"The Cash for Clunkers program was effective on July 1, 2009, but didn't really start until near the end of July. The program was expanded in early August, and ended on August 24th.Check out the graph below to see the corresponding effects
The First Time Home Buyer tax credit was passed in February with an initial deadline to close on the home by November 30, 2009. The home buyer tax credit was extended and expanded at the end of October, and now buyers must sign a contract by April 30, 2010, and close by June 30, 2010."
"January is a difficult month for the housing sector, made difficult this year by still soft prices, heavy inventory, and the still distant April deadline for buyer credits. New home sales fell to a much lower-than-expected annual rate of 309,000 in January."The housing credit, extended for first time home buyers had minimal to no effect on housing starts and prices. The median home price fell 5.6% in January, down to $203,500. Inventory jumped to 9.1 months, which erased 8 months of incremental improvement. Not good news generally. As home prices continue to fall, it will be more difficult going forward, for families to repair their personal balance sheets, as the value of equity in their homes will continue to deteriorate. This will have an adverse affect on consumer spending which is the largest component of GDP. Home prices falling will continue to lead directly toward depressed output levels.
"The economy “may not be out of the woods,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. Most of the deterioration “is labor market related. Consumer spending is going to disappoint throughout most of the year,” he said."I don't know for sure whether I agree or disagree. The market just feels stagnant right now. There's been very little movement on the jobs front in either direction, but in general we have a manufacturing and retail sector that seem to be heating up. In particular, the consumer retail space added 42,000 jobs last month which makes me inclined to think business feels better about recovery. But with Consumer Confidence so low its hard to believe those gains in employment will be sustainable.
Dr. Krugman gets it right on this issue again. I'd really like to get something done on health care. 39% increase in premiums? You can't expect healthy people to keep paying if cost trends of that nature continue, which appears very likely, as healthy people have an incentive to get out of the "risk pool," making said pool even less healthy, and raising premiums even more. Here's a link to the full article, a pretty good read, but the gist of it is posted above."Here’s the story: About 800,000 people in California who buy insurance on the individual market — as opposed to getting it through their employers — are covered by Anthem Blue Cross, a WellPoint subsidiary. These are the people who were recently told to expect dramatic rate increases, in some cases as high as 39 percent.
Why the huge increase? It’s not profiteering, says WellPoint, which claims instead (without using the term) that it’s facing a classic insurance death spiral.
Bear in mind that private health insurance only works if insurers can sell policies to both sick and healthy customers. If too many healthy people decide that they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This, in turn, leads more healthy people to drop coverage, worsening the risk pool even further, and so on."
Or I guess one chart, since the other won't post currently... I'll work on getting it up in the morning.
Hooray! Two charts!
"The four-week average of weekly unemployment claims decreased this week by 1,500 to 467,500.More not so good news on the jobs front. I'm starting to grow impatient, at some point we're going to need to see this turn around. The trend is very worrisome considering the government stimulus money has already had its biggest affect and interest rates will likely rise as the Fed ends its purchases of mortgage backed securities. Combine this with the stronger dollar, which obviously won't help export markets, and you have a recipe for more stagnant job numbers. Sad...
The current level of 473,000 (and 4-week average of 467,500) are very high and suggest continuing job losses in February."
"Import prices jumped 1.4 percent in January, driven by a 4.8 percent surge in the price of petroleum imports but also showing a 0.6 percent rise excluding petroleum. . . . . Export prices, up 0.8 percent, rose for a third straight month. Agricultural prices show pressure, up 1.4 percent, as do industrial supplies, up 1.9 percent."Most of the growth in prices was due to inputs, raw materials and such, rather than in final goods, implying that producers are sheltering most of the burden for increased prices. Tomorrow the producer price index (PPI) will be released and on Friday we'll see the consumber price index (CPI). My guess is that we might see larger increases in the PPI than in the CPI. In other words, consumer demand still might not be able to carry the burden of higher prices. We'll see in the next few days.
"The housing market index rose 2 points in February to a higher-than-expected but still very depressed level of 17. The consensus forecast was looking for a dip to 14."I guess an uptick is better than a down tick, but from where we are right now, there's really nowhere left to go. The report mentions that single family home sales were up slightly and that builders seem more optimistic about improving market conditions. I guess this is some good news, the rest of the broader economic outlook is improving as well. Consumer sentiment has developed a slight upward trend, the manufacturing sector is still churning along nicely, we've seen increased activity in retail and what looks like a bottom (from a data standpoint) in the unemployment numbers.
"Spain is an object lesson in the problems of having monetary union without fiscal and labor market integration. First, there was a huge boom in Spain, largely driven by a housing bubble — and financed by capital outflows from Germany. This boom pulled up Spanish wages. Then the bubble burst, leaving Spanish labor overpriced relative to Germany and France, and precipitating a surge in unemployment. It also led to large Spanish budget deficits, mainly because of collapsing revenue but also due to efforts to limit the rise in unemployment.Krugman has more of the same here... He mentions that even skeptics of the euro monetary union didn't foresee problems being this bad, which makes some sense. Nobody thought we were going to have exogenous shocks in the housing markets to quite the extent that we did. But given the shocks, the outcomes in Europe certainly aren't surprising. Spain is paralyzed at the moment, (as a Greece and Ireland, but for slightly different reasons,) almost powerless to do anything to keep themselves from falling into a deflationary spiral, which, as it is, represents the only way to bring them back to some kind of equilibrium with the rest of the EU.If Spain had its own currency, this would be a good time to devalue; but it doesn’t.
On the other hand, if Spain were like Florida, its problems wouldn’t be as severe. The budget deficit wouldn’t be as large, because social insurance payments would be coming from Brussels, just as Social Security and Medicare come from Washington. And there would be a safety valve for unemployment, as many workers would migrate to regions with better prospects."
"President Barack Obama said he doesn’t “begrudge” the $17 million bonus awarded to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon or the $9 million issued to Goldman Sachs Group Inc. CEO Lloyd Blankfein, noting that some athletes take home more pay.Krugman responds:
Generally, I'm a Krugman fan, but this threw me way off base. "We're doomed?" You can't be serious Paul. I've complained in the past, (privately and amongst friends) about right wing media outlets and congressmen misrepresenting actual facts, but I expected better from Dr. Krugman. Bonuses paid to Wall Street executives did not cost American families their homes, they did not bring the world economy to the brink of collapse. This rhetoric from the left side is just as bad as the rhetoric from the right side."Oh. My. God.
First of all, to my knowledge, irresponsible behavior by baseball players hasn’t brought the world economy to the brink of collapse and cost millions of innocent Americans their jobs and/or houses. . . . . .
The point is that these bank executives are not free agents who are earning big bucks in fair competition; they run companies that are essentially wards of the state. There’s good reason to feel outraged at the growing appearance that we’re running a system of lemon socialism, in which losses are public but gains are private. And at the very least, you would think that Obama would understand the importance of acknowledging public anger over what’s happening.
But no. If the Bloomberg story is to be believed, Obama thinks his key to electoral success is to trumpet 'the influence corporate leaders have had on his economic policies.'
We’re doomed."
"Bernanke yesterday described how the Fed might use tools such as interest it pays on banks’ deposits to tighten credit “at some point.” In congressional testimony, he said a potential increase in the Fed’s discount rate would be part of the “normalization” of lending “before long” and wouldn’t signal a change in the outlook for monetary policy"The markets didn't really like the idea of rate hikes. Stocks fell intraday and treasuries fell, causing yields to increase. Personally knowing the Fed has an exit strategy is actually reassuring to me, I'm not sure why it adversely affected the broad equity indexes. Mark Thoma provides some excellent analysis here in a video . He makes one assertion in the model that's no necessarily correct but it only matters in extreme circumstances. Banks don't always buy from the fed at the line "id," they didn't in fact at the beginning of the crisis because banks were worried about showing weakness. So there are circumstances where banks will pay a higher rate than the discount rate.
I've posted several times recently about the broad uptick in most manufacturing indexes and whether or not it represents only an inventory bounce, or significant demand side economic growth. Industrial production, ISM PMI, and capacity utilization have all been improving at an accelerated pace in recent months. Until now, none of it had translated into any good news on the jobs front, (in December manufacturing still lost 27,000 jobs), but finally, for the month of January we have a positive jobs number in the manufacturing sector to the tune of 11,000 new jobs. This still isn't exactly the pace of growth we'd like to see, but it's certainly better than nothing. Continuing increases in labor productivity and average hours worked per week have given manufacturers further incentive to stand pat rather than hire more workers. From a business perspective, if your employees are working hard, producing well, and on average not working overtime, there's no reason to seek out and hire new workers. Your margins are increasing because labor productivity growth is far outpacing wage growth, which leads to higher profits. Couple the prospects of lower labor costs with uncertainty in the economy and you have a perfect environment for slow job growth in manufacturing."Employment in manufacturing was little changed in January (11,000). After
experiencing steep job losses earlier in the recession, employment declines
moderated considerably in the second half of 2009.
Retail trade employment rose by 42,000 in January, after showing little
change in the prior 2 months. Job gains occurred in January among food stores
(14,000), clothing stores (13,000), and general merchandise retailers (10,000)."
So this isn't really surprising given commercial real estate markets recently, check out this post from a few weeks ago for further analysis of the commercial mortgage backed security (CMBS) market. Anyway, it appears construction in residential and non-residential will be lagging the recovery, which will result in more numbers like the one above. Sad but true."Construction employment declined by 75,000 in January, with nonresidential
specialty trade contractors (-48,000) accounting for the majority of the de-
cline. Since December 2007, employment in construction has fallen by 1.9
million."
"Argument (Obama): The previous administration and previous Congresses created an expensive new drug program (Medicare)… without paying for any of it.My response: The administration has made proposals to limit the costs of medicare long term. But Hennessey and others in the republican party have spun what would be a fiscally responsible policy as, "destroying medicare," and "pulling the tube on grandma." There are proposals on the table right now, from republican members of the budget committee, that would serve to limit future costs of Medicare. From the GOP Issues Conference:
Response: This Medicare drug program is ongoing. If the President thinks it is too expensive, then he should propose to make it less expensive. If instead he thinks it should be paid for, then he should propose other spending cuts or tax increases to offset the future costs." . . . etc.
"--THE PRESIDENT: . . .I want to make sure that I'm not being unfair to your proposal, but I just want to point out that I've read it. And the basic idea would be that at some point we hold Medicare cost per recipient constant as a way of making sure that that doesn't go way out of whack, and I'm sure there are some details thatSo here you have The President and Republican Congressman Ryan (on the budget committee) speaking together in a civil manner about reforming medicare, cutting costs, or "pulling the tube on grandma," if you will. There are three main things to take away here. 1. $38 trillion dollar unfunded liability. This is totally unsustainable going forward 2. Republicans acknowledge the need for reform proposals, as projected deficit growth is unsustainable. 3. The republican party simultaneously recognizes the need for reform, and then calls out the democratic party for proposals that they help develop. This is a problem, and it's happening because of people like Keith Hennessey.
--CONGRESSMAN RYAN (speaking to The President): We drew it as a blend of inflation and health inflation, the point of our plan is -- because Medicare, as you know, is a $38 trillion unfunded liability -- it has to be reform for younger generations because it won't exist because it's going bankrupt. . ."
--THE PRESIDENT: When we made a very modest proposal as part of our package, our health care reform package, to eliminate the subsidies going to insurance companies for Medicare Advantage, we were attacked across the board, by many on your aisle, for slashing Medicare. You remember?"
These are unsubstantiated claims. The Obama administration is currently scaling back operations in Iraq. Further, future war operations will be paid for in the form of higher taxes when the Bush tax cuts expire. The Iraq war, again, was total fallacy from the beginning. There is no connection between Osama Bin Laden and Saddam Hussein, and there were never any weapons of mass destruction. The giant gap created in the Budget was due to Bush policies, waging wars, and lowering taxes. Again, Hennessey is deliberately misguiding the public."Argument (Obama): The previous Administration and Congresses funded two wars without paying for it.
- Response 1: The Obama Administration is continuing these wars without paying for them, and expanding forces in Afghanistan without paying for that.
"Argument (Obama): The previous Administration cut taxes for the wealthy without paying for it.Fair point, sort of. Our long term debt problems lay in entitlement spending. Raising taxes will not lower spending. Raising taxes will likely only lead to more spending and bigger government, (a debate for another time.) I guess I just have a problem with what Keith is saying, and what his party has been doing. I commented above on how democratic and republican leadership both recognize the need for entitlement spending reform, i.e. health care reform. I just know that as soon as a policy is proposed, one that might really control medicare costs, you'll see immense republican opposition.
Response: Our medium-term and long-term deficit problems are driven by the growth of entitlement spending: Social Security, Medicare, and Medicaid. Raising taxes will not slow this spending, it will just buy us a few years of delay and slow economic growth."
What is he saying here exactly? That somehow $230 billion dollars of the 2001 budget deficit wasn't due to George Bush? Fine Keith, I'll give you that $230 billion. But Hennessey doesn't mention the fact that "economic and technical changes" were favorable in terms of the budget from 2002 to 2007. Somehow during that period the budget deficit skyrocketed, despite what Hennessey seems to declare is sound fiscal policy. I don't see how you can downplay the Bush administration arriving with a $200 billion dollar surplus, and leaving 8 years later, with a $1.3 trillion dollar deficit. You can manipulate the numbers all you want. You can say that the Congressional Budget Office, (an independent, bipartisan body) was somehow wrong, or somehow trying to make democrats look better. But you can't fake a $1.5 trillion swing in 8 years. There's no way to manipulate the bottom line here."Argument (Obama): The Bush policies caused a $200 B annual surplus and “projected surpluses stretching out toward the horizon” to turn into deficits.
Response: This argument always relies on one specific forecast which later turned out to be inaccurate. In January 2001 CBO projected a 2002 surplus of $313 B. One year later they projected a 2002 deficit of $21 B. Of the $334 B decline, CBO said 73% was from “economic and technical changes” beyond President Bush’s control. The other 27% was the result of legislation."
So now he results to conspiracy theories? That somehow an independent office, the CBO, manipulated things to work in Obama's favor? $8 trillion is "made up." This is completely ludicrous. The CBO doesn't have an incentive to do the Obama administration any favors."Argument: When President Obama took office, he faced projected deficits of $8 trillion over the next decade.
Response: There is no delicate way for me to say this. The $8 trillion number is made up. In January 2009 CBO projected deficits for the next decade of $3.1 trillion. The President’s first budget played games by redefining the baseline to make the starting point look as bad as possible so that Team Obama could claim their policies would reduce the deficit. Don’t get me wrong — $3.1 trillion of projected deficits is still a huge bad number. At the same time, $4.9 trillion is a lot of gaming."
"From a macroeconomic standpoint, short-run deficit reduction is contractionary. Reducing the budget deficit toward manageable levels is necessary from a federal fiscal standpoint, but it reduces short-term economic growth. This is the Administration’s core short-term economic policy challenge, the tradeoff between fiscal stimulus and deficit reduction over the next 2-3 years."Now, in all honesty, I don't believe the increasing budget deficit poses any major short term problems. The world reserve currency is still the U.S. dollar, (though declining slightly in popularity,) and our government debt remains of the safest assets to hold in the world. But in any case, politics plays a significant role in policy. If republicans are truly populist, and are opposed to higher taxes on individuals, and if they are truly fiscally conservative and would like to see deficit reductions ahead of government stimulus. Then what about taxing excess bank reserves? There's literally $1 trillion+ out there, doing absolutely nothing. See the graph below:
