Tag Archive 'recession'

The Rise of Decline

You know you’re in an American recession when British observers start reflecting on the inevitability of American decline, and volunteering their allegedly privileged perspective gained from the fall of the British Empire (Mark Steyn, as always, excepted). So it is that Matthew Parris joins an old tradition and writes this of the incoming Obama administration:

Though he may not yet know it, the role for which the US President-elect has been chosen is the management of national decline.
(The Times)

It should still be within our memory of course, that it was widely believed that Richard Nixon held this dubious distinction in 1968. Indeed, Nixon himself believed it, and his assessment that the United States had passed into decline informed almost all of his foreign policies. Mr. Parris’ countryman, the historian and strategist Paul Kennedy, had thought even more seriously on this issue and concluded in 1987 that the apex of American power had been reached in the 1970s, after which the United States had passed into another ultimately nonexistent long-term decline.

Retrospectively, this is all rather embarrassing. The United States is naturally vastly more powerful today than it was in the 1960s or 1970s, and the structure which enabled those gains commercially, socially and politically, remains unassailed. Given past experience, it’s entirely likely in coming years that we will feel similarly embarrassed by the current declinism.

But Mr. Parris is obliquely correct on one matter though:

Mr Obama will have to find a way of being honest with Americans about their country’s fall from predominance. Reading, as I often do, the furiously chauvinistic online reaction from US citizens to any suggestion that their country can be beaten at anything, I quail for him.
(The Times)

The experience of Nixon –pursuing policies to cushion the fall of an America which was just beginning to scale new heights– might suggest that it doesn’t really matter what Obama thinks. But if Americans themselves genuinely started to believe in their impending decline, and shelved their ambitions in favor of the crowded retirement home of great powers, they could actualize the prediction.

As with American greatness in light of her continental scale, vast and growing labor force, enormous capital resources and limitless dreams, a prophecy of American decline is largely contingent on whether or not Americans can be persuaded to self-fulfill it. If they cannot, that faint light on the horizon is another dawn, not an inevitable sunset. After all, the retirement home for the false futurists of American decline is an even more crowded house.

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The Joys of the Recession Vacation

Don’t complain to me if there aren’t any new posts on ASHC. I’m sitting on a beach in Miami and thus completely out of the necessary frame of mind to bitch about Obama and triumph of statism. Now, these other writers on here have no such excuses I note. In fact, they’re probably sitting at their desks right now wondering “why isn’t Lee posting anything new?” To them I toast a fruity morning cocktail with a plastic palm tree. It’s up to you gentlemen.

Even though this excursion is more business than pleasure, the economic conditions here in South Florida remind me of how much I love vacationing during recession. The worse and deeper the downturn, the better the leisure to be found. Hotels to yourself, fire sale prices for everything, pretty girls in bikinis who are more easily impressed with a boring software executive. It’s a fine time to travel to a tropical paradise. The traditional problem being how to pay for it in a recession. Ahem. As cruel a Catch-22 as there is.

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Three Banks to Rule the World

The winners of the global financial turmoil look to be three American ’superbanks’: JP Morgan Chase, Bank of America and Wells Fargo. The institutions have all grown to occupy such a predominant position in the marketplace, that all three recently surpassed the Federal cap intended to prevent any one institution from controlling more than 10% of domestic deposits. A staggering realization of their scale.

(more…)

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The Post-Post-American World

So, did you enjoy the much discussed post-American world order? Hope you didn’t miss it. Surely it didn’t lack for advertising.

But if you did happen to step out for a moment, we just lived through the end of market capitalism, the death of the dollar, the collapse of American power, the cultural and political atrophy of the West, the rise of Eastern dictatorships to world leadership, and petrocracy as the vanguard political philosophy of the future.

Bill Emmott notices that a lot of this isn’t exactly plausible in historical context, and that with the collapse in the price of oil, a strengthening dollar, an even worse European recession and the unavailability of predicted competitive alternatives to American power…the post-post-American moment may be upon us.

(HT:

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The Economy Makes Me Nervous As Well

Yeah, this is kind of funny, if in a dancing on gravestones kind of way.

I hate to continue to beat an old drum, but the economic data is showing far less stress than is actually out there. Employment is far weaker than the commonly reported data is showing, inflation is running higher than the data shows, and thus the economy has likely been in contraction for some time, not barely above water as is usually reported

The worst is most likely still down the road.

I think the administration knows that, and I would be nervous as well.

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Is The Evidence In On Minimum Wage?

Unemployment line When the most recent unemployment numbers were released, the media bleated about the highest percentage increase in the jobless rate since 1986. For example, The New York Times lamented:

The unemployment rate surged to 5.5 percent in May from 5 percent, the largest monthly spike in more than two decades, as the economy shed 49,000 jobs for a fifth month of decline, the Labor Department reported on Friday.

Economists construed the weak monthly jobs report as an indication of the pain assailing tens of millions of Americans amid an economic downturn that most experts assume is a recession.

The labor market is continuing to deteriorate, eroding the size of paychecks, just as gasoline and food prices surge, and as the declining value of real estate erodes the wealth and credit of many households.

Ed Morrissey was quick to point out why the numbers don’t support what the media narrative claims:

Up to now, employment had held steady through a rocky economy barely staying out of recession. In May, that changed for the worse, as unemployment rose to its highest level since October 2004. However, only 49,000 workers lost their jobs, which doesn’t nearly account for the four-tenths rise … The real story here is unemployment among entry-level workers to the employment system. In summer, teenagers and college students enter the marketplace looking for seasonal and part-time work. This accounts for the significant rise in job-seekers and the 0.4% increase in unemployment. Otherwise, an overall job loss of 49,000 jobs would account for a 0.04% increase in a market of 138 million workers.

fast food worker

King Banaian also took a look at the May numbers (in comparison with April), and while he disagrees somewhat with Ed’s account for the number of new entrants to the job market, he finds validity with respect to the rise in the unemployment rate: (more…)

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Moral, Yet Alluring

Huckabee Endorsed by God sign
photo: Steve Kaiser

Have you ever taken a moment to read some of the many Huckabee blogs that have sprung up over the past months? They’re really quite strange. For instance, here is a snippet from a Blogs 4 Huckabee post on Ann Coulter’s infamous endorsement of Hillary Clinton:

If the Democrats win, the American people will flock to the Party of God. As it is, 8 years of moral, sensible government have made the American people complacent, and ripe for the lies and distortions of a deviant candidate like Hitlery.

As usual, Coulter’s one of the smarter analysts out there. (I do wish she’d strap her chest down, but otherwise I also find her a very moral, and very alluring, woman.) Where I tend to disagree with her is her failure to endorse Brownback. I’m not sure America can stand 4 years of Hitlery, even if it’s followed by another 2 decades of Republican dominance. We’re still languishing under a recession caused by Bill Clinton; do we really want a Hitlery recession added onto that? We’ll be in the Great Depression in no time if we keep letting Democrats rule us.
(Blogs 4 Huckabee)

Probably the most disturbing element of this is his using the term “Party of God” in a sincere and supportive way to describe the GOP. “Party of God” in Arabic is literally “Hezbollah.”

But where do you even proceed from there? Moral yet alluring? A recession caused by Bill Clinton in 2008, Ann Coulter as the smartest “analyst,” with her only fault being a failure to endorse Sam Brownback of all things? Yes, this is pretty much beyond criticism, and well into the realm of opinions which are simply too bizarre to seriously comment on.

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The Harley Report

As I noted earlier, Dale Franks was curious about how Harley Davidson (HOG) would do on its latest earnings release:

One earnings report to watch this week, though, is Harley-Davidson (HOG). It’s a solid company with a loyal customer base—I’m one of them actually—but, motorcycles are a luxury item. For every guy like me that rides practically every day, and uses a motorcycle as their primary transportation—there are about 10 guys that ride for maybe 2,000 miles a year. Or less. Those people are gonna stop riding—and buying—new motorcycles.

In fact, if the rumors are true, they already have, and Harley’s results for last quarter will be below analysts estimates. In the last year, Harley sold substantially fewer motorcycles than in 2006. Also, Harley’s stock has already lost about half of it’s value in the last year already, and disappointing earnings for last quarter won’t help.

The thing is, Harley is an interesting proxy for luxury buying. If Harley’s sales are looking bad on the 24th, when earnings are announced, that’s a pretty good indicator that consumers are shutting off buying non-essentials, a good indication of belt-tightening, and general economic cooling.

So what happened?

Revenue for the quarter was $1.39 billion compared to $1.50 billion in the year-ago quarter, a 7.7 percent decline. Net income for the quarter was $186.1 million compared to $252.4 million, down 26.3 percent versus the fourth quarter of 2006. Fourth quarter diluted earnings per share were $0.78, a 19.6 percent decrease compared to $0.97 in the fourth quarter of last year.

[...]

“Harley-Davidson managed through a weak U.S. economy during 2007,” said Jim Ziemer, Chief Executive Officer of Harley-Davidson, Inc. “As we announced in September, we reduced our wholesale motorcycle shipment plan for the fourth quarter, fulfilling our commitment to our dealers to ship fewer Harley-Davidson motorcycles than we expected our dealers worldwide to sell at retail during 2007,” said Ziemer.

[...]

Revenue from Harley-Davidson motorcycles was $1.12 billion, a decrease of $105.5 million or 8.6 percent versus the same period last year. Shipments of Harley-Davidson motorcycles totaled 81,206 units, a decrease of 11,642 units or 12.5 percent compared to last year’s fourth quarter.

[...]

U.S. retail sales of Harley-Davidson motorcycles decreased 14.2 percent for the quarter. The heavyweight motorcycle market in the U.S. decreased 9.0 percent for the same period.

[...]

For the full year of 2007, worldwide retail sales of Harley-Davidson motorcycles decreased 1.8 percent compared to the prior year. In the U.S., Harley-Davidson dealer retail sales decreased 6.2 percent for the full year; international retail sales increased by 13.7 percent. The U.S. heavyweight motorcycle market was down 5.0 percent for the full year of 2007.

To recap, miserable in the US, but offset to some degree by strong sales overseas. I think that meets Dale’s requirement for a bearish signal for the US economy. That was also at the low end of estimates. Yeah, it is getting whacked.

HOG

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Today’s links: Washington tries to step up

 (cross posted at Risk and Return)

Ben Bernanke gives Congress and the President the green light to take steps to stimulate the economy along with a warning:
(more…)

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The Mildest Recession?

Morgan Stanley expects a “mild and short” recession in 2008, with peak unemployment of 5.6% or 5.7% in early 2009. Mark Perry points out that would make it the mildest and shallowest recession since the second world war.

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Rumors of Recession

Hyundai is contemplating pulling its Superbowl advertising, citing sudden concerns about US economic indicators. Traditionally ad budgets are the first to go when firms start believing they’re entering a recession. Not the most encouraging news of the day.

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Today’s links: The Housing Market

(cross posted at Risk and Return)

Paper Economy has taken a close look at what it will take to get inflation adjusted housing prices in Massachusetts back to trend over a five year period. It should be noted that for this to happen sooner the decline would have to be deeper (due to inflation doing less of the work for us.)

The following chart (click for much larger version) shows that in order to bring Massachusetts “real” home prices (as tracked by the OFHEO home price index for Massachusetts) in-line with the average annual return of 2.5% seen since the early 1970s, nominal prices have to complete a 16.8% decline (or 28.8% in “real” terms) from the latest peak.

Housing Massachusett's

(more…)

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A Mid Cycle Slowdown

Many people argue that we are experiencing no more than a mid-cycle slowdown. Certainly that was a potential outcome I considered likely if a full blown recession didn’t occur. The recent job numbers on the surface can certainly provide a prima fascia case for that. There are a number of issues, but Paper Economy explains some of the reasons why those numbers may not be as comforting as some claim.

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Is Fiscal Stimulus the Answer? -updated

The economy is slowing, and if we are not already in a recession (I think we probably are) the risks of one are certainly high. So should our politicians do something with fiscal policy? Alex Tabarrok says no :

Fourth, in their desperation to “do something” politicians will often do something foolish. If a spending increase or tax cut isn’t worthwhile on its own merits then it’s highly unlikely to be worthwhile once we add in the benefits of “stimulus.” Thus, it’s one thing to argue for extending unemployment benefits as a matter of welfare it’s quite another to think that an increase in unemployment benefits will so increase spending as to reduce unemployment! (The implicit view of Larry Summers.)

I admit to being dubious of legislation and federal government action being useful for short term economic swings. Here are the other quite compelling reasons why:

First, the money for any new spending or tax cuts has got to come from somewhere, right? Thus there is usually substantial crowding out of any stimulus.

Second, by the time the new spending or tax cut gets through the political process the economy has moved on and the stimulus is no longer relevant except by accident.

Third, there just isn’t that much discretionary spending to play with and even a large increase in spending, say tens of billions, is too small to make much of a difference in a 13 trillion dollar economy.

My emphasis above. I am always amused at the power people ascribe to what seems to be a large action, but in the context of the US economy and financial system is actually pretty paltry. That goes for most actions undertaken by the Federal Reserve as well. Finally, even for those amongst us, especially economists, who find those arguments less than compelling, we should all remember this:

Economists may call for “temporary,” “conditional,” and “targeted” stimulus but they won’t be the ones designing the plan. Spending increases and tax cuts are policies with long term consequences that we need to think about carefully.

My own view relates to the first reason I quoted. Spending and tax decisions should make sense in and of themselves, not because of some quixotic attempt to influence the short term course of the economy.

Update: McQ is dubious about the specific package being offered by the Democrats in Congress on far less general grounds as well.

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