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Economy Refuses to Tank. Bears Weep
Tweet Share on Facebook May 2, 2008 Comment (4)To quote bloody-and-beaten-but-still-standing boxer Jake LaMotta (portrayed by Robert De Niro) from the 1980 film Raging Bull, "Is that all you got!" The U.S. economy, supposedly sinking into the worst economic slump in a generation, lost a skimpy 20,000 jobs last month even though some analysts were looking for losses closer to 100,000. As economist Robert Brusca put it this morning: "Job losses are way below the recession norm for this point of business cycle (if this is recession). Many things do not really add up...for the recession forecasters.... Is it still a recession? Was it ever?"
And the unemployment rate actually dipped to 5.0 percent from 5.1 percent in March. So far, the economy has lost jobs for four straight months: down 76,000, 83,000, 81,000 and now 20,000. Back in 2001, the economy lost 30,000, 281,000, 44,000, and 128,000 as the economy weakened. And in 1990, the economy lost 42,000, 280,000, 82,000, and 161,000 as the economy tanked. Way back in 1981, jobs losses were 36,000, 87,000, 100,000, and 209,000.
Now keep in mind that once the unemployment rate looks to have peaked, the Fed will probably move to raise rates. So see how this virtuous circle works for you: Stocks, already up 10 percent since early March, continue to rise and replace the household wealth lost to the housing bust. The dollar continues to strengthen, helping bring down food and energy inflation. That bolsters real incomes and consumer spending. Americans, feeling richer and more confident, finally begin to move back into the housing market. The 25-year boom continues.
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(Economic) Facts Are Stubborn Things
Tweet Share on Facebook May 1, 2008 Comment (2)"Cactus" over at the Angry Bear blog, which is one of my favorites even though the writers don't much care for me, takes issue with my radical declaration that the economy was not in recession during the first quarter based on government data that said the economy was not in recession during the first quarter:
Nevermind that these figures are likely to be revised (based on this administration's recent history with data, anyone care to guess which way they'll be revised?), or that they use 2.6% deflator.... I would also note that GDP did not shrink for a single quarter during the 1970s. Not one. In fact, the smallest quarterly percentage increase in GDP during the entire decade was more than 3 times faster than the 0.6% of GDP James P is so excited about.
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Clinton: Let Uncle Sam Determine Profits
Tweet Share on Facebook May 1, 2008 Comment (27)Hillary Clinton was on Fox News's The O'Reilly Factor last night and said what she would do about high gas prices:
In the short term, I do want a gas tax holiday but to pay for it by putting a windfall profits tax on the oil companies.... The oil companies have made out like bandits, and there is no basis for them to have these huge profits. They're not inventing anything new.... You set a baseline and, above that baseline, you begin to tax their profits.
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So, What Is a Recession?
Tweet Share on Facebook May 1, 2008 CommentLook, I know the economy is weak. But if it never has a down quarter, then it never went into a recession. Here is what Robert Hall, who heads the recession-dating committee at the National Bureau of Economic Research, said yesterday: "It seems unlikely that we would ever declare a peak date when real GDP continued to rise."
You have to admit that given $120-a-barrel oil, a severe housing recession, and a nasty credit crunch, it is quite amazing that America's growth machine is running at all right now. And it is just as amazing that damage from the housing and credit crunch has been relatively confined to those sectors, as important as they are. As market strategist Ed Yardeni notes this morning (boldface mine):
There is no doubt that S&P 500 operating earnings are in a recession given that they plunged 9.3% and 30.8% y/y during the third and fourth quarters of last year. The latest reports and consensus estimates suggest that profits fell 14.4% during the first quarter of this year. Actually, this profits recession is very much limited to the Financials sector and the Homebuilding industry in the S&P 500. Removing these two reveals that profits rose 15.9% in Q4 and around 12.0% during Q1. The resilience of "core" profits and of the economy in the face of the worst credit crisis since the 1930s is impressive indeed. One of the main reasons, of course, is that the US economy and corporate profits have become increasingly coupled with the global economy, which continues to grow at a solid pace. This has been an especially positive development for profits of nonfinancial corporations with growing sales overseas and rising exports to foreign customers. These companies are increasingly decoupling from the US economy.
