James Pethokoukis

Politics and policy from inside Washington

Will Hurricane Irene be a black swan for the U.S. economy?

Aug 25, 2011 19:01 UTC

The U.S. economy is growing very slowly, just 0.4 percent in the first quarter, 1.3 percent in the second. And it might not do a whole better the rest of the year. That’s a problem. A recent study from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time. (And when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time.

So while we may be in a recovery, it’s a fragile one, at best. In short, nothing can go wrong or we’ll end up back in recession. That’s a big reason everyone is so focused on Europe and its ongoing sovereign debt and banking troubles. And why problems at Bank of America cause flashbacks of 2008.

But what about the nasty storm making its way up the East Coast? What’s the potential it causes enough economic damage and disruption to nudge the American economy back into a downturn? Well, I suppose the worst-case scenario would be a direct strike on New York City. That would be pretty bad:

In the city, a hurricane’s storm surge would cause sudden, extensive flooding, submerging much of Lower Manhattan and crippling the subway system and tunnels.

The powerful winds would uproot thousands of trees, down power lines and send debris flying in all corners of the city. And those winds could shatter windows on skyscrapers, especially in the taller buildings that would bear the brunt of powerful gusts that occur at higher elevations. The canyons of Manhattan could magnify the winds, and would be a deadly place for anyone caught beneath the raining glass.

Other comparisons to Hurricane Katrina are hard to ignore. Katrina, the most costly natural disaster in U.S. history, caused insured losses of more than $40 billion in 2005. AIR Worldwide, a firm that models disaster scenarios for insurance companies, has said that a repeat of the Long Island Express would cost $33 billion if it happened today. In the most dire projections, a direct hit on New York City could cost upwards of $100 billion.

The impact would be felt long after flood waters recede. Coch predicts that the salt water in the subway would corrode the switches and cripple the system for months or years, and disable much of the communications infrastructure in Lower Manhattan. “In 1893, Wall Street was cut off from the rest of the country when the telegraph lines went down,” he said. “Imagine what would happen now when the fiber optic cable failed.”

Sounds a lot worse than Hurricane Katrina given the incredible importance of Manhattan to the U.S. and global economy. Tough to quantify, of course. But, for comparison purposes, here is a Congressional Research Service analysis of the economic impact of Katrina in 2005:

Since the storm, a number of economic forecasters have adjusted their predictions to reflect its effects. Most indicate that, as a result of the storm, national economic growth is expected to be 0.5%-1.0% slower than in the second half of 2005. However, as economic activity recovers in the affected region, and rebuilding begins, growth in the first half of 2006 is now expected to be more rapid than was previously forecast.

Back in 2005, the economy was growing at a 3-4 percent clip. Today, it’s less than 2 percent. Maybe even less than 1 percent. It seems pretty clear a devastating hit on the Big Apple might well send the economy back into recession. And given the current fragility of consumer and business confidence, how likely is it that the economy would quickly bounce back into growth in a quarter or two? Here’s how Japan is doing, by the way, after its pair of natural disasters earlier this year:

Five months after a tsunami and nuclear meltdown assailed Japan, the economy has been pummelled by fresh blows. Share prices have followed global stockmarkets down, with the Nikkei 225 index revisiting its nadir in the days after the earthquake in March. As if the fears about a global slowdown that have depressed equity investors were not enough, the yen has been soaring, which will hurt Japanese exporters. Adding to the pain, Moody’s, a credit-rating agency, downgraded Japan’s debt rating one notch to Aa3 on August 24th because of its huge public debt and chaotic politics.

COMMENT

The economy should not be the main concern here, we should be focused on preparing. Our lives, homes, and families are in danger. We always worry about the economy, we know this storm could potentially be a huge downfall, but that’s not the issue right now. We need to make sure we are safe until the hurricane is over. The economy should be the least of our concern. Don’t you just love how people are more worried about money than their lives?

Posted by 321anonymous123 | Report as abusive

Economy poised to make Obama a one-termer

Aug 22, 2011 17:51 UTC

Just how much would a continued weak economy hurt President Barack Obama’s 2012 reelection chances? There are a few different ways of looking at this — and none of them seem particularly promising for the man currently occupying the Oval Office:

1)  Slow Economy. Yale economist Ray Fair has a well-known election forecasting model that uses three economic variables to makes its call: a) growth rate of real per capita GDP in the first three quarters of 2012; b) growth rate of the GDP deflator in the first 15 quarters of the Obama administration, c) number of quarters in the first 15 quarters of the Obama administration in which the growth rate of real per capita GDP is greater than 3.2 percent at an annual rate.

Now Fair, who also has an economic forecasting model, is pretty bullish on the economy (at least as of July 31), predicting real per capita GDP growth of  3.6 percent and sharply lower unemployment. (In recent years, the economy overall has grown about a percentage point faster than GDP per person. So Fair is talking about 4 percent-plus GDP growth). The academic sees an Obama victory:

The prediction of an Obama victory with 53.4 percent of the two-party vote is conditional on the assumption that there will be strong growth between now and the election. According to the July 31 forecast from the US model, by election time the economy will have been growing well for five consecutive quarters, with the unemployment rate down to 7.9 percent. The economy will have turned around, and the vote equation predicts a victory for the incumbent party.

But most big bank economists aren’t nearly as optimistic. Take JPMorgan, for instance. Its economic team sees the overall economy growing just 1.3 percent next year with an unemployment rate of 9.5 as Election Day approaches. Plug in JPMorgan’s numbers and you get a decidedly different result. Under that scenario, Obama would get just 47.7 percent of the vote. And while that is a popular vote number, it is unlikely Obama could win the electoral college trailing that badly in the popular.

2)  Miserable voters. Obama’s chances also look dodgy if the electorate is as gloomy in November 2012 as it is in August 2011. There are different measures of consumer confidence. One is put out by the Conference Board, and it currently stands at an extremely low 59.5. If that index is at 100 or higher, going back to 1968, then the incumbent party is quite likely to win. (Whether it was accurate for the 2000 election depends if you judge using the electoral or popular vote.)  If not, then the opposition party wins (graphic via the National Association of Realtors):

Another index is compiled by Thomson Reuters and the University of Michigan. And it’s as low today as it was during the Jimmy Carter nadir:

Consumer sentiment dropped to its lowest point in more than three decades in early August, as fears of a stalled recovery gelled with despair over government policies, a survey released on Friday showed. The Thomson Reuters/University of Michigan’s preliminary August reading on the overall index on consumer sentiment came in at 54.9, the lowest since May 1980, down from 63.7 in July. It was well below the median forecast of 63.0 among economists polled by Reuters.

3) Economic anxiety. A recent Gallup Poll found that 76 percent of Americans mention some economic issue — the economy in general, unemployment, debt —  as the most important problem facing the country, the highest percentage since April 2009. And just 11 percent said they were satisfied with how things are going in the United States:

4) The Big, bad picture. And if you still want more, I believe this is the Mother of All Political Economy charts, with data through the end of June (from American Century Investments). Even a quick glance suggests  Obama faces an amazingly challenging environment:

Now perhaps the economy is about to ignite. Or perhaps Republicans will pick a terrible nominee. Or perhaps some international crisis will make the economy less important. Or perhaps voters will simply give Obama the benefit of a doubt since he did inherit the Great Recession.  But Gallup already has his approval at just 40 percent (with the RealClearPolitics average at 43.5 percent.)  Another year of high unemployment and show growth — much less a double-dip recession — seems likely to make Obama a one-term president.

 

COMMENT

Interesting article. Only problem I see is that this article separates the economic trends from the actual policies of the president, his cabinet, and congress. It makes it seem that the president who is elected is based on the random up and down movement of the economy.

I don’t think that it is sheer blind luck that Obama “inherited” this economy. I think he has worked very hard to ram through half-baked laws, grown the size of government even more, and squandered our chances at real economic recovery. We will now have to work even harder to first un-do the damage that Obama caused, repeal all those crazy laws, and then get our country on the right track.

He will go down in history as big a failure as Jimmy Carter. Interesting that the big liberal presidents, Johnson and Carter, both have been one term presidents, whether the economic data was good or bad. I see Obama going down that route.

Still, it is amusing to see him squirm around and blame everybody but himself for all the problems he and his policies have caused.

Nov 2012 can’t come around soon enough!

Posted by varun.mitroo | Report as abusive

Obama faces worst-case 2012 scenario

Aug 19, 2011 01:55 UTC

On Wednesday, Economic Forecaster-in-Chief Barack Obama said, “I don’t think we’re in danger of another recession.” Shades of John McCain’s “The fundamentals of our economy are strong.”

On Thursday, the stock market – freaked out by Europe’s spiraling debt crisis and a shockingly weak Philadelphia Fed manufacturing report – plunged 4.5 percent. In an unintentional rejoinder to Obama, investment bank Morgan Stanley opined that the United States was “dangerously close” to falling back into recession.

When American presidents win reelection, they usually win by a heftier margin than the first time around. Narrower victories are rare, just three or four depending if you’re looking at the electoral or popular vote. When voters break against an incumbent, it’s usually fatal for the guy in the Oval Office. And right now, things are breaking bad for Obama. Really bad. Gallup has been pegging his approval rating right around 40 percent, even sometimes dipping to 39 percent. Regarding the economy in particular, Obama registers just 26 percent approval, his lowest rating ever and way down from a high of 59 percent in February 2009.

And it may be about to get a whole lot worse for the Obama 2012 campaign. The White House’s worst-case scenario for the economy on Election Day next year has become Wall Street’s baseline scenario. After looking at a string of weak economic reports and Europe’s growing fear of debt meltdown and contagion, JPMorgan – led by Obama pal Jamie Dimon – has just come out with a politically poisonous forecast.

The megabank now thinks the economy won’t grow much faster over the next 12 months than it did during the first half of this year — and that’s assuming Europe doesn’t go all pear shaped. It sees GDP growth at just 1.5 percent this year, 1.3 percent next year with unemployment at … 9.5 percent heading into the final days of the election season. “The risks of recession are clearly elevated,” the bank said. Here’s its reasoning:

Consumer sentiment has tumbled and household wealth has deteriorated. Survey measures of capital spending intentions have moved lower and the housing market shows little sign of lifting. Small businesses, retailers, builders and manufacturers all report a weaker business environment. Global growth has disappointed and foreign growth forecasts have been taken lower. In response we are lowering our projection for growth, particularly in the quarters around the turn of the year.

Team Obama had better permanently shelve any plans of running a “Morning in America” campaign. In fact, if a) the economic forecasts of Morgan Stanley, JPMorgan and Goldman Sachs are accurate, and b) voters behave as they usually do during bad economic times, then c) Barack Obama will be a one-term president. No president in the modern era has been reelected with the unemployment rate higher than 7.4 percent, much less two percentage points higher.

But Obama’s political folks are clever, far more than the guys who ran Jimmy Carter’s horrific 1980 campaign. And maybe the Republicans will nominate a candidate that scares Midwest suburbanites silly. Or perhaps Obama’s plan for “winning the future” will imbue the gloomy American public with a a bit more hope that whatever Republicans offer. Perhaps. But if Obama wins four more years with this economy, it will be almost as historic as his win in 2008.

COMMENT

Any dolt knows that the economy is not the stock market. i quit reading after that. Blaming Obama just means you are too chickenshit to acknowledge the truth: we done fucked this one up uncle dad!

Posted by ohboy | Report as abusive

Tough to be bullish on Wall Street if you’re bearish on Washington

Aug 16, 2011 20:01 UTC

Why is Wall Street so worried these days? Investment strategist Jason Trennert of Strategas Research Partners offers a crackerjack bit of analysis. Even better, he turned bearish on Aug. 3, the day before the stock market began its stomach-churning roller-coaster ride (via Yahoo Finance):

So what’s Trennert’s theory of the case? Wall Street is worried about Washington (and Brussels, too).

1) We assumed the debt ceiling bill would include some form of “stim-sterity” – a combination of targeted near-term stimulus and long-term spending cuts. The structure of the debt ceiling agreement will make pro-growth policies far harder to achieve, subjecting the economy to the full brunt of austerity measures in 2013 and 2014.

2) While we will all receive a welcome respite from the internecine battles in Washington for the next month, the 2012 Presidential election cycle will kick-off in earnest over Labor Day. It is likely that the entire focus of the election will be on the size and role of government. Perhaps more important for the performance of the market in the short-term, however, is that the Congressional committee charged with coming up with an additional $1.5 trillion in spending cuts is likely to be fractious enough to lead to what we might term the “Amity Shlaes” problem1 - the uncertainty and the unpleasantness surrounding the nature of future cuts in spending is likely to lead capital to go on strike. Despite the strength in corporate profits and large cash balances, most businesses will be unwilling to hire in great numbers or seek to expand their operations until they have a better idea of what the new “rules of the game” will be.

3) The sclerosis in business decision-making will be coming in the context of a maturing business cycle. The recent GDP revisions, ISM figures, and employment numbers underscore the vulnerability of the U.S. economy.

4) The “bill” for wanton fiscal profligacy in Europe has already arrived. A combination of tight monetary policy from the ECB, an over-valued Euro, and significantly higher long-term interest rates in Greece, Ireland, and, more importantly, Italy makes the chances of a full-fledged recession in the EU high. America’s fiscal “crisis” is currently not nearly as serious as the credit crisis taking place in Europe. This is mainly due to the fact that the U.S. debates are being played out among two different sets of borrowers (Republicans and Democrats) rather than the far more typical tension between borrower and lender. American interest rates have, as a result, stayed low, while European interest rates have soared.

Both the stock market and “real economy” are screaming for pro-growth policies: deep and permanent tax cuts, regulatory reform, entitlement reform. And the sooner, the better. The top event that could change Trennert’s mind-set to positive from negative: “A bipartisan effort aimed at pro-growth policies designed to encourage capital formation and, by extension, employment.”

But it doesn’t look like much of anything meaningful will happen until at least 2013.  For the moment, Team Obama is playing small ball, as it tries to squeak out a narrow electoral vote victory in 2012. No wonder Wall Street has been slashing its economic forecasts. Strategas, for instance, has increased its odds of a recession in 2012 to 35 percent (from 20 percent) and its odds of a recession in 2013 to 60 percent (from 50 percent). Indeed, if you look at the typical frequency of recessions, the U.S. would actually be due for one in 2013 — exactly as Strategas predicts — even though the current recovery more or less feels like an extension of the 2007-2009 Great Recession. If Trennert’s right, we just might have to change that name to the Long Recession.

Just where is the GOP on taxes right now?

Aug 11, 2011 20:26 UTC

After the recent debt ceiling debate, Republicans seemed pretty unified in their stance against raising taxes. But here is Ways and Means Chair Dave Camp, just appointed to the new debt supercommittee:

A leading Republican lawmaker would not rule out tax increases on Thursday if they could boost economic growth, adding that “everything is on the table” for a congressional panel charged with forging a deal to cut the deficit.

Representative Dave Camp, head of the tax-writing Ways and Means Committee in the House of Representatives, told Reuters in a telephone interview that the deepening global financial crisis would prompt him and other super committee members to pull together. …

“I don’t want to rule anything in or out,” Camp said. “I am willing to discuss all issues that might help us reduce our short and long-term debt and grow our economy,” Camp said. ”Everything is on the table, until we as a group rule it out.”

Bet the House GOP leadership didn’t like that one bit, though perhaps Camp was just trying to appear non-absolutist on the issue. After all, if Democrats tossed Obamacare over the side and embraced pro-market entitlement reform, perhaps some concession on taxes wouldn’t be out of order

Now let me also point out comments by Sen. Pat Toomey, another GOP member of the supercommittee, to Politico which may also leave a smidgen of wiggle room: “I think some kind of big tax increase is just … not going to be part of this,” Toomey said.

But what about a not-so-big tax increase? Maybe something from this menu of options (via MF Global):

§ Modification of Mortgage Interest Deduction – Repeal raises $484B over five years

§ Carried Interest – $10B-$15B over 10 years

§ Spectrum Sales – $10B-$15B

§ Higher Guarantee Fees for Fannie Mae and Freddie Mac – $30B

§ Repeal of LIFO Accounting – $70B over 10 years

§ Bonus Depreciation (the corporate jet tax)

§ Repeal of oil and gas subsidies – $40B

§ Repeal of Renewable Energy “tax subsidies”

§ Deferral on foreign income of multinationals – $70B over 10 years

§ Medicare Part D Rebates/Dual Eligibles – $112B over 10 years

I am somewhat relieved, then, by what Toomey added:

Still, Toomey said he is open to reforms of the tax code “because there are tremendous inefficiencies in our tax code.” He said he would like to see “all kinds of deductions and write-offs and special-interest loopholes” eliminated and then “correspondingly lower the marginal rate so we encourage investment and economic growth.”

Exactly. Simplify the tax code and use the revenue to cut marginal taxes. A more efficient tax code, especially one that stopped penalizing investment, would boost tax revenue by boosting growth.

COMMENT

If the C.E.O.s like Larry Young, of Motts brands did not have to earn 13,500$ per hour or 26.5 million per year; then he could easily pay people 25$ to 30$ per hour an their tax base alone would help pay down the Government Deficit.
If American C.E.O.s, were not so anxious to run to China; Where they pay next to no taxes, an comparetly no living wage, we would have Companys an Jobs, an thus an economy in America.
Apparently abortting babys, an sending American jobs to China is a great thing! For I can not find anyone upset about these. In Short Greed, LOVE of money is the root of all evil.

Posted by ANTHONY007 | Report as abusive

Waist deep in the Big Muddle

Aug 9, 2011 16:56 UTC

A needed dose of Larry Kudlow to counter my gloom:

The S&P downgrade is a fiscal warning, not an economic event. And the growing fear of U.S. recession may not pan out. There are still plusses out there, believe it or not.

1) Our financial system is in vastly better shape than it was in September 2008. Vastly better shape.

2) The Federal Reserve is highly accommodative, as illustrated by the upward-sloping yield curve. Using the yield-curve measure alone, the chances of recession based on historical analysis are very low.

3) And energy prices are coming down, with oil moving toward $80 a barrel. Oil analyst Peter Beutel points out that gasoline prices in the last two weeks have fallen by 35 to 40 cents. Adding in other oil-related savings, the energy-price drop amounts to a $100 billion tax rebate for consumers.

4) Plus, corporate profits will continue to rise while business balance sheets are pristine and chock full of cash. Consider the combination of solid productivity, moderate wage rates, and falling commodity prices. These are all plusses for the economy and stocks.

So in light of all these factors, it seems to me that the economy can hold up. It’s not the kind of rapid growth I’d like to see. But it’s not the deep and dark recession that seems to be embodied in the stock market plunge. … The American free-enterprise system can weather these shocks, and I believe favorable political and policy changes are on the way

So no Great Recession 2.0, just a continued muddling though. High unemployment. Weak growth, with maybe a negative GDP quarter here and there. The American economy getting boiled one degree at a time.  I am not sure what policy changes are coming. President Obama hinted at some new ideas in his speech yesterday. One can hope.

A crisis of confidence in economy — and Obama

Aug 9, 2011 00:29 UTC

Barack Obama’s presidency was birthed by economic collapse and financial crisis. Opportunity for a second term is now in growing danger of termination by the very same forces. After its Monday plunge, the U.S. stock market has fallen 18 percent since late April. (During his January State of the Union address, the president pointed to a “roaring” market as one sign his Keynesian policies were working.)

And the economy is advancing at such a slow pace that it risks sliding back into recession. Goldman Sachs thinks the nation’s GDP will expand just 1.7 percent this year and 2.1 percent in 2012, leaving the unemployment rate stuck at well over 9 percent. The firm sees a one-in-three risk of a downturn over the next six to nine months. Other financial firms think the odds are closer to 40 percent or even 50-50.

Then, once again, there’s Wall Street. Not only were bank stocks hammered in the sell-off, the cost to insure their bonds against default soared. Standard & Poor’s downgrade of U.S. government debt may have been a factor since Uncle Sam is backstopping the sector. (More evidence “too big to fail” is alive and well.) But there are also concerns about U.S. bank exposure to European banks and, in turn, their exposure to European government debt. (Sovereign defaults and a EU banking crisis would also slow economic growth in a key market for U.S. exports.) And, coming full circle, banks here still face billion in potential mortgage losses, a problem that another recession would only worsen.

In short, there is again a crisis of confidence in the U.S. economy – but in Washington, too. During his brief speech yesterday at the White House, Obama did nothing to calm jittery markets, perhaps achieving just the opposite. He blamed Tea Party Republicans for the debt downgrade. He said government discretionary spending couldn’t be cut much further. He called for raising taxes. And he repeated his demand for a mini-version of the 2009 stimulus – temporary tax cuts, infrastructure spending, more unemployment benefits.

The stock market, already falling before Obama spoke, saw selling accelerate as Obama made it clear he had no new ideas to offer. And he certainly gave no hint that he’s ready to adopt Republican ideas such as cutting business taxes or slashing regulation. Instead of a pivot, Obama stayed firmly planted in the anti-growth policies of the past two-and-a-half years. He’s even keeping Tim Geithner as Treasury secretary, practically begging the poor guy to stay. (Indeed, it was almost exactly a year ago that Geithner penned his “Welcome to the Recovery” op-ed.)

Americans have seen this movie before. And it didn’t end well. No one wants a sequel, least of all Obama. But the way things are going, another president-elect might be able to utter pretty much the same words on Nov. 6, 2012, as Obama did on Nov. 4, 2008:

The road ahead will be long. Our climb will be steep. We may not get there in one year or even one term, but America – I have never been more hopeful than I am tonight that we will get there. I promise you – we as a people will get there.

 


 

COMMENT

One day plunges don’t mean much to me any more. ~5 (biz) day movement matters more. How this week ends is more significant, imo.

If this week closes below 10,000, a lot of folks are going to be looking for something new to add to the end of their very long machine-trading if-then-else software logic statement after “buy US treasuries.”

#yikes
@DanFarfan

Posted by DanFarfan | Report as abusive

More evidence U.S. economy approaching stall

Aug 2, 2011 11:33 UTC

The U.S. economy doesn’t like to hover. If it isn’t expanding at a 2 percent or higher annual pace, it risks slipping into recession. As I mentioned in a post last week:

Research from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time. (And when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time.

But rising unemployment can also be a warning signal. Goldman Sachs, for instance, has a “three-tenths rule of thumb” for the unemployment rate:

Technically, the “rule” is as follows: if the three-month average of the unrounded unemployment rate increases by more than three-tenths of a percentage point (35 basis points to be exact) from a trough, the economy has either entered recession already, or will do so within six months. The intuition behind this statistical regularity is that if the labor market stalls for more than a short period, a vicious cycle of weaker income growth, weaker spending and weaker hiring typically results. An important exception is in the early phase of economic recovery, when the unemployment rate often continues to drift higher for several months.

Currently, the three-month average rate is 9.07%, up from a recent trough of 8.90% in April. The unemployment rate would need to increase to 9.3% in July and stay there in August to trip the 35-basis point threshold; our forecast for Friday’s July labor market report is that the unemployment rate will remain steady at 9.2%.

So all eyes on Friday’s jobs report. Certainly some forecasters think the economy will be considerably stronger in the second half of this year. But from a political perspective,  the 2012 economic landscape looks like it will be nowhere near what Team Obama was expecting or hoping for: 4 percent GDP growth and sub-8 percent unemployment

 

 

COMMENT

Exports are doing well, though. I saw in one article: I read that exports were clocking along at a record level.
The company where my husband is employed can’t keep up
’cause of all the exporting orders for durables.

YET, I read that the trade deficit was widening,
too.

And then there is this inflation “roof” going to collapse
in on Bernanke. Some of the “shingles” they want, of course, to mask our spending addiction, but these wild swings of the pendulum aren’t good timings for anyone.

Remember the fears of the double dip immediately after
the crash? Well, I think it’ll finally hit this time.

Posted by limapie | Report as abusive

Sputter to stall: U.S. economy dips into danger zone for recession

Jul 29, 2011 20:45 UTC

More evidence, as if we needed it, that the U.S. economy is in sad shape. America’s gross domestic product grew just 1.3 percent in the second quarter, according to the Commerce Department. And first-quarter growth was revised down to just 0.4 percent. This is now the weakest two-year recovery since World War II.

More importantly, it means we’re in the danger zone for another recession. Research from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time. (And when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time.

Check out this depressing analysis from IHS Global Insight, one of the economics firms the White House regulatory likes to cite (but maybe not today):

There is little doubt that, since the summer of 2010, U.S. growth has faltered—the only question now is how much weaker could things get and how long will the (very) “soft patch” last. His Global Insight now expects that growth in the third quarter will come in much weaker than previously expected—probably less than 2 percent and possibly less than 1 percent.

There is no margin for error here. Nothing else can go wrong, such as, for instance, an EU sovereign debt crisis. Oh, wait:

Italian bond spreads have widened to new highs, while Spanish debt spreads are at the doorstep of their 2011 highs. The short-lived euphoria over last week’s expanded bailout proposal—a euphoria we did not share—appears to have worn off quickly. With weakness now bleeding into the European corporate bond market and into the core countries’ data releases, a double dip recession in the eurozone is a live possibility. We wish things were materially better on this side of the Atlantic … – Michael Darda, MKM Partners.

When Election Day 2012 rolls around, it will be the economy rather than the debt ceiling debate or the killing of Osama bin Laden that will most influence voters. And time is running for a dramatic turnaround that will substantially lower unemployment or boost incomes. Just today, Gallup released some nasty poll numbers for President Barack Obama:

 

The White House and its media surrogates will continue to argue that without the $800 billion stimulus, the economy would be even worse.  Their models and multipliers are never questioned.  But to many Americans, it looks like the car is headed back into the ditch, if it ever got out.

COMMENT

It will be a miracle if the US economy does not collapse before this turd of a President is removed.

If he is re-elected, things ceonomically will fall faster than anyone can immagine at this point in time.

If he is not re-elected, dozens of cities will burn, and there will be riots on the scale of the late 60′s early 70′s.

I do not have high hopes… Just a bussload of bullets.

Godspeed to all here and there.

Posted by mmercier | Report as abusive

Panic at the White House? Gloomy Goldman Sachs sees high unemployment, possible recession

Jul 16, 2011 12:22 UTC

Last night in a new report, Democrat-friendly Goldman Sachs dropped an economic bomb on President Obama’s chances for reelection (bold is mine):

Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%. Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012.

The main reason for the downgrade is that the high-frequency information on overall economic activity has continued to fall substantially short of our expectations. … Some of this weakness is undoubtedly related to the disruptions to the supply chain—specifically in the auto sector—following the East Japan earthquake. By our estimates, this disruption has subtracted around ½ percentage point from second-quarter GDP growth. We expect this hit to reverse fully in the next couple of months, and this could add ½ point to third-quarter GDP growth. Moreover, some of the hit from higher energy costs is probably also temporary, as crude prices are down on net over the past three months. But the slowdown of recent months goes well beyond what can be explained with these temporary effects. … final demand growth has slowed to a pace that is typically only seen in recessions. .. Moreover, if the economy returns to recession—not our forecast, but clearly a possibility given the recent numbers …

Alarms bells must be ringing all over Obamaland today. Unemployment on Election Day about where it is right now? Sputtering — if not stalling — economic growth? To many Americans that would sound like the car is back in the ditch — if it was ever out. Maybe Goldman is wrong, but economists across Wall Street have been growing more bearish.

And recall that back in August of 2009, the White House — after having a half year to view the economy and its $800 billion stimulus response — made an astoundingly optimistic forecast. Starting in 2011, with Obamanomics fully in gear and the recession over, growth would take off. GDP would rise 4.3 percent in 2011, followed by … 4.3 percent growth in 2012 and 2013, too!  And 2014? Another year of 4.0 percent growth. Off to the races, America.

Even in its forecast earlier this year, Team Obama said it was looking for 3.5 percent GDP growth in 2012, followed by 4.4 percent in 2013,  4.3 percent in 2014.

Goldman Sachs doesn’t have to tell you things are bad. I don’t have to tell you things are bad. Everybody knows things are bad. Unemployment is at 9.2 percent (11.4 percent if the official labor force hadn’t collapsed since 2008 and 16.2 percent if you include discouraged and underemployed workers.)  Moreover, the economy grew at just 1.9 percent in the first quarter of this year and may have grown less than 2 percent in the second. Wages and income are going nowhere fast.

When will the White House signal a change of economic direction? Will cutting tax rates and regulation ever make it on the agenda? That may be the only way Obama can win another term. And time is running short.

 

COMMENT

Oddly, disliking what Obama and Obamanomics have done to the country doesn’t make you:

racist
unpatriotic (if you were a real patriot you’d just nod and say yes to anything the administration wants to do)
conservative
Republican
Tea Party

It just makes you intelligent. Welcome to the disenfranchised.

Posted by notthistime | Report as abusive
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