Saturday, June 06, 2009

Grasping for economic hope when things are bad

Peter S. Goodman and Jack Healy of the New York Times try to find some ray of positive signs in the new monthly jobs report. It's the kind of economic happy talk from the media I have been objecting to since everyone was saying that the only economic problems were in the mortgage industry and that the U.S. economy would begin to recover in six months. This was late 2007 and early 2008.
Economists* described the Labor Department’s monthly jobs report, released Friday, as an unambiguous sign of improvement, yet also clear evidence of broadening national distress, as millions of households grapple with joblessness and lost working hours.

The fact that a report showing the highest unemployment rate in more than a quarter-century was embraced optimistically testified to the stark fears over the economy in recent months.
[Underlining mine
* note that it is unnamed Economists - Editor]
Atrios points out that
the fact remains that that national distress is still broadening and will almost certainly do so for some time. Unemployment is higher than projections used for the adverse case of the stress tests, and is going to continue to rise, most likely for the next several months if not the rest of the year. States and local governments are cutting spending, hours, and jobs, and another big wave of foreclosures is going to hit the residential market even as commercial real estate is imploding.
Goodman and Healy go on to state:
Home prices appear to have hit bottom in some areas of the country, but construction remains weak. The auto industry and retailing remain in distress. The job market is likely to remain in the doldrums for many months, Mr. Barbera said.

A home foreclosure crisis is growing, thus far unchecked by an Obama administration program aimed at stemming the problem. As more foreclosed properties land on markets, real estate prices are falling further, adding to the losses and uncertainties confronting banks.


Now, as paychecks disappear and home prices fall, people are increasingly inclined to save — a rough transition in a country in which consumer spending makes up roughly 70 percent of economic activity.

“People are not going to be moving forward based on housing wealth, and they’re not going to be taking on debt,” said Lawrence Mishel, president of the labor-oriented Economic Policy Institute in Washington. “They’ve got to get wage growth.”

Yet wage growth has been stagnating even as gasoline and medical costs rise, putting pressure on household finances. Average hourly wages were 3.1 percent higher last month than they were in May 2008, but the month-to-month increases in April and May were just 0.1 percent, to a seasonally adjusted $18.54, from $18.52, according to the Labor Department. Wages for manufacturing workers fell 0.1 percent.

The jobs report presented a statistical puzzle. After shedding an average of more than 700,000 jobs each month during the first quarter, the economy lost 504,000 jobs in April, according to revised data, and the number was smaller still in May. Yet the unemployment rate leapt from an already high 8.9 percent, reinforcing fears it would reach double digits.


Manufacturers cut 156,000 jobs in May, with worse on the way: General Motors announced plans this week to close or idle 14 American plants, imperiling as many as 20,000 workers.

Construction jobs fell by 59,000, though that was a marked improvement from just a month ago, when employment in that industry sank by 108,000 jobs.

Professional and business services shed 51,000 jobs, though that represented a slower pace of losses than in recent months. Health care remained a rare bright spot, adding 23,500 jobs. Restaurants and bars added nearly 9,000 jobs.

The economy has lost six million jobs since the recession began in December 2007, and some economists anticipate two million more to come. Even after the economy resumes growth — perhaps later this year — businesses will probably be conservative, cognizant that credit is relatively tight, and consumers will be inclined to save. Instead of hiring full-time workers, many may rely on temporary employees or add hours for existing employees.

“The jobless rate is going to continue to rise,” said Bernard Baumohl, managing director of the Economic Outlook Group. “It’s a dismal job market. It’s going to remain awful easily for the balance of this year. Even when the economy begins to recover, we might be witnessing the mother of all jobless recoveries.”
The one month report of only fewer jobs being lost is far from being "an unambiguous sign of improvement." I'd say most of us need not plan on buying a home or new car anytime in the near future. Probably not in 2010 at all. If we are lucky things will start to turn around by early 2011, but it won't be a strong turnaround. There is too much still structurally wrong with the economy.

More than likely the bankers realize that. That's why they haven't increased lending much.

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