Posted on 04/07/2008 2:08:32 PM PDT by ovrtaxt
Added: April 07, 2008
Recessions are part of capitalism. They happen every so often. We’ve had two in the last super-prosperous 25 years. And it looks like we’re entering a third one after Friday’s jobs-loss report.
The unemployment rate went up to 5.1 percent, which is still a low number in historical terms. But the March labor report showed a loss of 80,000 payroll jobs, while payrolls in the prior two months were downwardly revised by 67,000. Non-farm payrolls have fallen for three straight months after peaking last December. Private-sector jobs have dropped four consecutive months.
This is a big warning sign. Within the private-sector report, professional and business services payrolls—one of the biggest gainers over the past 15 years—dropped 35,000, the third straight monthly decline following a December peak. Meanwhile, the household survey that picks up entrepreneurial small-business totals is now down 678,000 jobs since a peak in November.
The recessionary handwriting looks to be on the wall. Other recession indicators used by the National Bureau of Economic Research, such as disposable income and overall business and retail sales, are now several months below their peaks of last fall.
Lest we get too gloomy, there were some positive spots in the employment report. For example, the median duration of unemployment actually fell to a fifteen-month low of 8.1 weeks in March, the lowest level since December 2006. This indicates that about half of the unemployed are finding jobs in about two months. (Hat tip to Prof. Mark Perry of the Carpe Diem blogsite.) Additionally, aggregate hours worked in March actually rose, as did the private and manufacturing work weeks.
So while there is an economic correction at work, it could prove relatively mild. Let’s remember, the U.S. has experienced ten recessions since 1947, averaging ten months in length. But in the more recent high-tech quarter century, in which tax rates and inflation have been historically low, the two recessions of 1990-91 and 2000-01 lasted only eight months.
If the current slump began in November, it could be over by late summer.
And let’s also remember that recessions are therapeutic. They’re even necessary to create the foundations for the next recovery. Economic excesses always occur in free-market capitalist economies, and from time to time they must be cleansed. Just think about the excessive risk-speculation, leverage, and housing prices of the current episode. If anything, recessions make for clean starts.
And think of this: Despite housing woes, credit problems, and the sub-prime virus, banks are still lending to businesses. In other words, we don’t have a genuine, across-the-board credit crunch. This is very good news, and more evidence that an economic contraction will not be drawn out.
That said, there are two related issues that worry me. First is the continued decline in the value of the dollar, which has permitted the global commodities boom (energy and food) to leak into higher U.S. inflation. Bulging commodity costs have depressed the profits of non-financial domestic businesses, where after-tax earnings are down 24 percent from a peak in late 2006.
Profits are the mother’s milk of stocks, businesses, and the economy. And because profits have fallen, some businesses are contracting and laying off workers in order to bring costs back in line with revenues.
If Washington really wants to help the business sector recover, nothing would be better than an across-the-board cut in corporate tax rates. This competitiveness-enhancing action would lower tax costs, boost jobs, and lift worker wages. The growth incentive would reignite the economy. A permanent corporate tax cut would be far better than a temporary consumer rebate.
The other worrisome issue is inflation. The March jobs report showed a continued easing of hourly wage growth. After a 4.3 percent peak in late 2006, average hourly earnings for non-management workers has slowed to 3.6 percent for the twelve months ending in March. Consequently, headline consumer inflation of 4 percent continues to erode average wages. While most all market observers are focused on the sub-prime credit crisis, it’s the pick-up of inflation in recent months that has dampened consumer-spending power and corporate profits.
As lawmakers in Congress contemplate a massive FHA housing bailout package, they would be better advised to look more carefully at the recession-ending benefits of lower business tax rates and a stronger greenback.
In fact, liberal economists should look at a new Rasmussen poll in which 48 percent of voters say the best thing government can do is get out of the way by reducing taxes and regulations. Only 36 percent disagree. What’s more, 59 percent of voters believe it’s more important to create economic growth than to reduce the income gap between rich and poor. Finally, 49 percent say the best government policy is to reduce spending.
Keynesian-style politicians please take notice.
(c) 2008 Creators Syndicate Inc.
Keynes wasn't a Keynesian-style economist.
He prescribed government deficit-spending only for the rare times there is a liquidity trap — such as during the Great Depression. Also, any government debts resulting from the counter-cyclic spending were to be paid off during the next business cycle. (Spend during a recession, save during a boom.) “Keynesian-style politicians” turned that into a licence to tax and spend, and spend without end.
the best thing government can do is get out of the way by reducing taxes and regulations.
pinging the pingers!
We were talking about this the other day in the context of climate change. Everything in life seems to move in cycles---cycles of life and death, destruction and renewal, bust and boom. The drought that seemed to devastate a lake actually allowed the lakebed to be cleaned and the flora and fauna to become stronger as it repopulates. There are literally millions of examples of this in nature. And it seems the same thing with bust and boom cycles in economies. There's a re-orientation that gets many things back on track. There's a pullback from excesses that are harmful. There are many ways that the pendulum that threatened to swing too far in one direction begins to return to balance. A couple of mundane examples--- As surgery gets more and more expensive, fewer girls will feel the pressure to "fix" their boobs and noses to fit a stereotypical standard of beauty. As food prices go up, more people eat at home and begin to cook more, rather than rely on convenience food. They might end up with more quality family time, which produces more solid citizens, which inures to our country's benefits. Materialism in general may be exposed as more or less not what it's cracked up to be. People may find their happiness increase with fewer things and less focus on obtaining things. With necessity being the mother of invention, entreprenurial Americans will find new ways to make it in a slumping economy. The multi-billion dollar Hershey company, for example, started out as a kitchen table chocolate candy making venture for the family to make a little extra selling on street corners. The game of Monopoly was created during the Depression to poke fun at the situation and to give families gathered under one roof until times got better a pleasant way to pass long evenings. Yes, there is an aspect of renewal in economic hard times. Not that it's "hooray a recession!," but that it's important to see both sides of the coin.
Don’t blink or the recession will be over before you open your eyes.
I hope you’re right. Want to buy my house?
Sold two homes this weekend.
Good. Come make an investment in FL.
Why, do I have stupid written across my forehead?
Hey, the recession is almost over!
Just because the recession is over does not mean all locations are going to boom. Florida still has too many problems right now. But unlike Detroit or Cleveland, Florida will rebound, just not right away.
I’m hearing late 09 at the absolute earliest for FL- and that’s an optimistic view. I’m currently trying to trade out my house for rental propertes in the GA, NC mountains. I’ll be happy to rent if I stay here and hunt for a foreclosure in the meantime.
Sold two homes this weekend.My daughter sells real estate here in California, she's doing OK too. She also has some bank owned listings. She says the problem with selling bank owned property is the bank that owns the property. She has one in particular that has multiple offers submitted weeks ago. The bank is calling her, telling her to have the carpets cleaned, walls painted, pool cleaned, etc. not acknowledging any (as is) offers.
bttt
One good which happens in a recession is the elimination of the deadwood. A business will either get rid of the deadwood, or (if unable to because management is itself the deadwood) will go under. And just as when a dead tree in the forest topples over and allows light to reach new saplings, a business which goes under allows more fit smaller businesses a niche to grow into
Exactly.
As we see during boom times, there’s a reliance on outside labor (this time illegal immigrants). That creates its own pressures, but there’s a drawback from those pressures once the bust comes and II start returning home on their own.
People spending wildly and stupidly on empty “higher education” start pursuing more practical, efficient courses that lead them to become more productive for society and our economy.
It’s fascinating, the renewal effects.
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