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  • Wall Street Journal: Economy's worst than you think.

    I pulled this off another forum I read.

    The recent unemployment numbers have undermined confidence that we might be nearing the bottom of the recession. What we can see on the surface is disconcerting enough, but the inside numbers are just as bad.

    The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

    Here are 10 reasons we are in even more trouble than the 9.5% unemployment rate indicates:
    - June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.

    - More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.

    - No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey.

    - The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

    - The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

    - The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.

    - The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.

    - The goods producing sector is losing the most jobs -- 223,000 in the last report alone.

    - The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

    Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period.

    Can we find comfort in the fact that employment has long been considered a lagging indicator? It is conventionally seen as having limited predictive power since employment reflects decisions taken earlier in the business cycle. But today is different. Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook.

    How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10% of the stimulus package today.

    About 40% of U.S. workers believe the recession will continue for another full year, and their pessimism is justified. As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough.

    It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden was right when he said a week ago that the administration misread how bad the economy was and how effective the stimulus would be. It was supposed to be about jobs but it wasn't. The Recovery Act was a single piece of legislation but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.

    Another $150 billion, which was allocated to state coffers to continue programs like Medicaid, did not add new jobs; hundreds of billions were set aside for tax cuts and for new benefits for the poor and the unemployed, and they did not add new jobs. Now state budgets are drowning in red ink as jobless claims and Medicaid bills climb.

    Next year state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending, raise taxes, or both. State and local governments, representing about 15% of the economy, are beginning the worst contraction in postwar history amid a deficit of $166 billion for fiscal 2010, according to the Center on Budget and Policy Priorities, and a gap of $350 billion in fiscal 2011.

    Households overburdened with historic levels of debt will also be saving more. The savings rate has already jumped to almost 7% of after-tax income from 0% in 2007, and it is still going up. Every dollar of saving comes out of consumption. Since consumer spending is the economy's main driver, we are going to have a weak consumer sector and many businesses simply won't have the means or the need to hire employees. After the 1990-91 recessions, consumers went out and bought houses, cars and other expensive goods. This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending.

    This process is nowhere near complete and, until it is, the economy will barely grow if it does at all, and it may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of excessive debt has been completed. Until then, the economy will be deprived of adequate profits and cash flow, and businesses will not start to hire nor race to make capital expenditures when they have vast idle capacity.

    No wonder poll after poll shows a steady erosion of confidence in the stimulus. So what kind of second-act stimulus should we look for? Something that might have a real multiplier effect, not a congressional wish list of pet programs. It is critical that the Obama administration not play politics with the issue. The time to get ready for a serious infrastructure program is now. It's a shame Washington didn't get it right the first time.
    I picked the wrong time to separate from the military. :P

  • #2
    Re: Wall Street Journal: Economy's worst than you think.

    No wonder poll after poll shows a steady erosion of confidence in the stimulus. So what kind of second-act stimulus should we look for? Something that might have a real multiplier effect, not a congressional wish list of pet programs. It is critical that the Obama administration not play politics with the issue. The time to get ready for a serious infrastructure program is now. It's a shame Washington didn't get it right the first time.
    Washington didn't get it right the first time at least in part because of politics, and those politics haven't seemed to change. I'm talking about the anti-spending, anti-deficit politcs that caused the January stimulus to not even get a single republican vote in the house, mostly in the name of anti-spending politics. I'm also talking about the pundits and media outlets that are questioning the effectivness of the stimulus in precisely the wrong ways - claiming that was wasteful, inneffective and therefore should not have been done. Just about every economist publishing a viewpoint as well as even the more conservative news outlets (WSJ included) are talking of a second stimulus - that the first was not enough, but nothing has changed politically. Biden is being honest when he says they misread the economy, but he's not telling the whole story. They should have been more politically agressive with some of these fiscally conservative views that are being blinded by their own ideologies as the nation (and the world) goes through a time of severe economic recession. Some claim that it's unfair to saddle future generations with such deficits (blaming Obama, as if Bush Jr. delivered a pristine budget) - is it more fair to leave them a third-world economy instead?

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    • #3
      Re: Wall Street Journal: Economy's worst than you think.

      So you're begging consumers to spend? With what? Money that government taxes away from consumers and their employers?! Let them keep it so they can spend it. And not just for this year, because people won't change their spending habits unless they're guaranteed a long-term change in income. Make those tax cuts and credits for consumers permanent.

      As to undercounting unemployment, is this new undercounting, or have the same rules applied in boom years? To properly evaluate a trend, you need to use consistent data, which means you need to apply the same counting rules over the whole period.
      Dude, seriously, WHAT handkerchief?

      snooggums' density principal: "The more dense a population, the more dense a population."

      Iliana: "You're a great friend but if we're ever chased by zombies I'm tripping you."

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      • #4
        Re: Wall Street Journal: Economy's worst than you think.

        Their stimulus is bigger than our stimulus.

        China's $585 billion stimulus is showing signs of a huge payoff - maybe even too huge. Granted, the U.S. economy is drastically different - where China's economy is more production-based, the U.S. economy is consumption-based, and the actual causes of the recession in either nation are different. None the less, their turnaround is occuring at a rapid pace. By comparison, the U.S. stimulus was miniscule. These economists pointing at the need for more stimulus - and more directed specifically at permanent job creation - may very well be right. So again, we will be back to political battling over debt. It's the wrong debate to have.

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        • #5
          Re: Wall Street Journal: Economy's worst than you think.

          Originally posted by ScratchMonkey View Post
          So you're begging consumers to spend? With what? Money that government taxes away from consumers and their employers?! Let them keep it so they can spend it. And not just for this year, because people won't change their spending habits unless they're guaranteed a long-term change in income. Make those tax cuts and credits for consumers permanent.

          As to undercounting unemployment, is this new undercounting, or have the same rules applied in boom years? To properly evaluate a trend, you need to use consistent data, which means you need to apply the same counting rules over the whole period.
          It's the same undercounting that has occurred for a long time, the mid to late 70's I believe. With CIT needing to restructure, (even after getting over 2B in TARP monies when their company holds 70ishB in assets, they still need ch 11 to save their butts, which leads one to wonder how many companies made horrifically bad large investments over the last 5 or 6 years?) there is a real danger of even more being lost if CIT starts the dominoes rolling. They finance a lot of small to large businesses purchases, and their failing will only signify the beginning of a trend, not the end of one. Sure, some of their slack will get picked up in other places, but far from all of it, which will lead to more layoffs and more closings, which will lead to higher unemployment.

          I figure we have until november for the gov't to do something before bad turns to worse.

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          • #6
            Re: Wall Street Journal: Economy's worst than you think.

            Originally posted by ScratchMonkey View Post
            As to undercounting unemployment, is this new undercounting, or have the same rules applied in boom years? To properly evaluate a trend, you need to use consistent data, which means you need to apply the same counting rules over the whole period.
            Theres a variety of indicators related to employment that are not part of the official unemployment statistics, as indicated by the article. You are correct that this is not a new policy -- they have never been part of the unemployment statistics. So its not entirely fair to compare unemployment + related numbers today to unemployment alone in prior years, but on the other hand the related numbers arent completely irrelevant either. In boom years when unemployment goes down, the related numbers also go down, but I couldn't tell you exactly how far because they aren't typically published.

            @Mosely: I don't know why you are so dismissive of debt. In years to come the stimulus will be gone but the debt it created will still be around dragging down future production. But we don't even necessarily NEED to go there -- debate on the last stimulus wasn't JUST about debt. The Republicans locked arms to vote 100% against it because the stimulus didn't actually stimulate much of anything. It wasn't debt-for-a-good-cause, which might in theory be bearable, it was just debt-cause-we-say-so. If you're going to propose crippling levels of debt to pay for a stimulus program, the program damn well better be designed to offer some impressive payoffs, but the ones we've seen so far have not done that.

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            • #7
              Re: Wall Street Journal: Economy's worst than you think.

              It came close. It still may happen.

              Thursday, March 13, 2008
              LAST NIGHTS SESSION WAS ONLY THE FOURTH TIME IN 176 YEARS THAT CONGRESS CLOSED ITS DOORS TO THE PUBLIC
              Word has begun leaking from last nights special, closed-door session of the United States House of Representatives.

              Not only did members discuss new surveillance provisions as was the publicly stated reason for the closed door session, they also discussed:

              the imminent collapse of the U.S. economy to occur by September 2008,

              the imminent collapse of US federal government finances by February 2009,

              the possibility of Civil War inside the USA as a result of the collapse,

              advance round-ups of "insurgent U.S. citizens" likely to move against the government,

              The detention of those rounded-up at "REX 84" camps constructed throughout the USA,

              the possibility of retaliation against members of Congress for the collapses,

              the location of "safe facilities" for members of Congress and their families to reside during expected massive civil unrest

              the necessary and unavoidable merger of the United States with Canada (for its natural resources) and with Mexico (for its cheap labor pool),

              the issuance of a new currency - THE AMERO - for all three nations as the proposed solution to the coming economic armageddon.

              Members of Congress were FORBIDDEN to reveal what was discussed. Several are so furious and concerned about the future of the contry, they have begun leaking info. More details coming later today and over the weekend. SPREAD THE WORD!!!
              The Bush administration and Congress discussed the possibility of a breakdown in law and order and the logistics of feeding US citizens if commerce and banking collapsed as a result of last autumn's financial panic, it was disclosed yesterday.

              Making his first appearance on Capitol Hill since leaving office, the former Treasury secretary Hank Paulson said it was important at the time not to reveal the extent of officials' concerns, for fear it would "terrify the American people and lead to an even bigger problem".

              Mr Paulson testified to the House Oversight Committee on the Bush administration's unpopular $700bn (426bn) bailout of Wall Street, which was triggered by the failure of Lehman Brothers last September. In the days that followed, a run on some of the safest investment vehicles in the financial markets threatened to make it impossible for people to access their savings.

              Paul Kanjorski, a Pennsylvania Democrat, asked Mr Paulson to reveal details of officials' concerns, which were relayed to Congress in hasty conference calls last year. The calls included discussion of law and order and whether it would be possible to feed the American people, and for how long, according to Mr Kanjorski.

              "In a world where information can flow, money can move with the speed of light electronically, I looked at the ripple effect, and looked at when a financial system fails, a whole country's economic system can fail," Mr Paulson said. "I believe we could have gone back to the sorts of situations we saw in the Depression. I try not to use hyperbole. It's impossible to prove now since it didn't happen."

              The Oversight committee is investigating the takeover of Merrill Lynch by Bank of America, a deal forged in the desperate weekend that Lehman Brothers failed, and which later required government support because of Merrill's spiralling losses.

              Mr Paulson defended putting pressure on Bank of America when it had last-minute doubts about the deal in December. Not to have done so could have rekindled the "financial havoc" the bailout had calmed.
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              • #8
                Re: Wall Street Journal: Economy's worst than you think.

                Originally posted by WarProphet View Post
                It came close. It still may happen.
                Please include citations to whatever you quoted. I'm sure the hardworking cranks at conspiracyloonfrothblog.com would appreciate some recognition.

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