‘It’s all unraveling’ | Is this the last quarter of the recovery?

Image Credit: Editor B (Flickr) (CC BY 2.0)

Image Credit: Editor B (Flickr) (CC BY 2.0)

Has the U.S. economy turned a corner? Yes, and then another corner and now it’s going backward. A slew of bad economic data today. A taste of what economists are saying:

– It’s all unraveling this morning. OK in the US jobless claims fell and the consumer comfort index improved.  But the downward revision to GDP and the chillingly large drop in Durable goods orders is enough to send chills up your spine. Yes, aircraft and defense orders were the bulk of the weakenss. But nothing there is reassuring. Have the NFL’s replacement officials been collecting economic data? Please tell me it is so. – Economist Robert Brusca

– Durable goods headline looks like an F, details look like a D. … The latest durable goods data point to some downside risk to our GDP forecast for the third quarter, though we are leaving our GDP forecast at 1.5%. – JPMogan

– … there is growing risk that a 2013 tax shock could push the economy into recession (and there is little the Fed can do to offset the fiscal shock). – RDQ Economics

– Today’s U.S. reports included a disastrous August durable goods … the ex-air equipment orders data are now tracking a recession trajectory, which may reflect fiscal cliff uncertainty that will eventually be reversed, but which send a notable red-flag for U.S. growth. … We lowered our 1.5% GDP growth forecasts for both Q3 and Q4 to 1.4% … – Action Economics.

– A trend weakening in core business investment outlays deserves the most attention. – Citi

Then we have this recession forecast from Strategas Research:

If the above forecast is correct, the National Bureau of Economic Research might wind up declaring that the U.S. economy slipped back into recession in late 2012 even though the economy was actually not yet contracting at that point. (Here is my post from earlier on why we are in the recession red zone.)

And if that happens, economic historians might well shove aside the weak three-year recovery and call the entire 2007-2013 period the Long Recession or some such. I already have been, just like the 1980-82 period was a long recession, two downturns sandwiching a brief recovery.

28 thoughts on “‘It’s all unraveling’ | Is this the last quarter of the recovery?

    • Must you incessant pollute any discussion, of any topic, no matter how orthogonal to the current politic with some snide comment about Romney?

      It’s pathetic. And please pick another name, having read many of your posts and knowing the man’s work quite well, it’s wholly unfitting.

      • Excuse me, but my comment IS relevant, especially since the unmitigated glee Mr. Pethokoukis repeatedly takes in any negative economic metric he can dig up is utterly repugnant and intellectually dishonest.

        Mr. Murphy’s list of positive developments puts up quite a counterpoint, wouldn’t you think? There are more still.

        This country has been through a lot. The infantile snark that gets put up by this “Institute” is little more than political porn, and people react to it like porn. People pleasure themselves on getting their prejudices and hatreds validated.

        There are a many factors that contributed to our economic misery. The reasons pushed out by this on-line lie factory aren’t among them.

        But whatever our fortunes, I see no practical solutions presented by the authors here, nor any faults you can hang on the current administration for the slow speed of the recovery. And if the economy DOES recover in a second Obama term, rest assured Mr. Pethokoukis won’t be giving any credit to policy, but as he has already staked out, as a ferret marks his territory, it will be due to “natural recuperative powers” which of course, haven’t shown up just yet.

        Give me a break. If Zero interest rates for three years have gotten you this far, plus dozens of other smaller initiatives, you better wise up fast: this is not a recession in the classic sense but a profound remaking of the world’s economy. And no one, not Obama OR Romney, is having that conversation and telling people the truth.

        We are in uncharted territory. And the President is not the Wizard of Oz, or someone who can raise the dead.

          • Do not let my positive economic statistics be interpreted as an endorsement of Obama’s economic policies. Good things are happening despite his policies, not because of them.

          • “Do not let my positive economic statistics be interpreted as an endorsement of Obama’s economic policies. Good things are happening despite his policies, not because of them.”

            Give it a rest, Murph. The responses to the crisis were fairly by the book and quite orthodox. The administration and the Fed juiced the economy as much as could be done, and if anything, maybe Krugman and Romer were right- they didn’t go far enough, and the administration got snookered when we racked up a few consecutive months of strong employment gains.

            Between ZIRP, home buyer initiatives, cash for clunkers, accelerated depreciation on equipment purchases, payroll tax cuts, HAMP, HARP, streamline re-fis, workouts, and scads of other pump-ups, I don’t think there was a trick left in the book that could be tried. There was nothing this administration did to hold things back, and everyone can just can the “regulation and red tape” meme, because its meaningless nonsense.

            If anyone has any other ideas of what could have been done, well, you just chime in with something of substance.

          • That’s precisely my point, Max. The response was orthodox and the results were terrible. Even if you were to credit every job created over the past 4 years to stimulus spending (an incredibly stupid assumption), it works out to be about $250,000-$300,000 per job. Pretty perverse to call that a success when the private sector creates jobs for around $46,000 per job. Just like every other time the orthodox methods were tried, this failed.

            We don’t need more of the same. We need something new, something radical.

            Stimulus has never worked. Not even the CBO thinks so (read their reports on job creation and stimulus spending. It usually starts with a sentence along the lines of “assuming the ARA created jobs, how many jobs did it create?”) There is not a single historical case of it working. Not a one. Not during the 30′s, not during the 40′s, and sure as Hell not now.

            For a man who preached “change”, he sure likes the status quo.

            There are three simple things we can do right now that would get us on the right path: open our boarders, remove all trade barriers (tariffs, quotas, etc), and reduce licensing. All three of these things will create jobs, help people of all classes, support global economic growth, and create prosperity. And the best part: it won’t cost a penny.

            No government program can create prosperity. No government program ever has. There is no evidence to suggest otherwise, yet supposed “scientists” and intelligent people insist that it can.

            The problem with government is that it requires the hope that the “right” people will be in power and that they possess the “right” knowledge and apply it “correctly.” Well, any plan that requires hope is worthless. I’d rather rely on a plan that has a proven track record of success: free trade.

            Any centralized planning by any government, regardless of how it is structured, is doomed to fail. Why? The problem of knowledge. There are 7 billion people who make up the world economy. No one possesses the knowledge to co-ordinate this. Hell, no one possesses the knowledge to co-ordinate the 330 million Americans. Without that knowledge, the planning force will make decisions that make people worse off. When people are allowed to freely trade, only decisions that make them better off will occur. That is economic growth. That is prosperity.

            The problem is you are defining the economy incorrectly. It is not a “thing”. It is a collection of billions of individuals. There is no such thing as aggregate supply and demand. There is just supply and demand.

            The economy is organic. Think of it like a body. All the cells, organs, tissues, fluids, etc all work together. If you suddenly have a massive loss of blood, your aggregate fluid level will drop. Will adding more saliva solve that problem? your fluid levels are back up to where they were. Yay, problem solved!

            No, it doesn’t work that way. You would need more blood added.

            The problem with government planning is that it assumes resources are limitless. But for every resource consumed digging ditches and filling them back up, that is one less resource being used for something valuable. And everyone suffers from this.

            One final point for the evening, proving the futility of central planning:

            The Federal Reserve Bank was created to manage banking crises. The worst banking crises have happened under the Federal Reserve Bank’s watch.

          • Uh, Mr. Murphy the stimulus DID create jobs according to the CBO.


            Secondly, ARRA, through distributions to local governments and a successful, but not widely known program called “Build America Bonds” kept things from REALLY falling into the soup, and helped to complete or start hundreds of public infrastructure programs that would have been stranded by the collapse of revenue in the post Lehman period. It is a pity the BAB program was not extended, but the GOP house blocked it because it WAS successful.

            And this is your growth prescription?

            “There are three simple things we can do right now that would get us on the right path: open our boarders, remove all trade barriers (tariffs, quotas, etc), and reduce licensing. All three of these things will create jobs, help people of all classes, support global economic growth, and create prosperity. And the best part: it won’t cost a penny.”

            You’ve got to be kidding. That’s what you think the problems are?

            The rest of your post shows I gave you too much credit.
            ALL economies are “planned” in one way or another, and the romantic notion, mirrored in its ardor only in Marxism, is that a “natural” state of non-interference with markets will produce a garden of eden of prosperity is often seen in todays faux conservative commentariat.
            I’ve made that comment in many forums. But you’re the first one who actually made it into an anthropomorphism, attributing human or even deific qualities to this fantasy land.

            Modern societies do not work without control systems. We’re not cavemen, and we don’t live in an agrarian society.

            The closest we came to your ideal was with Bush, where people merrilly issued trillions in synthetic debt without any oversight, and you’re living with the results.

            This comment is fantasy:

            “The Federal Reserve Bank was created to manage banking crises. The worst banking crises have happened under the Federal Reserve Bank’s watch.”

            Which proves stunning ignorance. The 19th century is FILLED with panics, bank runs, and bouts with horrific instability, and that is why the Fed was created. To say the “worst” banking crises have happened under their watch is twaddle. And again, mirrors an insane narrative.

          • I can always tell when you feel over-matched because you start flipping out and just spewing nonsense (which happens quite frequently, actually). Nothing you said addresses any of what I said. You thew out a bunch if buzzwords and hoped one of them stuck. Unfortunately, none of them did.

            I think I gave you too much credit, too. I initially thought you were college educated. I take that back. You may have some college education, but nothing substantial. I’m thinking you are a teenager/early 20′s. You probably have a parent, teacher, possibly a blogger (somebody in a position of authority to you) who has an ax to grind. Since they themselves do not go to the Internet, you see it as your duty to this person to proclaim their arguments for all to see. The problem is, you do not understand their argument. You know buzzwords, phrases, and that’s about it. You do not know the underlying arguments. To compensate for this, you become aggressive. You hope that by directing personal attacks, you can deflect the conversation away from your weaknesses and towards an area you can win: shouting. People like you, Rush Limbaugh, and all these other pundits are all the same: all aggression, no substance.

            I am asking you politely: if you want to show how smart you are, then please do so in a calm and rational manner using facts, evidence, and theory. Shouting like a lunatic makes everyone think less of you.

            If you want to have a calm and rational discussion on the pros and cons of government involvement in the economy, than I am happy to do it. But as long as you are insulting, then you are not worth a second more of my time.

            Have a pleasant day and may God bless you and keep you until me meet again.

          • Excuse me, but you’re deflecting. I counterpointed you with hard evidence, and you launched into nothing more than personal invective.

            This is not a prescription for a recovery.

            “There are three simple things we can do right now that would get us on the right path: open our boarders, remove all trade barriers (tariffs, quotas, etc), and reduce licensing. All three of these things will create jobs, help people of all classes, support global economic growth, and create prosperity. And the best part: it won’t cost a penny.”

            Naturally, you claim you’re personally offended when you can’t answer for your own rhetoric.

            Nice try, but it’s a tired ruse.

    • How is your comment responsive to James article. So Obama wins. Great. The economy is still going to come in at under 2 percent growth for the second year in a row. That means the chances of a recession in 2013 are just about certian. At what point does Obama actually become responsible for the economy?

      And growth drives jobs. Even if we limp along at under 2 percent how long can the unemployment rate keep falling becuse peole have given up looking for work? And without jobs than the deficit keeps going up because you can’t control spending–either unemployment benefits get extended or welfare payments go up or disability payments go up. Or combinations of all three. And of course, tax revenues decrease.

      Best thing that ever happened to the Democrats was Al Smith losing in 1928. Not so sure that a Mitt loss would be all bad for Republicans.

      • Tim, I couldn’t agree more. If Obama gets re-elected it will be a long time before any Democrat will ever get elected again, as well it will destroy the Obama myth and he will have nobody to blame but himself…..kinda worth 10 trillion dollars

      • By making that comment about Al Smith, you proved one thing that a lot of people know: Hoover’s problems weren’t made BY him, they were made FOR him, by Coolidge, the idol of Reagan, and now, the bubble head Amity Shlaes.

        There are so many correlations to those times and now, with stock and real estate bubbles blown up due to people just turning a blind eye to the recklessness of American business practices in those days, you would be shocked. Read any book on the Depression. As historian Barbara Tuchman would have called it, it’s a “Distant Mirror” of our own age.

        The only problem for Bush, is that having served two terms, he is Coolidge AND Hoover rolled into one. That makes Obama the FDR guy.

  1. Not to worry, the Fed with their unlimited QE3 is going to gently re-inflate the balloon. There will never again be recession in the United States; THIS TIME they’re gonna get it right.

    • Must share that ZeroHedge calls it QEternity. Much snappier than unlimited QE3.

      Any bets on whether Obama will continue to say “The mess I inherited…” if he gets re-elected.

      With Europe, China and Japan all on the edge of the precipice and the USS TITANIC at flank speed in the financial icerberg field, we all know how this hideous story will end.

  2. I don’t know if I would go quite as far as saying this is the final quarter of the recovery.

    Let’s take a step back and look at some other numbers:

    Annual Retail Sales (adjusted for inflation and excluding automobiles, non-seasonally adjusted) is growing at the fastest pace in nearly 5 years and surpassed the pre-recession peak last month.

    Light Vehicle Production over the past 12 months totaled 14.9 million units (the highest level of production since Feb 2008), a gain of 19.2% from last year.

    Housing Starts are 24.1% above this time last year (there is still a long way to go in housing, but the gains are good signs).

    These three indicators are very important to the overall US economic health. All three of these lead the overall US economy. There has never been a recession as long as these indicators were rising.

    Some other good news:

    Annual Light vehicle retail sales totaled 14 million units, a gain of 13.2%.

    Both residential and nonresidental construction markets are improving.

    Industrial Machinery New Orders (which encompasses manufacturing equipment and is a good indicator of manufacturing activity) is rising.

    The decline in New Orders doesn’t have me dramatically worried yet as Unfilled Orders are still high. This suggests producers can work on these orders before they need to shut down their factories. This will likely prevent the sudden drop-off we saw in US Industrial Production in 2008.

    Now, all that being said, I do agree that a recession is coming. New taxes and regulations that go into effect next year will weigh on businesses and consumers alike. Europe is not likely to fix their problems any time soon. The potential for a trade war with China isn’t pleasant (just like any war, it is never those who start it who get hurt; it’s the civilians). Much of Dodd-Frank is still yet to be written, which makes banks and other financial institutions hesitant to lend.

    My analysis indicates we will start to see real weakness develop in the economy around the middle of 2013 with outright recession later on in the year. However, given the better balance sheets of consumers and businesses alike, we will be looking at a mild recession; nothing like 2008.

    So, I don’t think we need to hit the panic button quite yet.

  3. These people have no interest in a recovery. Their idea of of redistribution is to move money from the middle class to the upper middle class and to the wealthy via taxes and TARP. Money went to larval companies whose technology was not fully developed, who required very highly skilled development employees, and who had no concept of fiscal management.

    While I seriously suspect government programs as boondoggles, I proposed, in 2007, a program of infrastructure development which the country really needed. It was not a jobs program, but it morphed into one when this administration came into office. It started as training facilities and grew like Topsy when I was asked what I really thought we should do if there was a spinoff ideal.

    I re-imagined the project and came up with Emergency Preparedness Centers which could provide response in less than an hour to disaster areas. It was a modest response to Katrina-like, or terrorist, disasters, but it was a good one.

    The beauty of the project was manifold. First, it would be shovel ready in a matter of 60 to 90 days. Second, it would employ as many as 300K ground level tradespeople for 5 to 10 years. Third, the support hires to employee hires ratio was about 6 to 1, extrapolating total jobs to over 2 million at decent wages. Finally, the projects were needed due to the swelling danger of homeland terror attacks.

    What happened? Nada. The money is there from existing repayments of stimulus money. The will is there, ask any trades-person. It is ready to happen with 300 hires day one, 6000 hires week four, 50K by the 90 day mark.

    What began as a simple desire to build gun range training facilities to improve a 10% hit rate for federally sworn employees sat at the mercy of an administration more interested in heady discussion than doing anything like getting wages into the hands of regular human beings in the construction trades.

    If interested, you may see the entire business plan here:
    Stay to the right under “Home Page” as I’ve cleverly obscured the details from uninformed readers.

    One phone call from the right person would roll this onto the highway.

  4. ” Read any book on the Depression.”

    You mean read any liberal book. I’ve read plenty that demonstrate how FDR’s war on private enterprise lengthened and deepened the Great Depression.

    ” As historian Barbara Tuchman would have called it, it’s a “Distant Mirror” of our own age.”


  5. “The responses to the crisis were fairly by the book and quite orthodox. ”

    There’s quite a tendency on the left to deny their are other points of view even exist. Obama does this all the time with his “every serious economist says x” garbage.

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