Wednesday, October 1, 2008

Too late to resuscitate the dead

The key report is not yet in but the verdict is.

The economy is dead. Long live the economy.

The employment report on Friday will only serve to add its voice to the chorus of economic growth mourners.

ISM? How about...recessionism?
Today's ISM report is among the weakest of its kind, although we often see weaker headlines for this MFG report in recessions. The most stunning thing about this September report on manufacturing activity is not how low this index stands or how much its components have dropped, rather it is how much they have fallen in just one month's time. The severity of the drop in the ISM headline, in the new orders and employment barometers together is unprecedented in data dating back to 1955.


Housing crisis is one in a century? ISM weakness is two in a century?

And many say we are not yet in recession.

That's interesting. We have been in recession on balance 14% or 15% of the time since 1995. So it would be odd if a twice in century event that exposed a swift decline in MFG activity was not part of a recession. Wouldn't it?

I doubt that many will continue to sing that tune.

Look for Gray's Papaya in NY to go back to running it's 'recession specials.'

Happy days are here again...

Recession? Really? Please pass the caviar...
One month ago we saw the rate of unemployment jump to 6.1% from 5.7%. We have since seen retail sales fall for two months in a row. We have seen industrial output fall by more than 1% in a month. We have seen great weakness in inflation-adjusted consumer spending (PCE -personal consumption expenditure, the broadest measure of real consumer spending). And while construction spending in August came up flat, in July it has been revised sharply lower. Moreover, residential spending is still declining at a rapid pace with little evidence that the slide is abating. Non-residential construction is losing some of its steam and showing signs of increased weakness. And, of course, if the economy is sliding into a more extreme phase of recession, housing and nonresidential construction spending will each weaken further.

...and that is a real risk, indeed, likelihood.

The bailout that is being considered has nothing in it directly to support the housing sector. Without supporting housing, all housing linked securities will get weaker. That will, of course, weigh on the banks that this legislation is supposed to help. Fiddle-dee-dee!

Treasury Secretary Paulson says that the housing sector is the issue. but banks are singled out by pending legislation.

There is a lot of weirdness about and surrounding this legislation.The suddenness of the request is striking. The masquerade before about troubled institutions that were mooted as possible acquirers of other troubled institutions. The abrupt demise of Fannie and Freddie and the discovery of accounting irregularities as a catalyst but not one that gets blame attached to the respective CEOs, who are allowed to bow out with grace. The blatant power grab that the initial bill seems to have been as offered by Paulson. The support of such a clear non-starter by a highly intelligent but perhaps politically naive Fed Chairman. The banking committee heads who let such stuff be presented to them in the first place. The rejection of the legislation even after substantial modification in the House and by the President's own party. This episode will make some great case study for political science students following the politics and horse-trading of legislation.

Meanwhile the Senate has passed its bill and now we await the House's second pass at it.

Meanwhile the garbage disposal is on and the economy is going through it.

Meanwhile what needed to be fixed looks like it is going to get fixed but it's not the only thing that needs attention.

Another day, another trillion dollars.

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