely with Bush.

"When the biggest shopping season of the year leads to no increase in people hired, even as seasonal workers, that's a bad, bad sign for a consumer-driven economy like ours."

I thought that those numbers were specifically massaged to exclude seasonal workers?

Posted by: PaulB on February 5, 2008 at 3:31 PM | PERMALINK

The party in power in the White House will be blamed for this recession - and rightfully so. The Republican brand is now associated with wars gone bad, Katrina-style bungling, corruption and lies, and an economy heading into the toilet. (Bear in mind this is the second Bush II recession, and the third George Bush recession.)

I don't think the GOP has more than the vaguest inkling how screwed they are. Like Marie Antoinette and Louis XVI, they have no conception what's coming for them.

Posted by: jimBOB on February 5, 2008 at 3:36 PM | PERMALINK

In order for the US to become a decent country like Sweden, Germany or Japan, it needs to suffer an unconditional defeat. With our huge defense care system and macho attitude to destroy the world if we should face defeat, that will not happen in the nuclear age. What could happen though, is an ecomomic collapse of the US that forces us to renounce our militant ways. I doubt that will happen, and that our response to a moribund economy will be to start more wars. Ask almost any American, war is good for the economy.

Posted by: Brojo on February 5, 2008 at 3:39 PM | PERMALINK

jimBOB,

how screwed they are.

From your mouth to God's ear.

Brojo,

Ask almost any American, war is good for the economy.

Yeah, another meme sunk into the consciousness of the US citizen. Just like "we must have a global economy" and "unions are not needed."

But these memes should lose power when people are truly suffering, and that hasn't really started yet.

Posted by: Tripp on February 5, 2008 at 3:44 PM | PERMALINK

As a sex worker, I've never been busier.

Posted by: craigie on February 5, 2008 at 4:12 PM | PERMALINK

To echo what others have said here: Bush is clearly getting the blame for this recession; average folk, way ahead of the CNBC crowd, have essentially viewed the economy as recession-bound for six months to a year already, and there'll be no denying that reality by election day.

Dems may pay some price for overall poor growth in the next two years or so -- and as a result might not have such a great '10 midterm -- but, unless the recession is still in effect in '12, they won't pay the long-term price.

Plus, there's, you know, the possibility that Democratic-sponsored policy might do something to alleviate the situation. I believe that's happened once or twice in the past.

Posted by: demtom on February 5, 2008 at 4:20 PM | PERMALINK

Craigie,
Inkblot would like to make an appointment. He's having a bad day, Kevin wouldn't work to get him on today's ballot.

Posted by: optical weenie on February 5, 2008 at 4:21 PM | PERMALINK

I'm sorry to hear that Cranky, I would like to have read them.

The whole we are going to move to a service economy has always struck me as proof that Hitchhiker's Guide to the Galaxy was non-fiction.

Golgafrincham is a red semi-desert planet that is home of the Great Circling Poets of Arium and a species of particularly inspiring lichen. Its people decided it was time to rid themselves of an entire useless third of their population, and so concocted a story that their planet would shortly be destroyed in a great catastrophe. (It was apparently under threat from a "mutant star goat"). The useless third of the population (consisting of hairdressers, tired TV producers*, insurance salesmen, personnel officers, security guards, management consultants, telephone sanitizers and the like [Service Economy Jobs]) were packed into the B-Ark, one of three giant Ark spaceships, and told that everyone else would follow shortly in the other two. The other two thirds of the population, of course, did not follow and "led full, rich and happy lives until they were all suddenly wiped out by a virulent disease contracted from a dirty telephone".

The B-Ark was programmed to crash-land on a suitably remote planet on one of the outer spiral arms of the galaxy, which happened to be Earth...

Posted by: jerry on February 5, 2008 at 4:26 PM | PERMALINK

Ah, Kevin.

Don't you sound a little too gleeful at this bad news?

-- The Trolls

Posted by: Barry on February 5, 2008 at 4:33 PM | PERMALINK

I thought that those numbers were specifically massaged to exclude seasonal workers?

I think they only take out seasonal farm workers, but leave in service sector. I'm not having much luck with the Google, so maybe someone knows for sure.

Posted by: Mnemosyne on February 5, 2008 at 5:02 PM | PERMALINK

Tripp, Brujo, I agree:"People in the US have absolutely no experience with this situation and they won't shake out of their stupor until it is really bad."

It's not so much hoping for the worst as a recognition that America needs to learn some lessons.

I'm hoping to live long enough to see the day when most current conservative foolishness is denounced.

Posted by: Joey Giraud on February 5, 2008 at 5:02 PM | PERMALINK

In the San Fernando Valley, house sales dropped 51% in December. The median house price went from $560,000 to $480,000. The average American is going broke. The cause of the Great Depression was a maldistribution of wealth and a bankrupt average American. Is there anything similar in our current situation?

Posted by: LyleW on February 5, 2008 at 5:12 PM | PERMALINK

I think you guys do not understand the magnitude of the problem at hand.

This is NOT a run of the mill recession/business downcycle.

It is the popping of a global credit bubble in an era with the most leverage in the history of mankind. Deflationary forces are building up, and the CBs are pissing in their pants. Nobody knows if the CBs are up to the task of preventing system wide deflation (hence the huge debate over inflationary vs deflationary outcome to this crisis).

Regardless of the outcome, the financial dislocations that will be witnessed soon will be one for the history books. Someday your kids will ask you why it happened.

The next president is going to get blamed because it will be damned if he does, and damned if he does not.

- If s/he DOES try to fix things, he will get blamed as the fix will require much pain, and the benefits will not come until well past their term.

- If s/he leaves things as they are... well look to Japan's lost generation.

And no, Bush did not directly cause this just as Clinton did not directly cause this (although they both deserve blame for not trying to stop it), this has been building up a long time.

Posted by: mili on February 5, 2008 at 5:35 PM | PERMALINK

My late boomer, European, middleclass, and lucky, turned 18 the year the draft ended, generation, has had a very easy life in America the past fifty years. I have wondered before how well we would endure a turn at diminishing living standards and lack of a prosperous future. Combined with a lack of tools, monetary and fiscal policy, for the government to eleviate some of the economic hardship we and our children might face, a long ecomomic downturn could be devestating.

We have not had to weather economic deprivation like our grandparens or conscripted wars like our older siblings. We are too old to suffer through the world W. Bush has created with the kind of can-do attitude one hears about from the Thirties and too timid to confront the riot police and take our discontent to the streets like the early Boomers did.

Posted by: Brojo on February 5, 2008 at 5:37 PM | PERMALINK

I've tried to find a weekend job to make more money to pay the mortgage on my house that has lost value, and I can't get anything. No stores are hiring. Because people aren't shopping. Because like me, they have no money. The economy sucks.

Posted by: CatLover on February 5, 2008 at 5:40 PM | PERMALINK

As I've said before, if you want to know what's really going on, stop by:

www.lifeaftertheoilcrash.net

and check out the Breaking News.

Posted by: Speed on February 5, 2008 at 6:30 PM | PERMALINK

An email from my son, an investment analyst:

All you really need to know is this data shows lows that we haven't seen since the last recession's low in 2002 and we aren't even close to being in the main part of this recession/depression yet. The main clue for the press that we're in the 'first stages' of a recession will come when the government finally admits that we are indeed in a recession (and usually they drag their feet about this so much that by the time they say it everyone laughs and goes 'no shite, sherlock'). Anyhow, this chart is ugly as, well, shite. It might improve in the short-term due to fed cuts, but come October when the Fed will likely be out of rate cuts (and might actually have to think about PAYING people to borrow money), and the debt defaulting has spread massively elsewhere (credit cards, cars, student loans, etc), we will be screwed. Hoping I'm wrong; but probably not cuz I never am.

The next Prez will inherit all that Bushite, but hopefully not all that blame.

Posted by: Howard on February 5, 2008 at 7:27 PM | PERMALINK

"Isn't this Bush's trifecta?: Huge deficits, Bad war, and now tanking economy. Posted by: Rula Lenska"

I subscribe to the notion that this trifecta is playing out exactly as the Bushies planned. With the tax cuts & housing bubble & war profiteering the huge transfer of wealth from the middle/working classes to our financial overlords is complete. The Bushies are perfectly set up to survive the coming financial disasters. They have theirs. Whatever happens now concerns them not in the least.

Posted by: David H. on February 5, 2008 at 8:27 PM | PERMALINK

The impoverishment of most Americans enhances the wealth of the already rich, increasing their power.

Posted by: Brojo on February 6, 2008 at 11:45 AM | PERMALINK
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