Economists are raising projections for the USA economy in the second half of 2009. The predictions are still for an anemic economy growing at just 1.5% and with unemployment reaching 10.1%. Still I think if we achieve that we should feel lucky. Economists Raise U.S. Outlook as Recession Fades
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The economy probably shrank at a 1.8 percent rate from April to June, the latest survey showed, less than economists forecast last month. The U.S. will return to growth in the current quarter and expand 2.1 percent next year.
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A separate report from the Commerce Department today showed the trade deficit unexpectedly narrowed in May as exports jumped while imports of crude oil and auto parts slid. The gap between imports and exports decreased 9.8 percent to $26 billion, the smallest since November 1999, from $28.8 billion in April.
Unemployment will rise to 10.1 percent in the first quarter of 2010 from 9.5 percent last month, already the highest since August 1983, the survey of economists showed.
The trade deficit is still far to large. And the to move the economy in the right direction we need to continue reducing personal debt (and start reducing government debt).
Related: First Quarter GDP 2009 down 6.1% – When Will the Recession Be Over? – Warren Buffett Webcast on the Credit Crisis
U.S. Job Report Suggests that Green Shoots are Mostly Yellow Weeds by Nouriel Roubini
It’s clear that even if the recession were to be over anytime soon – and it’s not going to be over before the end of the year – job losses are going to continue for at least another year and a half. Historically, during the last two recessions, job losses continued for at least a year and a half after the recession was over.
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The latest figures – published this week – on mortgage delinquencies and foreclosures suggest a spike not only in subprime and near-prime delinquencies, but now also on prime mortgages. So the problems of the economy are significantly affecting the banking system.
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So the outlook for the US and global economy remains extremely weak ahead. The recent rally in global equities, commodities and credit may soon fizzle out as an onslaught of worse- than-expected macro, earnings and financial news take a toll on this rally, which has gotten way ahead of improvement in actual macro data.
Certainly this is not a forecast that will make people happy. I agree that the expectations for a nice quick recovery have become too optimistic. I am far from certain what lies ahead but the second half of 2009 does not look to be very strong. It is still a time to be cautious.
Related: Jim Rogers on the Financial Market Mess (Oct 2008) – Beware of the Sucker’s Rally – USA Consumers Paying Down Debt – Investing quotations
Another wave of foreclosures is poised to strike
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Mark Zandi of Moody’s Economy.com estimates that 15.4 million homeowners — or about 1 in 5 of those with first mortgages — owe more on their homes than they are worth.
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Government and company reports show that the number of completed foreclosures nationwide slowed sharply late last year and into early this year, largely because of various moratoriums in effect during much of the first quarter.
But anecdotal reports indicate that foreclosure sales have started to climb again in the second quarter. And the pipeline is clearly getting fuller. In the first quarter, some 1.8 million homeowners nationwide fell behind on their loans by 60 to 90 days, a 15% increase from the prior quarter, according to Moody’s Economy.com. The research firm said that loan defaults rose sharply as well, to 844,000 in the first three months of this year.
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Even as defaults among subprime borrowers have trended lower this year, newly initiated foreclosures involving prime mortgage loans saw a significant increase in the first quarter, jumping 21.5% from the fourth quarter, according to a government report of loan data from national banks and federally regulated thrifts.
This is more bad news for the economy. As I have been saying the economy is still in serious trouble. Cleaning up the damage caused by living beyond our means for decades does not get cleaned up quickly. This are actually going as well as could be hoped for, I think. We need to hope the remainder of this year sees the economy stabilize and then hope 2010 brings some good news.
Related: Nearly 10% of Mortgages Delinquent or in Foreclosure – Over Half of 2008 Foreclosures From Just 35 Counties – How Much Worse Can the Mortgage Crisis Get? (March 2008) – Mortgage Rates Falling on Fed Housing Focus
Nonfarm payroll employment continued to decline in June (by 467,000), and the unemployment rate increased to changed at 9.5% (with a total of 14.7 million unemployed), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Job losses were widespread across the major industry sectors, with large declines occurring in manufacturing, professional and business services, and construction.
Since the start of the recession in December 2007, the number of unemployed persons has increased by 7.2 million, and the unemployment rate has risen by 460 basis points (from 4.9% to 9.5%). The number of long-term unemployed (those jobless for 27 weeks or more) increased by 433,000 over the month to 4.4 million. In June, 30% of unemployed persons were jobless for 27 weeks or more.
Employment in manufacturing fell by 136,000 over the month and has declined by 1.9 million during the recession. Health care employment increased by 21,000 in June. Job gains in health care have averaged 21,000 per month thus far in 2009, down from an average of 30,000 per month during 2008.
The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in June at 9.0 million. Since the start of the recession, the
number of such workers has increased by 4.4 million.
About 2.2 million persons (not seasonally adjusted) were marginally attached to the labor force in June, 618,000 more than a year earlier. These individuals wanted and were available for work and had looked for a job sometime in the past 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
Related: posts on employment – Unemployment Rate Increased to 8.9% – Can unemployment claims predict the end of the American recession? – The Economy is in Serious Trouble – Over 500,000 Jobs Disappeared in November 2008
Nonfarm payroll employment fell by 345,000 in May, about half the average monthly decline for the prior 6 months, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The unemployment rate continued to rise, increasing from 8.9 to 9.4 percent. Steep job losses continued in manufacturing, while declines moderated in construction and several service-providing industries.
According to the Household Survey Data, the number of unemployed persons increased by 787,000 to 14.5 million in May, and the unemployment rate rose to 9.4 percent. Since the start of the recession in December 2007, the number of unemployed persons has risen by 7.0 million, and the unemployment rate has increased by 450 basis points.
Unemployment rates rose in May for adult men (to 9.8%), adult women (7.5%). Among the unemployed, the number of job losers and persons who completed temporary jobs rose by 732,000 in May to 9.5 million. This group has increased by 5.8 million since the start of the recession.
The number of long-term unemployed (those jobless for 27 weeks or more) increased by 268,000 over the month to 3.9 million and has tripled since the start of the recession.
The civilian labor force at the end of May, 2009 stood at 155,081,000 (at the end of April was 154,731,000) growing by 350,000, employment stood at 140,570,000 down from 141,007,000 the month before. The ranks of unemployed grew to 14,511,000 from 13,724,000.
Related: Unemployment Rate Increased to 8.9% – USA Unemployment Rate Rises to 8.1%, Highest Level Since 1983 – Bad News on Jobs
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A recent Pew poll found that 21% of Americans planned to grow their own vegetables, 16% had held a garage sale or sold things online and 10% had either taken in a friend or relative or moved in with one. Pundits are coining phrases such as “austerity chic” and “luxury shame”. Four-fifths of Americans told the BCG they would defer big purchases that can wait.
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The beneficiaries of the new parsimony are, unsurprisingly, firms that offer low prices. The only two stocks on the Dow Jones Industrial Average that rose in 2008 were Wal-Mart and McDonald’s.
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The hangover from this party will be long and painful. Households’ total outstanding borrowing fell in the fourth quarter of 2008, for the first time since the second world war. The personal-saving rate rose to 4.2% in the first quarter of 2009, from a nadir of minus 0.7% in 2005. “It is easy to see how consumer deleveraging could result in hundreds of billions of dollars-worth of forgone consumption in coming years,” say Martin Baily, Susan Lund and Charles Atkins of the McKinsey Global Institute.
American consumers are burdened by far too much consumer debt. And spending on non-essentials with debt is un-wise and creates personal risks and a weak (fundamentally) economy. It is true the current economic data will look good when people spend money they don’t have. But it just creates a huge burden for the future economy to cope with.
Related: USA Consumers Paying Down Debt – Too Much Personal Debt – $2,540,000,000,000 in USA Consumer Debt
The current economic climate is very bad and all car manufacturing in the USA has declined in the last 2 years. But the longer term trend is that foreign companies are manufacturing more and more here while the USA companies fail to. This year it is likely the “big three” will manufacture fewer than 50% of the cars manufactured in the USA (the “big three” have more production in Canada and Mexico than the “foreign” companies do).
They Can Build Them; Why Can’t We?
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This transplant industry is replacing Detroit’s manufacturing. Through mid May, all North American assembly plants (including Canada and Mexico) have built 2.77 million cars and light trucks, half the production level of the year-earlier period. Of these, Detroit’s Big Three have built only 1.5 million of these vehicles, just 268,000 more than the transplants.
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Toyota took over a badly managed GM plant in California; it was a joint venture, but the Japanese ran the plant. GM sent young executives to work there and learn Toyota’s manufacturing and quality techniques. They learned, but when they came back to GM, the GM bureaucracy would not change its ways.
Read about the joint Toyota – GM plant: Remembering NUMMI. The problems of GM, Ford and Chrysler are due mainly to long term failures or management. It is not impossible to manufacture in the USA. But it is difficult to maintain poor management systems, without overpaid executives when others manage better and don’t take so much of the profits into their own pockets.
Related: posts on manufacturing – Big Failed Three, Meet the Successful Eight – Leading Manufacturing Countries in 2007 – Honda has Never had Layoffs and has been Profitable Every Year – People: Team Members or Costs
The Indian stock market surged 17% today on the election results that gave the Congress party an unexpectedly decisive victory. The market was closed early due to the huge spike in prices. The Indian stock market was up 26% this year, before the move today.
Landslide in India Vote Reshapes Landscape
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Even with a free hand, the Congress-led government will face formidable challenges. India needs to swiftly build roads, highways and power plants; improve public schools and build universities for a swelling young population; and hire nurses and doctors for its feeble public health system. Most of all, it needs to address its abiding poverty. Despite over a decade of high economic growth in India, 300 million people remain below the poverty line.
Driving India’s Economic Reforms
India has great potential and great problems. India has poor physical infrastructure and crippling bureaucracy; India ranked the 122nd easiest country for doing business. The election results are giving investors hope the government will be able to make progress to improve the business climate, which will improve economic performance.
Related: Emerging-market Multinationals – Why Investing is Safer Overseas (Jun 2007) – World’s Wealthiest People – Top 12 Manufacturing Countries in 2007
Can unemployment claims predict the end of the American recession? by Robert J. Gordon
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To this point I have examined a single indicator to see if it is useful in predicting the end of recessions without any consideration of what is going on in the rest of the economy. Our conclusion is supported by the fact that previous false peaks occurred when new claims were at 80 to 90% of the level at the ultimate true peak. For the peak of 4 April 2009 to be false by this historical precedent, the ultimate future peak would have to be in the range of 730,000 to 800,000. As the weeks go by, such a sharp future increase in new claims looks increasingly implausible.
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My reasoning leads me to conclude that the ultimate NBER trough of the current business cycle is likely to occur in May or June 2009, substantially earlier than is currently predicted by many professional forecasters.
Interesting points. Time will tell what happens. I am skeptical this measure alone will prove to be perfect but I can believe it will be one useful measure to consider. I tend to be skeptical we are close to a strong recovery. But at what point the economy moves out of a recession is less certain. I still believe we will be lucky if we show job gains by the end of this year.
Related: How Much Worse Can the Mortgage Crisis Get? (March 2008) – Unemployment Rate Increased to 8.9% – Manufacturing Employment Data – 1979 to 2007 – First Quarter 2009 GDP down 6.1% – Poll: 60% say Depression Likely (Oct 2008)
Nonfarm payroll employment continued to decline in April, and the unemployment rate rose from 8.5 to 8.9 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Since the recession began in December 2007, 5.7 million jobs have been lost. In April, job losses were large and widespread across nearly all major private-sector industries. Overall, private-sector employment fell by 611,000.
The number of unemployed persons increased by 563,000 to 13.7 million. Unemployment rates for April for adult men reached 9.4% and for adult women 7.1%. The number of long-term unemployed (those jobless for 27 weeks or more) increased by 498,000 to 3.7 million over the month and has risen by 2.4 million since the start of the recession in December 2007.
The civilian labor force participation rate rose in April to 65.8 percent, and the employment-population ratio was unchanged at 59.9 percent. The employment-population ratios for adult men and women showed little or no change over the month. However, since December 2007, the men’s ratio was down by 440 basis points, while the women’s ratio was down by 130 basis points. Since those that stop looking for work (retire or just stop actively looking) are not counted as unemployed the participation rate is a useful statistic to examine in conjunction with the unemployment rate.
Much of the commentary on the April job losses have been that the decrease in the number of job losses from previous months shows the economy is stabilizing. While it is true losing 611,000 jobs is better than losing 700,000 jobs, losing 611,000 is still very bad. The unemployment rate increased to 8.9% and long term unemployment is increasing drastically. This is hardly good economic news. It is true that there is hope that the economy is turning around, but the employment data we have so far is hardly positive (employment data is a lagging economic indicator so it is not surprising employment data does not recover before other signs point to improvement).
Related: Another 663,000 Jobs Lost in March in the USA – USA Unemployment Rate Rises to 8.1%, Highest Level Since 1983 – Over 500,000 Jobs Disappeared in November – What Do Unemployment Stats Mean?