Green Shoots, Leaves?

More dour news from the economy, on retail sales and new jobless claims. I concur with John Cole:

I guess we can throw “Sure, we are losing jobs but at least the rate of job losses slowed” out the window. Anyone who uses the phrase “green shoots” should be viewed as a lunatic.

And with 800 Chrysler dealerships about to shutter, more bankruptcies (Wow, Clear Channel, really?) on the way, and CRE loans threatening to take down regional banks as part of a second foreclosure wave, I think the new move from the political leadership needs to be from optimism to pessimism. If we continue to live in a rosy stress test world, we'll end up unprepared for the potential dangers to come. Complacency will sink us - contemporary reports in 1930 featured a lot of hopeful happy talk, too:

I will say that I think the greatest objective economic risk at this point is policymaker over-optimism. We need the European Central bank to continue loosening monetary policy, and it wouldn’t hurt if some of the world’s lesser central banks followed suit. We could use more stimulus in the United States and elsewhere in the developed world. We need corporate executives to understand the main risk to their interests to be coming from a lack of adequate economic recovery efforts rather than from losing small-bore political arguments with congressional Democrats. We need smart growth policy in terms of tax reform and trade. We need, in short, policymakers to continue to be worried. If they’re worried, and if they act on those worries, then more likely than not things won’t stay too bad for too long. But if they feel confident, then we might really be in trouble.

Unfortunately, the policy world has a hard time steering a middle ground between an atmosphere of panic, which is counterproductive, and an atmosphere of overconfidence, which is also counterproductive.

Leave the green shoots at the door and talk straight to the American people. And yes, we need a second stimulus bad.

Still Negative-1 Shopping Days Left Until Christmas

On Christmas Day, the Washington Post tried to spin some retail sales numbers, noting with pride that they had risen month-to-month in November for the first time since May. Apparently the idea that the holiday shopping season started in November, and October was a real cratering on retail sales, weren't enough context for them to stop writing the story, not to mention the fact that retailers were offering huge discounts just to get people in the store. A better judge of the retail market is probably year-over-year sales than month-to-month, and on that score, the news is as bad as ever.

U.S. retailers' sales fell as much as 4 percent during the holiday season, as the weak economy and bad weather created one of the worst holiday shopping climates in modern times, according to data released on Thursday by SpendingPulse.

The figures, from the retail data service of MasterCard Advisors, show the 2008 holiday shopping season was the weakest in decades, as U.S. consumers cut spending as they confront a yearlong recession, mounting job losses and tighter credit.

"It's probably one of the most challenging holiday seasons we've ever had in modern times," said Michael McNamara, vice president of Research and Analysis at MasterCard Advisors.

As holiday sales often make up for a lot of retailers' entire yearly profit margins, expect a fair amount of bankruptcies and store closings in Q1 of next year. We are not even close to being on the upswing. The hope is that it can't get too much worse.

Off The Cliff

533,000.

Skittish employers slashed 533,000 jobs in November, the most in 34 years, catapulting the unemployment rate to 6.7 percent, dramatic proof the country is careening deeper into recession.

As companies throttled back hiring, the unemployment rate bolted from 6.5 percent in October to 6.7 percent last month, a 15-year high.

"These numbers are shocking," said economist Joel Naroff, president of Naroff Economics Advisors. "Companies are sharply reacting to the economy's problems and slashing costs. They are not trying to ride it out."

The unemployment rate would have moved even higher if not for the exodus of 422,000 people from the work force. Economists thought many of those people probably abandoned their job searches out of sheer frustration. In November 2007, the jobless rate was at 4.7 percent.

And job losses in September and October were revised downward as well. Basically it's something like 750,000-800,000 less jobs in all. And combine this with the really pathetic retail sales figures in November.

By the way, people holding their breath that the credit crisis is over had better think again. It's not, despite hundreds of billions of dollars pumped into banks. And that's driving the job loss. If small businesses can't receive credit, they're not going to increase payroll or even keep it the same.

I don't know what the President-elect can do about this and I think it's pretty silly to criticize him for, what, not storming the gates of the White House and taking over, but clearly this interregnum period is having disastrous effects. With more Administration meetings on the "Bush legacy project" than the economy, seemingly, there's really nobody at the controls of the ship of state.

"At a time of great crisis with mortgage foreclosures and autos, he says we only have one president at a time," (Barney) Frank said. "I'm afraid that overstates the number of presidents we have. He's got to remedy that situation."

But how? He can start making some calls and leaning on lawmakers, I suppose. But to what end? We're not going to pass a trillion-dollar stimulus while George Bush is still President.

I think people have to get used to the fact that nobody really knows the proper course of action here. This is a very scary time.

UPDATE: Obama statement:

"The 533,000 jobs lost last month, the worst job loss in 34 years, is more than a dramatic reflection of the growing economic crisis we face. Each of those lost jobs represents a personal crisis for a family somewhere in America. Our economy has already lost nearly 2 million jobs during this recession, which is why we need an Economic Recovery Plan that will save or create at least 2.5 million more jobs over two years while we act decisively to maintain the flows of credit on which so many American families and American businesses depend.

"There are no quick or easy fixes to this crisis, which has been many years in the making, and it's likely to get worse before it gets better. But now is the time to respond with urgent resolve to put people back to work and get our economy moving again. At the same time, this painful crisis also provides us with an opportunity to transform our economy to improve the lives of ordinary people by rebuilding roads and modernizing schools for our children, investing in clean energy solutions to break our dependence on imported oil, and making an early down payment on the long-term reforms that will grow and strengthen our economy for all Americans for years to come," said President-elect Obama.

There's been a subtle shift in language. Now we're talking about saving or creating 2.5 million jobs. I think that's a signal that recovery money will go to state and local governments to fill the holes in their budgets. But beyond that, it's a bad sign. Because it means Obama no longer thinks it realistic to create that many jobs. 2009 is going to be awful. And there will be many who blame him.

Get Ready For The Suck

The new kind of trickle-down in the US economy is the trickle of job losses in the shaky manufacturing and construction sectors into scale backs in consumer spending, which will lead to job losses in retail. Which is exactly what's happening. Circuit City, a really crappy store which treats their workers like garbage (they fired a bunch of them a couple years back for making too much money), filed for bankruptcy protection today. DHL in Wilmington, Ohio is pulling up stakes, a move suggested during the Presidential campaign (John McCain and staffers like Rick Davis were instrumental in putting the DHL sale to a German company through, and this was the inevitable result). That's basically a whole city you're about to see go under.

The spiral downward cannot be counteracted without massive stimulus, and soon. Paul Krugman had a good idea over the weekend, to aid state and local governments who might otherwise lay off teachers, cops, firefighters and state employees:

State and local governments operate under fiscal rules that lead to booming spending and tax cuts when the economy is strong and the reverse when the economy is weak. This is bad governance: services are cut precisely when people need them most. It’s also bad macroeconomics: it exacerbates the business cycle.

Right now, we’re seeing a sharp drop in state revenues, which is going to lead to big cutbacks in spending and tax increases at exactly the wrong time.

Obama mentioned aid to state and local governments in his press conference yesterday. Indeed. This is a very quick form of fiscal stimulus, because it’s not about starting new spending, it’s about sustaining current spending. It should be done immediately.

But what if Bush says no? Congress should pass the aid plan anyway, and Obama should promise to sign it as soon as the current tenant vacates the White House. That way states will know that the money is coming, and be able to budget accordingly.

That's pretty urgent, as state budgets get revised and workers either lose their jobs or keep them. A new wave of job loss is not what we need right now.

Krugman also offers a word of warning about how to best understand the Roosevelt era - we didn't have ENOUGH spending at key moments.

The political lesson is that economic missteps can quickly undermine an electoral mandate. Democrats won big last week — but they won even bigger in 1936, only to see their gains evaporate after the recession of 1937-38. Americans don’t expect instant economic results from the incoming administration, but they do expect results, and Democrats’ euphoria will be short-lived if they don’t deliver an economic recovery.

The economic lesson is the importance of doing enough. F.D.R. thought he was being prudent by reining in his spending plans; in reality, he was taking big risks with the economy and with his legacy. My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.

In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.

Indeed.

As Retail Goes...

...so goes the economy. Watch the LA Times try to spin this as good news for bargain hunters!

After 59 years in business, the Mervyns department-store chain called it quits Friday -- promising a huge going-out-of-business sale just in time for the holidays.

And there is plenty of competition for a close-out Christmas. Linens 'n Things Inc. began a liquidation sale Friday, and Shoe Pavilion Inc. starts one this weekend, according to firms that said they were hired to liquidate the stores.

Already gone are the novelty retailer Sharper Image Corp., Wickes Furniture and Levitz Furniture, and retail experts say more closings loom.

"This is unprecedented, really, the number of stores that are going to be closing," said Daniel Kane, principal of Tiger Capital Group, one of several firms hired to liquidate Linens 'n Things and Shoe Pavilion. "There's going to be a tremendous amount of bargains out there."

I think the larger point is that retail stores can't stay open, not that there will be abundant sales spectaculars.

Consumer spending is something like 2/3 of all economic activity, and when people can't keep their job, or can't borrow against their house or their credit card, they can't spend. They don't have a money printer like the government. They can't bail themselves out. So belt tightening leads to store closings, which leads to more job loss, which leads to belt tightening. It's a downward spiral.

And it's UNSUSTAINABLE to rely on the American consumer to drive the entire economy. You have to make stuff as a nation. This is why we desperately need a job creating fiscal stimulus.

On the other hand, there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

Will the next administration do what’s needed to deal with the economic slump? Not if Mr. McCain pulls off an upset. What we need right now is more government spending — but when Mr. McCain was asked in one of the debates how he would deal with the economic crisis, he answered: “Well, the first thing we have to do is get spending under control.”

If Barack Obama becomes president, he won’t have the same knee-jerk opposition to spending. But he will face a chorus of inside-the-Beltway types telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable.

He should ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.

I feel a little better about the Beltway chorus after seeing Ruth Marcus' recognition that cutting spending in an economic downturn is suicide.

Ruth Marcus: I'm sure I should have been clearer on this in the column, but I was not arguing for mid-recession belt-tightening. We're all Keynesians now and I am open to stimulative action in the short term. What I am hoping for is that the moment could be used as a way to forge a more responsible, more productivity-enhancing budget in the longer term, that could fund investments in important things like health care, and free the next president from some of his more unaffordable promises.

The responsible thing to do right now is invest in America's future, in its infrastructure and in long-term sustainable industries like renewable energy. Fixing the health care crisis for the sake of American competitiveness must be a priority as well. Considering that John McCain thinks that putting money in the hands of low-income people who will actually spend it during a recession makes no sense and rewards "lucky duckies", the choice for President is clear.

The Nature Of The Problem

Yesterday may have been the day Barack Obama thought "holy crap".

WASHINGTON - Democratic presidential candidate Barack Obama on Monday blamed "irresponsible decisions" by the Bush administration and Wall Street for the country's economic woes as government officials said the budget deficit would soar to record heights next year [...]

Obama said the economy needs both short- and long-term fixes, including another round of "stimulus" measures from Congress to revive the economy and a longer-term focus on renewable energy to curb high gas prices and on universal health care to trim costs. He said he would move "rapidly and vigorously" to respond [...]

Obama didn't name the Bush administration, but his implication was clear.

"We can't afford, I believe, to keep on doing the same things we've been doing," said Obama. "We have to change course, and we have to take immediate action."

Though the Depression was in full swing by 1932, I don't think FDR campaigned fully on creating a New Deal. He responded to events because he had no choice, and wasn't interested in just putting masking tape on the problem. Obama might be headed to such a reckoning. We know now that the next President will face an immediate half-trillion dollar shortfall, meager growth in the range of 1%, maybe 50 million uninsured, and a crumbling infrastructure that will require hundreds of billions to make safe. Those are the macro trends; at the micro level, people are hurting.

On Wednesday, the Federal Reserve's "beige book" of economic indicators from around the country portrayed consumer spending as "mixed, weak or slowing." The report, which gleans anecdotal information eight times a year from businesses across the nation, added that retail sales were "subdued" in Atlanta and "grim" in Dallas. Amid falling sales for discretionary items, the lone upbeat note was an uptick in electronics purchases.

Automobile sales, usually a reliable marker of consumer readiness to spend and borrow, were "uniformly weak" in every part of the nation, the federal report said.

Adding to the gloom, the National Assn. of Realtors said Thursday that sales of previously owned homes fell in June to their lowest level of the last decade [...]

For Steve Baker, 36, a propane gas service technician in the Indiana town of Warsaw, the $600 rebate was split between paying down his credit card bill and buying a weed-eater to contend with the lawn pests that afflict farmers and homeowners in his rural community.

"It was something I needed but I didn't think I'd be able to get until much later," he said.

The extra stipend came in handy but did nothing to ease Baker's anxiety about the nation's financial doldrums.

"It was like getting an end-of-the-year bonus at the beginning of summer," he said. "It was nice, but it didn't make me feel better about where the economy is going or where my financial picture is headed."

People aren't blinded by quick fixes because the structural problems are simply too big. Obama has to grasp this fundamental truth. His policies are already headed in the right direction, and clearly his knowledge of the economy far outclasses his opponent, who actually thinks we can shame the oil companies into giving some of their profits back.

STEPHANOPOULOS: But (economists) all say that . . . the oil companies, the gas companies are going to absorb … any reduction (in the gas tax).

MCCAIN: … they say that. But one, it didn’t happen before, and two, we wouldn’t let it happen. We wouldn’t let it — Americans wouldn’t let them absorb that.

STEPHANOPOULOS: How would you prevent that?

MCCAIN: We would make them shamed into it. We, of course, know how to — American public opinion. And we would penalize them, if necessary. But they wouldn’t. They would pass it on.

So you have a faith-based economics versus a reality-based economics. You have a tax system that rewards wealth versus one that rewards work. What I hope, however, is that Obama is understanding the actual reality and set to truly reward the working class at the expense of the big money boys who caused this unbalanced, catastrophic financial picture.nationa

Only 365 Shopping Days Until Christmas

It seems to me that holiday shopping statistics are starting to become as ubiquitous as weekend movie grosses (am I supposed to root for my favorite department store?), but they're still not getting the bare facts right.

I'm twiddling my thumbs for a bit until it's time to hop in the car and head over to my father-in-law's place, and a few minutes ago I came across a piece by Michael Barbaro in the New York Times about "bleak" retail holiday spending this year:

Spending between Thanksgiving and Christmas rose just 3.6 percent over last year, the weakest performance in at least four years, according to MasterCard Advisors, a division of the credit card company. By comparison, sales grew 6.6 percent in 2006, and 8 percent in 2005.

But this isn't right. As near as I can tell (though, naturally, Barbaro doesn't bother to mention it), these numbers aren't adjusted for inflation. In other words, they're useless. Here's what that paragraph should have said:

Adjusted for inflation, spending between Thanksgiving and Christmas declined 0.7 percent over last year, the weakest performance in at least four years, according to MasterCard Advisors, a division of the credit card company. By comparison, sales grew 4.0 percent in 2006, and 4.4 percent in 2005.

I can't imagine that conglomerate-owned media reports would leave out key details to keep up a fiction that the economy is just humming along. That doesn't even seem possible!

Meanwhile, I didn't even think it was possible to default on your credit cards given the easy availability of consumer credit, but now that's starting to happen.

Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.

An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.

Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.

Let me give you another example of a byproduct of the mortgage crisis; immigrants aren't finding construction jobs because housing starts are in the toilet, and they're going back to their home countries. Now, you'll hear a lot of other explanations for this, like various punitive laws in Arizona, but if there were jobs, they'd stay. This is going to be a real problem for lunkhead Republicans who want to blame everything on the brown people, including them causing the mortgage crisis by misunderstanding the forms, because as we all know it's been illegal immigrants buying those million-dollar homes. But the underground economy usually feels the crunch earlier than the economy in general, and if there aren't any jobs, there's no reason to live under fear of deportation. And then we'll see exactly how much these immigrants actually contribute to the economy once they're not around to do the menial labor anymore. Somehow the resultant economic downturn will ALSO be blamed on the brown people, too.

We're in a season of giving, but that will soon give way to a long winter and a lot of people with nothing left to give. The coming recession will be the final ignominy for an executive branch that has given up on competent stewardship.

Cry Me A River

I'm going to try not to engage in a bit of schadenfruede when I present this story.

Wal-Mart Stores Inc. posted its worst monthly same-store sales results in at least 28 years, tallying a 3.5% decline in April due to this year's early Easter as well as generally challenging economic conditions for consumers.

Wal-Mart's 3.5% drop in the four-week period ending May 4 at U.S. stores fell below its earlier forecast of "flat" sales to a 2% decline. In a recorded phone message Thursday, Wal-Mart blamed bad weather last month in most U.S. regions and the early Easter on April 8, which pushed many Easter sales into March.

The truth is that there's not really much growth available for Wal-Mart in the United States. Communities that don't want them have learned how to organize and block their entry. And they can't add market share in the small towns they've obliterated (which are losing population to boot). So their sales figures are sort of doomed.

None of this is to say that they aren't making money, just less money than before. The cruel irony is that this isn't good enough for boards of directors and greedy corporate execs... like the ones who work at Wal-Mart. Live by perpetual growth, die by perpetual growth.

And incidentally, all retail sales figures are down as the economy slows, perhaps due to those $3.50 a gallon gas prices. Again, the greed is getting the better of this economy. Maybe that's why these trade deals have increased importance, so additional markets can be forced open and labor costs can plunge even lower.