MacroScope

from Shop Talk:

The U.S. recession ends, but not for you

unclesambegsTalk about a disconnect.

Experts say U.S. economic growth has returned, signaling the end of the longest and deepest recession since the Great Depression.

But the good news for Wall Street -- where shares have been running up -- is showing no signs of trickling down to Main Street, where unemployment is flirting with 10 percent, foreclosures continue to rise and record numbers of families now depend on government-issued food stamps to make ends meet.

"For every person out of work, for every family facing foreclosure, for every small business facing a credit crunch, the recession remains alive and acute," U.S. Treasury Secretary Timothy Geithner said in testimony to a congressional committee.

"Many people you might have called middle class or working class before have been ground down toward poverty or even destitution," said author Barbara Ehrenreich, who has chronicled America's working poor during her career.

While most Americans either fret about a job loss or deal with the financial devastation of joblessness, the income gap between the super rich in the United States and the average Joe is the largest since the 1920s. Nearly one-sixth of the U.S. population is uninsured. And, contrary to popular belief, Americans are less likely to move to a higher financial status than people who live in "socialist" countries like Germany, Canada, France or Sweden.

U.S. recession’s ending. Now what?

The latest Blue Chip survey of economists is out this morning, and there’s general agreement on one point: the longest recession since the Great Depression is about to end, if it hasn’t already. Some 87 percent of the economists surveyed thought the National Bureau of Economic Research will eventually declare the recession ended prior to the end of September.

What happens next is up for debate. The survey found that about 16 percent expect a strong V-shaped recovery. An equal percentage expects a W-shaped double-dip recession. Most economists — about 65 percent — were lumped in the middle, looking for a long, slow U-shaped recovery.

They also seem to think that last Friday’s jobs report, which showed the jobless rate dipped for the first time in 15 months, was just a head-fake. The consensus view is that unemployment peaks at 10.2 percent, compared with the current level of 9.4 percent, and nearly half thought that level would be reached in the first quarter of 2010.

UK goes crisis camping

If the Hollands Wood campsite in the New Forest, near England’s south coast is anything to go by, the recession really is altering the holidaymaking habits of the British public.

On the often rain-sodden site three Porches, a couple of Jaguars and numerous BMWs and Mercedes were spotted among the more typical, Skodas and Ford Mondeos usually associated with roughing it under canvas.

Unlike for the same period last year, the campsite was solidly booked out, despite no sign of the barbecue summer the weathermen promised.

Flueconomics

Fears of the swine flu are rising and some doomsayers compare the pandemic with the Spanish flu outbreak in 1918, which infected a quarter or even half of the world’s population and claimed more than 40 million lives– or 2 percent of the then 2 billion global population.

However, French bank BNP Paribas says comparisons with the Spanish flu seem excessively pessimistic and the damage to annual global GDP growth this time would be around 1-2 percentage points.

It does warn however that a severe pandemic could cause a second year of global recession in 2010.

UK heading for second downturn?

MacroScope is pleased to post the following from guest blogger Julian Chillingworth. Chillingworth is chief investment officer of UK investor Rathbones. He questions here whether Britain will face a second downturn shortly after struggling out of recession.

Are we likely to witness a two-tier recession in the UK?  Perhaps not a recession but certainly a secondary downturn. A vast number of people have enjoyed lower mortgage payments and a level of job security, but will this last?

The UK is in somewhat of a unique position in so far as it faces a regime change, with some obvious ramifications for policy.  However, whoever takes the seat (most likely the Tories) must still cut back public expenditure and raise taxation, both within the context of high unemployment.

U.S. economic hole looking shallower

May’s U.S. trade figures have economists feeling quite a bit better about second-quarter GDP. The surprising strength in exports should provide a big lift.

JPMorgan economist Michael Feroli thinks trade may contribute almost 2 percentage points to second-quarter growth, and he adjusted his Q2 GDP forecast to a  much-less-dire decline at a 0.5 percent annual rate from his earlier view of -2.0 percent. Goldman Sachs economist Jan Hatzius is also looking at a less-ugly Q2.

“Absent significant downside surprises in either retail sales or business inventory data next week, this report suggests that our standing estimate for real GDP in Q2 — down 3 percent at an annual rate — is too negative,” he wrote in a note to clients.

Things for an economist to do on a Friday

Three things for the economy-minded to be doing on a Friday in July:

– Study a very, very clever interactive graphic from the New York Times showing that the business cycle is far from round. Here.

– Marvel at one of the Centre for Economic Policy Research’s new papers — either “The Potato’s Contribution to Population and Urbanization” or “Kinky Choices, Dictators and Split Might: A Non-Cooperative Model for Household Consumption and Labor Supply”.

– Come up with a new visual metaphor for the direction of the global economy. We have had L, U, V and W. Most recently we have heard of the Nike Swoosh and saxophone-shaped recovery (with the flat mouthpiece heading off into the distance).

Crisis, what crisis, time again in Britain

Britain’s recession, like the downturns in most other places, is being hailed as either having reachえd bottom or tailed off in its decline. The latest to trumpet the beginning of the end is the British Chambers of Commerce, which said business orders and sales had continued to fall in the second quarter but at a slower pace than previously.

So does this mean that the Bank of England will soon start raising interest rates from the negligible 0.5 percent reached last year as policymakers sought to pump liquidity into a failing economy? Not according to researchers Capital Economics, which argues in a new report that market assumptions of higher rates at an early stage are misplaced. They offer three reasons:

A return to strong levels of activity and rapid price gains in the housing market is unlikely for some time, even at very low interest rates. Meanwhile, the overall economy is likely to expand at only sluggish rates in the foreseeable future. And even if the recovery continues to gather pace, the large amount of spare capacity – or slack – in the economy suggests that there should be no hurry to tighten policy at all.

Saint Augustine and the U.S. consumer

Johns Hopkins University economist Christopher Carroll thinks U.S. consumers have finally got religion when it comes to saving, after years of free spending. For the sake of the broader economy, he is hoping they take to heart the prayer of Saint Augustine.

Carroll, a leading scholar on how housing wealth boosted U.S. consumer spending, has a new paper out on how the financial crisis of the past two years has affected attitudes toward spending and saving. It isn’t pretty.    

 

“Our view is that American consumers are not merely resting from their former role as the world’s champion consumers, they are permanently reforming their spending patterns, in response to the end of the period of ever-more-available credit that fueled the unsustainably high spending of recent years.”

Mr. Green Shoots in an orange jumpsuit?

Economist James Hamilton was pretty offended by the rough treatment of Federal Reserve Chairman Ben Bernanke last week at the hands of some U.S. politicians. But when he put up a defense of the Fed chief on his blog, he got an earful from readers who were critical of the U.S. central bank and suspicious over its role in the financial crisis and last year’s bank bailouts.

Some members of the House of Representatives Oversight Committee quizzing Bernanke last week voiced outrage over the Fed’s role in Bank of America’s takeover of Merrill Lynch. They claim the Fed covered up pressure on BofA to swallow massive Merrill losses in order to protect the wider economy.

Hamilton said they were trying to turn Bernanke into a scapegoat.

“These interrogations reveal more about those doing the grilling than they reveal about Bernanke,” Hamilton, an economics professor at the University of California, San Diego, wrote on his blog. “I see this as pure political theater, and I don’t like it.”