Today several news items cropped up which highlights the recovery/recession debate and illustrates how far Wall Street remains from Main St.
First, consumer confidence is down. "Unexpectedly down" is actually what the headlines read. The reading went from a revised number of 66 in April to a six month low of 60.8 in May when the think tank analysts had predicted it would jump up to 67. This is the point where I, as an average person, really begins to wonder how they predict these numbers. Is there some magical formula that glances over things like rising prices for food and gas while clinging to small gains in income? My grandmother used to tell us that there was a difference between book learning and common sense. This clearly seems to be the case in this instance! I think they forget to factor in things like tax rebates, lowering heating bills, warming temps, thankful that we weren't on the brink of nuclear disaster like Japan and other non-academic variables that help put people in better frames of mind in regards to fiances.
As I look over my own finances for the past six months, things were predictably within range. My family got a nice boost at tax time. We spent the early spring buying new clothes, fixing the house/cars, planning some fun summer outings. Yes, we complained about the rising gas prices but it wasn't until our extra money was gone that we began to see the impact of the increase of many essentials. It isn't until now, when summer has approached, that we realize how little is left over for summer fun...beach trips, bbq's day trips to the zoo, amusement park, or other not-so-free fun. That makes people feel like they have been working for nothing. That is when confidence begins to waver. For the record, a reading of 90 or better is considered ideal for a healthy economy.
Next is the housing market. This economic indicator also hit a new low. The home index price is at it's lowest level since 2002. One friend commented that this was a big reason why our economy isn't gaining traction. I think it isn't a reason for the limited growth but a symptom of a much larger issue. My every day eye sees lack of credit, lack of jobs, and lack of security as the main factors for the dip in home prices and sales. The housing market crash that started the ball rolling for the great recession was not the big dip in prices but the sub-prime loans that were being defaulted. Those defaults caused big crashes for banks and other financial businesses that were betting on those loans while having limited cash reserves. These are two different housing issues. Then: housing affected money institutions. Today: people's lack of financial security is affecting housing.
Adding to the problem then and now is the amount of properties that are under water, meaning people owe more than their house is worth due to dropping prices. This means people are stuck with high payments and very limited options to get out of their current properties if needed. Rises in property taxes isn't helping the situation. So while many of the sub-prime mortgages have already defaulted and those with high debt defaulted in the first massive lay-offs in 2008/2009 are factored into the market, it doesn't mean the end is in sight. Far from it. The fact that you can't get help with your mortgage until you are in default is an issue. The fact that people can't move upward and onward is an issue. The fact that people don't feel safe in their current jobs is an issue. There are so many factors that need to be straighten out before the housing market turns around, it almost feels impossible. It isn't and for those that can afford to profit by scooping up deals now, more power to you. For the rest of us, we sit and wait till better days ahead.
And for all this, the stock market was up today. Ticker tapes stream the happy news that somewhere over-seas (Greece to be exact), a deal to bail-out another collapse is in the works. This makes Wall Street happy. Profits remain up for companies smart enough to get lean and mean during the recession. That is what is needed to survive. Great! I'm all for it. However, to anyone who looks solely to Wall Street as an indicator that we are out of the the mess we've created on multiple levels, is simply fooling themselves. We can no longer look to them as a sure sign that all is right with the world. Portfolio's are up. But at what price and for how long? And what about those average folks who are currently living paycheck to paycheck without benefit of rises in stocks and bonds? We are the legs that hold up Wall Street. If we are weak, so are you.
Tuesday, May 31, 2011
Sunday, May 29, 2011
Recovery or Recession?
After the "great recession" of 2008, the National Bureau of Economic Research was quick to pin-point the end of the recession as of June 2009. I do not believe this is true.
I know that from a technical point of view based on arbitrary indicators like production, spending, and stock market recovery it may be considered over but for the average person, it is not. It has long been my opinion that economic policy is created in such a way that it makes it difficult to officially label a recession while making it equally easier to say we have rebounded out of one.
One thing that you have to remember about recessions and depressions is the fact that no matter what happens, people still need to consume goods! Our need for clothing, housing, food, transportation, and other essentials does not go away simply because our ability to earn more money is lacking. Yes, in 2008, production came to a big screeching halt as companies and banks came to terms with years of overspending with little cash reserves. Restructuring was the name of the game. Lay-offs came in big ways. Production grinded to a snail's pace as companies got rid of excess goods. Banks folded in mass numbers. The housing market most of it's gains. All that has happened since is a return to light production as we still consume goods while companies rebounded by building up cash reserves and stream lined production with fewer people. Banks stopped lending. Credit is hard to find and the housing market continues to loose steam. Most of 2009/2010 profits for companies is a result of this restructuring, not from boosts in sales. Take a close look. Revenue is up but when you subtract the inflation numbers, sales are barely above stagnant.
That is one trick that Wall Street likes to use. "Revenue" numbers vs. actual side by side sales comparisons. It's a publicity ploy to make people feel better. It sounds better to say revenue is up $1.5B than it is to say that sales only grew .01%. You usually have to read between the fine lines for the fact that most prices are above what they were last year. Again, they don't want you to realize that sales are flat and they certainly don't want to remind you that you are paying more for items this year than last. But since most average folks only skim through the headlines, it gives a false sense of security. It's effective. It works. But not for everyone. In the end, the uptick in production is good but it isn't at levels at would indicate a growing economy. It is at levels which indicate a stagnate one where consumers are purchasing things they need to keep going with limited funds spent on non-essentials. That, my friends, is not a recovery. It is a holding pattern which leaves us right about where we were in 2008...recession.
I'll go even further to suggest that while prices have gone significantly up (gas prices anyone? average $1 more per gallon over the same time frame last year! read how gas prices are affecting the family budget ), our salaries have not. And unemployment numbers remain stubbornly high as the numbers of people seeking unemployment benefits for the first time continues to outpace the numbers of jobs created. So where is the outrage? Where is the poor consumer confidence numbers? Simple human behavior... We have gone through the shock of loosing our jobs. We have gone through the shock of having to live without credit, paying down debt, reducing our budgets. It has been 3 years since the slide began. People are amazing. We adjust to new situations all the time. Less has become common therefore no longer devastating to our point of view. As personal debt goes down, a little extra cash can be found in budgets and people begin to feel cheery again. If you are anything like me, you've carefully planned for Christmas. You've used some tax refund money for a trip or home improvements. But that doesn't mean you are buying lots of extras in between.
And this doesn't even touch on the fact that much of our economy is being held up by government spending, It accounts for a huge portion of our current GDP. It can't be sustained forever.
Recession.
Also, I believe another round of economic strain is coming. This time, not from the private sector but from our local, state, and federal governments. read: ending the debt cycle Already my city is raising taxes by the legal maximum set by the state. My state is raising fees on items like parking fees at state beach by double! This is just the beginning. Can't wait to see what the federal government has planned to reduce the national debt.
2009 wasn't the end of the recession, it was just the point of stabilization until the next round.
I know that from a technical point of view based on arbitrary indicators like production, spending, and stock market recovery it may be considered over but for the average person, it is not. It has long been my opinion that economic policy is created in such a way that it makes it difficult to officially label a recession while making it equally easier to say we have rebounded out of one.
One thing that you have to remember about recessions and depressions is the fact that no matter what happens, people still need to consume goods! Our need for clothing, housing, food, transportation, and other essentials does not go away simply because our ability to earn more money is lacking. Yes, in 2008, production came to a big screeching halt as companies and banks came to terms with years of overspending with little cash reserves. Restructuring was the name of the game. Lay-offs came in big ways. Production grinded to a snail's pace as companies got rid of excess goods. Banks folded in mass numbers. The housing market most of it's gains. All that has happened since is a return to light production as we still consume goods while companies rebounded by building up cash reserves and stream lined production with fewer people. Banks stopped lending. Credit is hard to find and the housing market continues to loose steam. Most of 2009/2010 profits for companies is a result of this restructuring, not from boosts in sales. Take a close look. Revenue is up but when you subtract the inflation numbers, sales are barely above stagnant.
That is one trick that Wall Street likes to use. "Revenue" numbers vs. actual side by side sales comparisons. It's a publicity ploy to make people feel better. It sounds better to say revenue is up $1.5B than it is to say that sales only grew .01%. You usually have to read between the fine lines for the fact that most prices are above what they were last year. Again, they don't want you to realize that sales are flat and they certainly don't want to remind you that you are paying more for items this year than last. But since most average folks only skim through the headlines, it gives a false sense of security. It's effective. It works. But not for everyone. In the end, the uptick in production is good but it isn't at levels at would indicate a growing economy. It is at levels which indicate a stagnate one where consumers are purchasing things they need to keep going with limited funds spent on non-essentials. That, my friends, is not a recovery. It is a holding pattern which leaves us right about where we were in 2008...recession.
I'll go even further to suggest that while prices have gone significantly up (gas prices anyone? average $1 more per gallon over the same time frame last year! read how gas prices are affecting the family budget ), our salaries have not. And unemployment numbers remain stubbornly high as the numbers of people seeking unemployment benefits for the first time continues to outpace the numbers of jobs created. So where is the outrage? Where is the poor consumer confidence numbers? Simple human behavior... We have gone through the shock of loosing our jobs. We have gone through the shock of having to live without credit, paying down debt, reducing our budgets. It has been 3 years since the slide began. People are amazing. We adjust to new situations all the time. Less has become common therefore no longer devastating to our point of view. As personal debt goes down, a little extra cash can be found in budgets and people begin to feel cheery again. If you are anything like me, you've carefully planned for Christmas. You've used some tax refund money for a trip or home improvements. But that doesn't mean you are buying lots of extras in between.
And this doesn't even touch on the fact that much of our economy is being held up by government spending, It accounts for a huge portion of our current GDP. It can't be sustained forever.
Recession.
Also, I believe another round of economic strain is coming. This time, not from the private sector but from our local, state, and federal governments. read: ending the debt cycle Already my city is raising taxes by the legal maximum set by the state. My state is raising fees on items like parking fees at state beach by double! This is just the beginning. Can't wait to see what the federal government has planned to reduce the national debt.
2009 wasn't the end of the recession, it was just the point of stabilization until the next round.
Subscribe to:
Posts (Atom)