June FOMC meeting minutes: Concern about trade tensions, flattening yield curve

U.S. central bankers discussed whether recession lurked around the corner, and expressed concerns global trade tensions could hit an economy that by most measures looked strong.   In addition, gradual rate hikes could take fed funds rate above neutral level some time next year.

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Job growth soared to 321,000 jobs in November

Today's job growth report was far better than projections, with The Washington Post calling it "the most assertive sign to date that the labor market is returning to pre-recession health:"

November’s numbers cap the best three-month period of labor market expansion since the financial crisis and keep the country on track for a year of job growth unseen since the late 1990s...The unemployment rate kept steady at 5.8 percent, its lowest mark since July 2008..."

From the original press release:

Total nonfarm payroll employment increased by 321,000 in November, and the unemployment rate was unchanged at 5.8 percent, the U.S. Bureau of Labor Statistics reported today. Job gains were widespread, led by growth in professional and business services, retail trade, health care, and manufacturing

In November, the unemployment rate held at 5.8 percent, and the number of unemployed persons was little changed at 9.1 million. Over the year, the unemployment rate and the number of unemployed persons were down by 1.2 percentage points and 1.7 million, respectively.

Among the major worker groups, the unemployment rate for adult men rose to 5.4 percent in November. The rates for adult women (5.3 percent), teenagers (17.7 percent), whites (4.9 percent), blacks (11.1 percent), and Hispanics (6.6 percent) showed little change over the month. The jobless rate for Asians was 4.8 percent (not seasonally adjusted), little changed from a year earlier. (See tables A-1, A-2, and A-3.)

The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 2.8 million in November. These individuals accounted for 30.7 percent of the unemployed. Over the past 12 months, the number of long-term unemployed declined by 1.2 million...

Total nonfarm payroll employment rose by 321,000 in November, compared with an average monthly gain of 224,000 over the prior 12 months. In November, job growth was widespread, led by gains in professional and business services, retail trade, health care, and manufacturing..

Construction employment also continued to trend up in November (+20,000). Employment in specialty trade contractors rose by 21,000, mostly in the residential component. Over the past 12 months, construction has added 213,000 jobs, with just over half the gain among specialty trade contractors...

To read the entire release, click here. 

Recession expected to permanently impact jobs of blue-collar males

In the recession of 2001, the number of men who lost their jobs was about even with job losses by women. But this time, on top of a much larger magnitude of job losses for men versus both that recession and the one of 1990-91 -- 4.5 million and counting -- men are carrying 80% of the unemployment burden. For blue-collar men working in manufacturing as well as semi-skilled and unskilled positions, those jobs may never return. What does that mean for the future American work force? From a Reuters story:

One statistic that stands out in America's recession-stung economy is the unemployment rate for adult men: in April for the second month in a row it surged ahead of the national average to 9.4 percent versus 8.9 percent for all workers. The jobless rate for adult women was 7.1 percent.

The reasons are clear: male-heavy sectors such as construction and manufacturing have been hard hit. But the implications may be dire for the broader economy and hamper the recovery as families that once had male breadwinners struggle.

"In the 2001 recession, 51 percent of all job losses were for men. It was evenly split. But in this recession 80 percent of the jobs that have been lost have been men's," said Andrew Sum, a labor economics professor at Northeastern University who has studied this issue in detail.

Men also incurred about 80 percent of the job losses in the 1990-91 recession, but Sum said by his calculations the numbers this time were dramatically different. In the 1990-91 recession, men lost 1.037 million jobs. They have lost 4.5 million to date in this one...

The fact that American males without a college degree are especially vulnerable in this cycle point to more hard times ahead for the U.S. working class, which has endured stagnant and declining wages for the last three decades.

The skilled and semi-skilled jobs they traditionally held have been moving overseas to places like China and Vietnam. The jobs that remain pay less, amid declining union membership.

One study by Julia Isaacs of the Brookings Institution think-tank found median U.S. family income rose to $53,280 by the middle of this decade in 2004 dollars from $37,384 in 1964. But for males aged 30 to 39, average annual personal income fell from the mid-1970s by around $5,000 to $35,000.

The growth in family incomes is mostly from women entering the workforce. But during this recession that will hardly compensate given the scale of male job losses...

This is grim news for struggling blue collar families. While women's role in the workforce has expanded, by some estimates the male remains the main breadwinner in about 75 percent of two-income U.S. households...

though construction jobs are seen coming back eventually, spurred in part by President Barack Obama's $787 billion fiscal stimulus plan that includes funds for road and bridge construction.

But many manufacturing jobs are gone for good, as huge sectors like the auto industry suffer profound cuts.

Doeringer said the recession will leave the economy "sharply restructured".

"The construction jobs will return, but we are seeing an unusually sharp drop in what is left of manufacturing and much of that drop will not be recovered when the recession ends, and much of what does remain will have be at lower wages with reduced fringe benefits," he said.

How useful are economists?

First most of them missed the degree of the recession, and now they can't agree on what to do. Having missed lessons of the Great Depression, some would argue that they've let the economy spiral out of control due to bad forecasts, an unwillingness to admit mistakes and an arrogance which suggests they're quite confident that most people consider economics to be beyond their own comprehension or control.

Yes, I'm talking about economists, and they're the subject for a BusinessWeek magazine cover story entitled "What good are economists anyway?"

Of course many bloggers and a few economists -- such as Christopher Thornberg, a partner to MetroIntelligence -- were warning of a great housing bust and a recession to follow as early as 2004, but such voices were largely drowned out by a cheerleading press and a dishonest NAR economist named David Lereah, whose objectivity was rarely questioned.

So where did these economists go wrong and what lessons should we learn from their profound mistakes? From the story:

Economists mostly failed to predict the worst economic crisis since the 1930s. Now they can't agree how to solve it. People are starting to wonder: What good are economists anyway?...

To be fair, economists can't be expected to predict the future with any kind of exactitude. The world is simply too complicated for that. But collectively, they should be able to warn of dangers ahead. And when disaster strikes, they ought to know what to do. Indeed, people pay attention to economists at times like this precisely because of their bold claim that they know how to prevent the economy from sliding into a repeat of the Great Depression. But seven decades after the Depression, economists still haven't reached consensus on its lessons. The debate has only intensified in recent weeks...

The rap on economists, only somewhat exaggerated, is that they are overconfident, unrealistic, and political. They claim a precision that neither their raw material nor their skill warrants. Too many assume that people behave like the mythical homo economicus, who is hyperrational and omniscient. And they take sides in quarrels that freeze the progress of research. Those few who defy the conventional wisdom are ignored...

Click here for full story.

Commercial loan losses starting to escalate

Given the huge job losses and the retailing brands going out of business, it's little surprise that commercial real estate landlords would be taking a hit. And how that damage seems to be escalating. So what will 2009 look like for them? From a story in the Wall Street Journal:

The delinquency rate on about $700 billion in securitized loans backed by office buildings, hotels, stores and other investment property has more than doubled since September to 1.8% this month, according to data provided to The Wall Street Journal by Deutsche Bank AG. While that's low compared with the home-mortgage delinquency rate, it's just short of the highest rate during the last downturn early this decade...

Some experts say it now looks as if the current commercial real-estate slump will rival or even exceed the one in the early 1990s, when bad commercial-property debt played a big role in dragging the economy into a recession. Then, close to 1,000 U.S. banks and savings institutions failed. Lenders took about $48.5 billion in charges on commercial real-estate debt between 1990 and 1995, representing 7.9% of such debt outstanding.

Since late 2007, a total of 47 banks and savings institutions have failed, of which a dozen or so had unusually high commercial-mortgage exposure. Foresight Analytics in Oakland, Calif., estimates the U.S. banking sector could suffer as much as $250 billion in commercial real-estate losses in this downturn. The research firm projects that more than 700 banks could fail as a result of their exposure to commercial real estate.

Commercial property may not be hit as hard as many fear if the economy pulls out of recession more quickly, driving up rents and occupancy rates. And greater availability of financing -- a key goal of the Obama administration -- could lift property values...

Commercial real-estate debt is potentially more dangerous to the financial system than debt classes such as credit cards and student loans because of its size. The Real Estate Roundtable, a trade group, estimates that commercial real estate in the U.S. is worth $6.5 trillion and financed by about $3.1 trillion in debt. Partly because the commercial real-estate debt market is nearly three times as big now as in the early 1990s, potential losses in dollar terms loom larger...

Click here for full story.

Economic woes slowing migration to Sunbelt areas

One important consequence of the housing crisis has been the inability of people to sell their homes in order to move for new opportunities. And that was before the economy started to soften. Now it's becoming an even larger trend, forcing people to stay put until their fortunes revive, and in the cross hairs are the Sunbelt states. From an AP story via BigBuilderOnline.com:

Strapped by the nation's economic crisis, fewer Americans are migrating to Sun Belt hot spots in Nevada, Arizona and Florida, instead staying put for now in traditional big cities.

Census data released Thursday highlight a U.S. population somewhat locked in place by the severe housing downturn and economic recession, even before the impact of rippling job layoffs after last September's financial meltdown...

As a result, rust-belt metro areas such as Buffalo, N.Y., Pittsburgh and Cleveland stanched some population losses, and Boston, Los Angeles and New York saw gains. Well-to-do exurbs around Washington D.C. saw growth slowdowns as people weary of costly commutes moved closer to federal jobs in the nation's capital.

"It's the bursting of a 'migration bubble,'" said William H. Frey, a demographer at the Brookings Institution think tank who analyzed the numbers. "Places that popped up in migration growth in the superheated housing markets earlier in the decade are now just as quickly losing their steam."...

The latest population trends come as state and local governments are deciding where to pour billions of dollars in federal stimulus money to develop schools, roads, bridges and other infrastructure. The nation's decennial head count, used to apportion House seats and redraw congressional districts, also is fast approaching.

Las Vegas, known for its warm climate and wide spaces, had its smallest annual population gain in nearly 20 years...

California had the biggest net loss from people moving to other states. The declines in its interior regions put it at risk of losing a House seat. Los Angeles had major gains, but partly at the expense of Riverside, a sprawling exurb nearby...

Click here for full story.

Postcards from the recession: Silverlake

The economic malaise may be hitting Silverlake, an urban neighborhood north of downtown Los Angeles, less than in the Inland Empire, but due to its bohemian demographics of people who rely more on contract work than regular paychecks, further austerity measures are in order. Such as letting go of psychiatrists, chiropractors, pool men, maids and gardeners. Oh, the humanity! From an L.A. Times series:

Most of the people I know don't have regular jobs. They're writers, actors, musicians, artists, photographers and filmmakers. They also are middle-class taxpayers who carry mortgages and send their kids to public school...

But this is different. This is bad. Although no one I know is in foreclosure, my friends and neighbors are experiencing persistent economic erosion.

Census figures say that nearly 70,000 self-employed people work in the arts in Los Angeles. Their job losses won't show up in unemployment numbers because they don't have regular jobs to lose, but they're hurting...

Some folks are still working but doing lesser jobs at lower rates. An actor who had a network TV series two years ago is writing "webisodes" for an online comedy show. An editor who was doing indie feature films last year is struggling to get hired for direct-to-video horror movies. Magazine writers aren't getting freelance assignments because that work is being done by staff editors...

Some friends are selling out -- or trying to. An actor friend took advantage of his union's offer of help in getting a census-taking job; so did, on the day the test was offered, hundreds of his SAG peers. A musician friend who couldn't make ends meet finally decided to look for a job with a catering company; he stood in line for several hours, one of 300 people vying for the same half a dozen positions, shamed, he said, by the "hushed, defeated looks on the other applicants' faces."

Other friends are pulling up stakes. One actor pal moved to Phoenix for a "real" job. A gifted writer has decided to leave the state for a tenured teaching post, though it means leaving her family here. "It's scary to consider making such a big change," she told me. "But it's scarier standing still and hoping things will get better." Another writer, who works as a counselor, thought this was the year he and his set-designer husband could quit their day jobs, cash out and leave California. Now, he says, they can't sell their house without taking a loss.

But this paragraph really shows the pain hitting this area:

Still others have taken less dramatic steps. Some have fired gardeners, pool men or maids. They've saved money and gained new respect for the backbreaking work required to maintain their gardens and homes.

What makes a depression a depression?

When is a depression a depression? When you stay in bed and cry into your pillow? When you throw beer bottles at "American Idol Rewind?" When you over-react because someone bumped into you? We've been hearing that word a lot lately in the news, and the Calculated Risk blog provides some interesting comparisons, including the GDP losses of the recessions of the 20th century as well as the Great Depression:

Although there is no formal definition, most economists agree it is a prolonged slump with a 10% or more decline in real GDP...

Some people argue the duration of the economic slump defines a depression - and the current recession is already 15 months old. That is longer than the recessions of '90/'91 and '01. The '73-'75 recession lasted 16 months peak to trough, and the early '80s recession (a double dip) was classified as a 6 month recession followed by a 16 month recession (22 months total). Those earlier periods weren't "depressions", so if duration is the key measure, the current recession still has a ways to go...

I still think a depression is very unlikely. More likely the economy will bottom later this year or at least the rate of economic decline will slow sharply. I also still believe that the eventual recovery will be very sluggish, and it will take some time to return to normal growth...

"Dr. Doom" Roubini says 'break every mortgage contract.'

According to economist Nouriel "Dr. Doom" Roubini, although the U.S. has narrowly averted a catastrophic economic meltdown, the current recession will last up to 3 years (ending in late 2010) and push the Dow down to 5,000. From an interview at CNBC:

The man who predicted the current financial crisis said the US recession could drag on for years without drastic action.

Among his solutions: fix the housing market by breaking "every mortgage contract."

"We are in the 15th month of a recession," said Nouriel Roubini, a professor at New York University's Stern School of Business, told CNBC in a live interview. "Growth is going to be close to zero and unemployment rate well above 10 percent into next year."

Echoing a speech he made earlier in the day, Roubini said he sees "no hope for the recession ending in 2009 and will more than likely last into 2010."

Roubini, who is also known as "Dr. Doom," told CNBC that the risk of a total meltdown has been reversed for now but that the economy is going through "a death by a thousand cuts." He also said that "most of the U.S. financial institutions are entirely insolvent."

"The market friendly view for the banks is nationalization," said Roubini. "Temporarily take over the banks, clean them up and get them working again...

He said that while U.S. GDP next year could be zero, global GDP could dip into negative territory.

"We could end up ... with a 36-month recession, that could be "L-shaped stagnation, or near depression," Roubini said. He puts the chance of a severe U-shaped recession at 66.7 percent, and a more severe L-shaped recession at 33.3 percent...

So what can the government do? The easy part is lowering interest rates and buying toxic assets. The hard part, he says, will be tackling housing. Roubini says that the housing market, like a company restructuring in bankruptcy, needs to have "face value reduction of the debt." Rather than go through mortgages one by one, he says reduction has to be "across the board...break every mortgage contract."

14.8% unemployment and under-employment

According to the Economix blog at the New York Times, if you add up the levels of unemployed PLUS those under-employed (i.e., working the night shift at an Amazon warehouse but with a previous career in PR) as well as having given up looking at all, the total figure is closer to 15%. So exactly how bad is this downturn?

Since the start of 2008, the economy has lost jobs at a steeper rate than at any other point in 50 years. That hadn’t been true until today’s report. But the 651,000 job losses in February — together with 161,000 additional job losses in previous months, a result of Labor Department revisions announced today — means that the decline is worse than it was at any point during the deep recessions of the mid-1970s and of the early 1980s...

The government’s broadest measure of unemployment and underemployment was 14.8 percent in February. That includes some of the people who have stopped looking for work because they don’t believe they can find jobs. It also includes part-time workers who want to be working full time...
So it’s still too early to call this the worst recession since the Great Depression. But it’s bad, and it’s still getting worse at a rapid rate.

Do continuing job losses mean a greater economic shift?

You've probably heard terms before like "creative destruction," in which new technologies and ways of doing business can transform entire industries. But what happens if the entire economy is facing a generational shift? From a story in the New York Times:

Another 651,000 jobs disappeared from the American economy in February, the government reported Friday, as the unemployment rate soared to 8.1 percent — its highest level since 1983.

The latest grim scorecard of contraction in the American workplace largely destroyed what hopes remained for an economic recovery in the first half of this year, and added to a growing sense that 2009 is probably a lost cause...

The acceleration has convinced some economists that, far from an ordinary downturn after which jobs will return, the contraction under way reflects a fundamental restructuring of the American economy. In crucial industries — particularly manufacturing, financial services and retail — many companies have opted to abandon whole areas of business...

For American policy makers, such a reality poses fundamental challenges to the traditional response to hard times. For decades, the government has reacted to economic downturns by handing out temporary unemployment insurance checks, relying upon the resumption of economic growth to deliver needed jobs.

This time, argues Mr. Silvia, the government needs to put a much greater emphasis on retraining workers for careers in other industries.In the auto industry, for example annual American car sales have dropped from some 17 million a year a few years ago to 9 million now. Even if sales increase to 10 or 12 million, that still leaves a lot of unneeded factories...

Much the same can be said for financial services, which gave up another 44,000 jobs in February. During the housing boom, banks hired tens of thousands of well-compensated traders, analysts and marketers to sell mortgage-backed securities and other exotic flavors of investments. That industry is unlikely to return to anything close to its former shape...

Click here for full story.

NIMBYs and seniors manage best through recession

Want to know the demographic magic bullets to survive recessions? According to a story in the Economist, areas with a larger share of seniors and NIMBYs -- such as California's Central Coast (i.e., Santa Barbara), its coast north of the Bay Area and some inland counties -- ride out economic troughs better than areas with younger populations:

Nowhere in California is immune to recession, but the oldest areas are proving most resistant. Of the ten counties with the lowest unemployment rates, nine, including Santa Barbara, contain an above-average proportion of people aged 65 or older. Youthful Los Angeles has shed almost a quarter-of-a-million jobs in the past year. Slightly older San Diego has lost a few thousand, while considerably older San Francisco has lost none. A map of the state’s retirees (see above) could almost double as a map of economic resilience...

California’s youngest regions are in its hot interior. In the middle years of this decade hundreds of thousands of families moved there in search of big, affordable houses. Unfortunately, many took on big, unaffordable mortgages to do it...

Health care is the only private-sector industry in California that accounted for job growth in 2008. Here, too, places benefit from having a fairly old population. The median age of people admitted to Santa Barbara’s Cottage Hospital is 55—eight years older than UCLA Hospital in Los Angeles. Although hospitals complain it is too stingy, few sources of revenue are more stable than Medicare, which paid for 44% of Santa Barbara’s patients in 2008.

In the past ten years, obedient to the findings of urban sociologists, American cities have tripped over themselves vying for young, creative people. They have revitalised downtowns and sponsored gay-pride parades. They might have been better off building retirement homes.

How the economic crash will re-shape America

Dr. Richard Florida, author of such books as "The Rise of the Creative Class" in 2002 and "Who's Your City?" in 2008, has written a very interesting article in the Atlantic Monthly positing that the current economic crash is different from most others which came before it because it has the capacity to re-shape the geographic demographics and land use patterns of the U.S. Like the Great Depression of the 1930s, he thinks it will usher in a different way of living, spending and investing.

Florida is definitely an interesting guy. I interviewed him by phone when writing a review of "Who's Your City?" for the L.A. Times, and besides being the head of the Martin Prosperity Institute at the Rotman School of Management, at the University of Toronto, and writing a regular column for the Toronto Globe & Mail, he also heads a private consulting firm, the Creative Class Group. From the article (which is quite lengthy, so I suggest definitely clicking on the link here to read it in its entirety):

No place in the United States is likely to escape a long and deep recession. Nonetheless, as the crisis continues to spread outward from New York, through industrial centers like Detroit, and into the Sun Belt, it will undoubtedly settle much more heavily on some places than on others. Some cities and regions will eventually spring back stronger than before. Others may never come back at all. As the crisis deepens, it will permanently and profoundly alter the country’s economic landscape. I believe it marks the end of a chapter in American economic history, and indeed, the end of a whole way of life...

The crisis has exposed deep structural problems, not just in the U.S. but worldwide. Europe’s model of banking has proved no more resilient than America’s, and China has shown that it remains every bit the codependent partner of the United States. The Dow, down more than a third last year, was actually among the world’s better-performing stock-market indices. Foreign capital has flooded into the U.S., which apparently remains a safe haven, at least for now, in uncertain times...

...the recession, particularly if it turns out to be as long and deep as many now fear, will accelerate the rise and fall of specific places within the U.S.—and reverse the fortunes of other cities and regions.

By what they destroy, what they leave standing, what responses they catalyze, and what space they clear for new growth, most big economic shocks ultimately leave the economic landscape transformed. Some of these transformations occur faster and more violently than others. The period after the Great Depression saw the slow but inexorable rise of the suburbs. The economic malaise of the 1970s, on the other hand, found its embodiment in the vertiginous fall of older industrial cities of the Rust Belt, followed by an explosion of growth in the Sun Belt...

...The housing bubble was the ultimate expression, and perhaps the last gasp, of an economic system some 80 years in the making, and now well past its “sell-by” date. The bubble encouraged massive, unsustainable growth in places where land was cheap and the real-estate economy dominant. It encouraged low-density sprawl, which is ill-fitted to a creative, postindustrial economy. And not least, it created a workforce too often stuck in place, anchored by houses that cannot be profitably sold, at a time when flexibility and mobility are of great importance...

The foreclosure crisis creates a real opportunity here. Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates—which are typically lower than mortgage payments—for some number of years. (At the end of that period, the former homeowner could be given the option to repurchase the home at the prevailing market price.) A bigger, healthier rental market, with more choices, would make renting a more attractive option for many people; it would also make the economy as a whole more flexible and responsive.

Next, we need to encourage growth in the regions and cities that are best positioned to compete in the coming decades: the great mega-regions that already power the economy, and the smaller, talent-attracting innovation centers inside them—places like Silicon Valley, Boulder, Austin, and the North Carolina Research Triangle...

What will this geography look like? It will likely be sparser in the Midwest and also, ultimately, in those parts of the Southeast that are dependent on manufacturing. Its suburbs will be thinner and its houses, perhaps, smaller. Some of its southwestern cities will grow less quickly. Its great mega-regions will rise farther upward and extend farther outward. It will feature a lower rate of homeownership, and a more mobile population of renters. In short, it will be a more concentrated geography, one that allows more people to mix more freely and interact more efficiently in a discrete number of dense, innovative mega-regions and creative cities...

To be certain, these themes echo what Florida has already discussed in his previous books. Whether or not these theories will come to pass, of course, remains to be seen.

Who will benefit most from the stimulus package

The unemployed, first-time homebuyers and most tax payers will all benefit from the stimulus compromise package. From a summary in the L.A. Times:

For most Americans, aid would show up most directly in a simple tax credit.

Workers making less than $75,000 a year would get a $400 credit for 2009 and 2010. Couples making up to $150,000 would get $800.

Higher-income taxpayers would see smaller credits. Individuals making more than $100,000 a year and couples making more than $200,000 would not get the credit.

In addition, 24 million middle-income Americans would be spared from paying higher income taxes under the alternative minimum tax...

First-time home-buyers could qualify for an $8,000 tax credit.

The credit is slightly larger than the $7,500 credit in existing law, but it is substantially less than a proposal in the Senate bill that would have boosted the credit to $15,000 and broadened the eligibility.

In addition, the compromise bill waives a requirement that the tax credit be repaid. The credit applies only to homes bought between Jan. 1 and Aug. 31 of this year.

Homeowners who install new doors, windows or furnaces to make their home more energy efficient would be able to get as much as $1,500 back through new tax breaks...

Many people paying for college would get a $2,500 tax credit for tuition and other education-related expenses, such as books and computers...

Millions of Americans receiving unemployment benefits would see a $25 increase in their weekly checks, up from the average benefit of $200.

Unemployment benefits would last 46 weeks under the deal, up from 26 weeks. Some people in high-unemployment states, including California, could receive benefits for 59 weeks.

People who lose a job would receive help in retaining their employer-sponsored health insurance.

Under current COBRA law, jobless workers can keep their insurance if they pay the full cost of the premium, which can exceed $1,000 a month for a family.

Under the stimulus bill, the federal government would pay 60% of that premium for nine months. Individuals who earned more than $125,000 a year and couples with incomes greater than $250,000 would not be eligible.More indirectly, millions of the nation's poorest residents would get help as states use billions of dollars in new federal aid to maintain Medicaid, special education and Head Start programs.

State and local government employees, many of whom are facing layoffs as states slash budgets, may get to keep their jobs.

Doctors, nurses and hospitals that often wait months for the government to pick up the tab for Medicaid patients could see some relief.

The perils of only planning for best-case scenarios

According to Financial Times columnist Martin Wolf, Barack Obama may be facing serious consequences to his Presidency if his stimulus plan only plans for best-case scenarios. From the column:

Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.

What is needed? The answer is: focus and ferocity. If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.

Yet hoping for the best is what one sees in the stimulus programme and – so far as I can judge from Tuesday’s sketchy announcement by Tim Geithner, Treasury secretary – also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years’ economic crisis, has let Congress shape the outcome.

Ouch!

Read the rest of the column here.

Men losing far more jobs than women

According to a story in the New York Times, so far 82% of job losses in this recession have befallen men, due in large part to jobs in manufacturing, construction and finance. Women, however, tend to work more in fields such as health care and education, which generally are less prone to job losses during downturns. So what could this mean for future home buying trends? Perhaps something both aesthetic as well as financial. From the story:


The proportion of women who are working has changed very little since the recession started. But a full 82 percent of the job losses have befallen men, who are heavily represented in distressed industries like manufacturing and construction. Women tend to be employed in areas like education and health care, which are less sensitive to economic ups and downs, and in jobs that allow more time for child care and other domestic work...

Should the male-dominated layoffs of the current recession continue — and Friday’s jobs report for January may offer more insight — the debate will be moot. A deep and prolonged recession, therefore, may change not only household budgets and habits; it may also challenge longstanding gender roles...

Women may be safer in their jobs, but tend to find it harder to support a family. For one thing, they work fewer overall hours than men. Women are much more likely to be in part-time jobs without health insurance or unemployment insurance. Even in full-time jobs, women earn 80 cents for each dollar of their male counterparts’ income, according to the government data...

When women are unemployed and looking for a job, the time they spend daily taking care of children nearly doubles. Unemployed men’s child care duties, by contrast, are virtually identical to those of their working counterparts, and they instead spend more time sleeping, watching TV and looking for a job, along with other domestic activities...

Click here for full story.

Job losses clearly becoming #1 economic issue

Worrying about the credit crunch and falling home prices? That's just so...2008. For 2009 we've got a new worry: a job market in free-fall. And since home prices and sales can't firm up until people have the income to support mortgages, it doesn't matter how low rates go. From a CNNMoney.com story:

Economists believe the recession is likely to get worse until the spiraling job losses and unemployment rate start to improve.

Record low mortgage rates won't lead to higher home values and increased home sales as long as 500,000 people a month are losing their jobs.

Rising unemployment will probably make banks even less willing to lend and also lead to increased defaults on a large range of existing loans.

And with more consumers losing, or worried about losing, their jobs, that should lead to a further pullback in spending. In turn, that will make it tougher for companies to increase their profits, which could lead to even more stock market losses.

If all that weren't bad enough, economists worry that that this will put more pressure on employers to lay off even more workers -- prompting the proverbial vicious circle that can make it so hard to get out of a bad economic downturn...

Even the people who have jobs are suffering. According to a recent survey by the Society for Human Resource Management, more companies are reporting that they are cutting pay of their employees in response to the difficult environment.

In addition, the average work week has been falling steadily during the past four months. A record 8 million workers that want full-time employment have only been able to get part-time jobs, according to the government's December labor report. That's up 37% from the total of so-called underemployed workers in August.

Pay hikes will be at best modest this year for many employees lucky enough to get increases. A survey by consultant Hewitt Associates found raises will be less than 3% for the first time in the study's 32-year history.

State and local governments are also making tough choices because of the recession, with many reporting big cutbacks in services and suggesting new taxes that could further hurt cash-strapped consumers...

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Not surprisingly, tight credit and recession worsening housing outlook

What's a builder to do? Even with housing starts to their lowest levels in decades and home builders mothballing communities, there's not much they can do to combat lenders who won't lend or a recession that steals, at least temporarily, their home buyers. From a Wall Street Journal article:

A deepening recession and tight credit conditions are compounding problems in the housing market, suggesting that declines in home prices may continue well into 2009.

Sales of existing homes tumbled 8.6% in November from the prior month to an annual pace of 4.49 million units, the National Association of Realtors said. The figure reflects contract closings, which lag behind sales activity, and as a result capture the credit-market turmoil that hit the economy starting in mid-September.

New-home sales declined 2.9% to an annual rate of 407,000 units, the Commerce Department said, continuing a nearly three-year decline.

The housing sector has been hit hard throughout the year by an oversupply of homes that gradually forced high prices to fall. Tumbling prices, in turn, hurt the overall economy by battering financial institutions, reducing the wealth of homeowners and prompting job cuts in the housing sector.

Now, the worsening recession is further damaging the housing market. Consumers who lose their jobs are adding to homeowner defaults, pushing forecasts for when the sector will hit bottom into the second half of 2009 or later. Until the housing market turns around, the overall economy is unlikely to grow much. Economists call this cycle an adverse feedback loop.

What this also means is that prices could fall below the historical ratios of income or rents until the economy rebounds.

There is one glimmer of good news not reflected in the latest figures: a sharp drop in mortgage rates in recent weeks tied to the federal government's efforts to support the housing market. Though tighter credit terms are restricting many potential borrowers, lower rates could pull some potential buyers off the sidelines and slow the price declines.

A broad measure of home values by the Federal Housing Finance Agency, released Tuesday, showed prices nationwide dropping 1.1% in October from the prior month and 7.5% from a year earlier. The agency's index, built on purchase prices of houses backing mortgages sold to or guaranteed by Fannie Mae and Freddie Mac, is down 8.8% from its April 2007 peak...

The Commerce Department's sales figures showed the median price of a new home at $220,400 in November, down 11.5% from a year earlier. The average price declined 9.2% to $287,500. The inventory of unsold new homes declined 7% to 374,000 at the end of November. That represents 11.5 months of supply at the current pace, down from 11.8 months in October.

"Home-building activity has declined so much that the backlog of unsold units is starting to be absorbed at a fairly rapid clip even in the face of such a slow sales environment," said Morgan Stanley economist David Greenlaw, who added that inventories won't drop to "manageable levels" for six to nine months.

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UCLA expects a dismal 2009

After being somewhat late in calling the current recession, the UCLA Anderson Forecast is now predicting a dismal 2009 while dissing the private Chapman University's own forecasts. From an L.A. Times story:

Two million jobs could be lost nationwide next year under the weight of a severe global recession that shows no sign of relenting soon, UCLA forecasters say...

The nation's unemployment rate will rise to 8.5% by late 2009 or early 2010, according to the forecast -- further straining a job market that matched a 34-year high last month by shedding 533,000 positions.

Undergirding the joblessness will be a continued decline in real estate values, diminishing wealth as a result of the stock market crash and weaker consumer spending.

The negative forces are predicted to help change the trend in the nation's real gross domestic product from a growth of 1.3% this year to a 1.6% contraction next year. In 2010, the authors say, there might be a turnaround...

The forecast for California also appears grim. Manufacturing jobs are expected to disappear and tourism is likely to suffer from recessions overseas, the report said.

The state's unemployment rate, which is currently at 8.2%, could rise to 8.7% and remain there until 2010...

Retail, transportation, warehouse employment and temporary jobs are expected to suffer the most, while education and healthcare could hold steady...

The UCLA forecast comes two days after a similar report was released by Chapman University in Orange. A tongue-in-cheek rivalry has formed between the two schools.

James Doti, Chapman's president, chided UCLA for failing to call a recession during its forecast in June. He also trumpeted his economists for being among the first to deem the nation's economy in recession last year.

Leamer downplayed the issue in a phone interview Wednesday. "We don't particularly notice them," he said about Chapman.

So how does this recession compare to others?

"The Economist" has an interesting article entitled "A thoroughly modern recession," and argues that although the current recession is sure to be the longest since WWII, since high interest rates weren't the culprit it has more in common with the downturns of the early 1990s and 2001 than the one largely enabled by the Fed hiking interest rates in the early 1980s. From the article:

Though it may end up as one of the longest recessions, if not the longest, of the post-war era, the current episode still seems to have more in common with the mild downturns of 1990-91 and 2001 than the more wrenching affairs that came before.

As Robert Hall, an economist at Stanford University, notes, earlier recessions, like that of the early 1980s, were caused by the Fed raising interest rates sharply to squelch emerging inflation and holding them high even once the recession began. In the current and past two recessions, interest rates never got very high and the Fed actually began to lower them before the contraction began. In a paper written a year ago*, Mr Hall described such apparently “causeless” recessions as perplexing...

The paradoxical truth may be that the less volatile business cycle (until recently) encouraged investors to take bigger risks with borrowed money, driving asset prices too high and ending in damaging busts. Some would still blame the Fed, for not deflating asset bubbles with higher interest rates.

In a recent speech, Donald Kohn, the vice-chairman of the Fed, rejected that charge but pleaded guilty to a lesser one: by better controlling inflation, central banks helped moderate the business cycle, which bred investor complacency. They thus “may have accidentally contributed to the current crisis.” The Fed may no longer be the prime suspect for causing recessions; but it is still an accessory to the crime.

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