Posted on 12/16/2009 9:14:03 AM PST by SeekAndFind
The U.S. economy is digging itself out of a deep hole. You have probably heard a lot of doom and gloom lately, including talk of a jobless recovery, an L-shaped recovery (which means no recovery at all), or even a W—the feared double-dip recession. The Scrooges have a point: There are serious dangers to the nascent recovery. But you've heard all that many times. Let me offer instead, in deliberately one-sided fashion, the case for optimism. It is, after all, the holiday season.
The case begins with the "slingshot effect" I wrote about on this page last summer ("The Economy Has Hit Bottom," July 24, 2009). When the growth rate of any component of GDP rises, it gives overall GDP growth a boost. And going from sharply negative growth to zero is a notable rise. In July, the slingshot scenario was hypothetical—though likely. In today's economy, it's a real phenomenon.
During the first half of this year, the investment component of GDP declined at a stunning 38% annual rate. Since the investment share of GDP was then about 14%, this implosion accounted for minus 5.4 percentage points of GDP growth. But since overall GDP declined "only" 3.6% in those two quarters, the rest of GDP (the 86%) actually rose. It was a small but real reason for optimism in a stormy sea.
Then came the third quarter. Like a woozy prizefighter lifting himself off the canvas, the battered investment component of GDP managed to rise (at an 11% annual rate), which added 1.3 points to GDP growth rather than subtracting 5.4 points. That 6.7 point swing was the start of the slingshot effect, which is not yet over.
Investment has three components: business investment, inventory stocking, and homebuilding.
(Excerpt) Read more at online.wsj.com ...
What is this guy babbling about?
Households and businesses are sinking into the deflationary quagmire. The Federal government's massive spending is the only thing keeping our economy from dropping immediately into a severe depression. But they're just making the ultimate problem worse by their actions.
The author’s case for optimism :
* Sometime in 2010, consumer spending must take over. rue, the average personal saving rate has risen to 4.5% of disposable income so far this year from 2.7% in 2008. That’s higher, but a long way from the 8%-10% saving rates the doomsayers have foreseen. A saving rate near 5% is consistent with 3%-4% GDP growth in 2010.
* The amazing performance of productivity during the recession. To be sure, that performance had a downside: While real GDP was falling 3.7%, payroll employment dropped 5%, devastating many American families. But by definition, that discrepancy means that productivity—output per hour of work—rose substantially during the recession, which is pretty unusual.
The last two quarters were even more extreme: Productivity in the nonfarm business sector grew at a shocking 8.1% annual rate.
* While payrolls continued to decline in November, it was by only a scant 11,000 jobs; and the job counts for September and October were revised upward. The data now show a clear trend that suggests that net job creation may be only a month or two away.
* Less than 30% of February’s $787 billion fiscal stimulus has been spent to date; over 70% is still in the pipeline. Pessimists dote on the fact that the rate of increase of stimulus spending has probably peaked and will be lower in 2010. True. But the level of GDP will continue to get support from fiscal policy, and a second job-creation package (”Please don’t call it a stimulus!”) looks to be in the works.
* The Federal Reserve’s stupendously expansionary monetary policy. It is well known that interest rates work on the economy with long lags. But the Fed’s last rate cut came a year ago. History suggests that the time lag is closer to two years than to one. So even the normal policy lags are not over.
* The Fed, Treasury, FDIC and others have created a bewildering variety of stents and bypasses to get credit flowing again. The credit markets are now healing, though slower than we would like. Hence there is still monetary stimulus in the pipeline.
* “Quantitative easing” is still in play. One example is the mortgage-backed securities (MBS) purchase program, which is adding MBS to the Fed’s balance sheet and providing vital support to the mortgage market.
The author’s case for optimism :
* Sometime in 2010, consumer spending must take over. The average personal saving rate has risen to 4.5% of disposable income so far this year from 2.7% in 2008. That’s higher, but a long way from the 8%-10% saving rates the doomsayers have foreseen. A saving rate near 5% is consistent with 3%-4% GDP growth in 2010.
* The amazing performance of productivity during the recession. To be sure, that performance had a downside: While real GDP was falling 3.7%, payroll employment dropped 5%, devastating many American families. But by definition, that discrepancy means that productivity—output per hour of work—rose substantially during the recession, which is pretty unusual.
The last two quarters were even more extreme: Productivity in the nonfarm business sector grew at a shocking 8.1% annual rate.
* While payrolls continued to decline in November, it was by only a scant 11,000 jobs; and the job counts for September and October were revised upward. The data now show a clear trend that suggests that net job creation may be only a month or two away.
* Less than 30% of February’s $787 billion fiscal stimulus has been spent to date; over 70% is still in the pipeline. Pessimists dote on the fact that the rate of increase of stimulus spending has probably peaked and will be lower in 2010. True. But the level of GDP will continue to get support from fiscal policy, and a second job-creation package (”Please don’t call it a stimulus!”) looks to be in the works.
* The Federal Reserve’s stupendously expansionary monetary policy. It is well known that interest rates work on the economy with long lags. But the Fed’s last rate cut came a year ago. History suggests that the time lag is closer to two years than to one. So even the normal policy lags are not over.
* The Fed, Treasury, FDIC and others have created a bewildering variety of stents and bypasses to get credit flowing again. The credit markets are now healing, though slower than we would like. Hence there is still monetary stimulus in the pipeline.
* “Quantitative easing” is still in play. One example is the mortgage-backed securities (MBS) purchase program, which is adding MBS to the Fed’s balance sheet and providing vital support to the mortgage market.
Blinder is well named. He’s a fool.
This guy’s background (very similar to Ben Bernanke) :
Mr. Blinder, a professor of economics and public affairs at Princeton University and vice chairman of the Promontory Interfinancial Network, is a former vice chairman of the Federal Reserve Board.
LLS
Therein lies the rub. I don't see that happening
LOL! Seriously! I was reading and thinking “I may another cup of coffee or 10 because this does not make sense!”
Woozy prizefighter, W’s, V’s... Does he every actually make a case as to why jobs are a few months away? I sure hope he’s right though.
“* The amazing performance of productivity during the recession. To be sure, that performance had a downside: While real GDP was falling 3.7%, payroll employment dropped 5%, devastating many American families. But by definition, that discrepancy means that productivity—output per hour of work—rose substantially during the recession, which is pretty unusual.”
So this means that people are willing to work like slaves for bare pay? Yay! The employers win! Not gonna get many votes with that continuing though.
Any 'jobs' created will be phony, make-work ones, due to the stimulus money in order to make the numbers look good for the 2010 election.
IMO the economy is unable to recover from the downturn because the Obama administration is still threatening to kill the free market and replace it with Socialism.
Since small business is unable to make hiring and spending decisions until it has a clear and optimistic vision of the future of the free market, such recession will continue until Obama is either neutered OR until Obama wakes up and makes a dramatic move to the center and commits to the abandonment of his Marxists ideas.
Even then, I don't know if small business will have sufficient confidence that the Obama will not rise from the dead and renew his march to Socialism.
BTW, I met yesterday with a local banker and she thought Obama's exhortation to banks to begin lending was "laughable."
She said that Obama is a black cloud hanging over small business yet he blames the banks for not lending in such a unstable environment.
Obama doesn't get it! He thinks he can use the bully pulpit to make business grow!
Just close your eyes ,keep saying “the economy is going to get better” and click your heals and everything will be all right!
Despicable.
Can someone please give me access to the drugs this guy is taking. I want to be happy and optimistic in the face of bad news and a bad outlook.
Just wait ‘till the Christmas shopping is done. It is currently tracking at 20% lower than last year. Many a company will go under based on this.
— Beans, bullets, band-aids and bullion.
We were not in a depression, just a deep recession and it is more or less over as of Q3. The return of the stock market and other signals are showing the crisis is over.
Unemployment however will remain high and long-term growth subdued because Obama and Co have a job-killing agenda.
Pay your debts. Build a deep larder.
The credit markets are unfreezing? Please....
None of the important data supports that conclusion.
The only way that one could pretend our economy is out of the recession is if they completely ignore the credit market. That would be too bad, since the credit market is what is causing all of the problems - and I fully believe that the big banks did it intentionally.
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