Yes we CAN!' meets and fails a reality test?
Mr Obama as a candidate made 'Yes we can' his signature motto. What happened? Once elected this voice of hope has tuned to the rhetoric of despair. In an attempt to keep expectations down when Tim Geithner, Treaury Secretary, announced his new plan for banks and for finanicial sector help he warned that it would take time and that they would make mistakes and....
'Well, we might!'
That's a few notches lower than, 'Yes we can." Isn't it?
No divide and conquer
In the modern economy you can't do these two opposite things at once and get away with it. You can't 'be positive and urge people on while at the same lowering expectations for success so people won't get disappointed if the results aren't stellar. It's show time!
As always: the blame game
The President and his team are supposed to be positive forces for the economy. Yes, we understand that President Obama inherited a clunker of an economy from George W. Bush AND from the Democrat-controlled Congress. It's important to remember that, since the economy is not run by presidential fiat as we are now being reminded. Democrats have chaired the two key financial committees in the House and in the Senate. In the Senate, Dodd is a long time opponent of reform at Fannie Mae. He is also a huge recipient of funds from the financial lobby as was George W Bush (Barney Frank, who heads the House Financial Services Committee is also a recipient, to a lesser extent). There are all sorts of uncomfortable sound bites of Democrats saying things about the housing boom and about what they did to try to help lower the hurdles to get people into houses. One man's hurdle is another man's safeguard- in retrospect. Looking back, that does not play too well for those who want to blame the financial mess on Bush. He gets his share but be careful how you play this blame game. There is plenty for everyone.
It ain't me, babe
But we do know that whoever you blame, it's not Obama.
That's the fact Jack
That's a fact. And Barack knew the sad state of the economy when he ran for office. He ran as a more capable candidate on the economy than John McCain. So where is that guy? He knew that his job would be to turn this thing around and his reply was, "Yes we can." So where is that positive 'can do' attitude? It will be hard to have success without it.
As always, parties at loggerheads
Of course there is still a political battle raging over the form of the stimulus package and bank aid. I'd sure would like to have seen more support from Republicans but the battle lines are drawn. Democrats are of the opinion that they offered up a plan that was bipartisan in spirit. Republicans did not see it that way. So now the plan has been passed mostly with Democrat votes. Republicans had some impact on it. We'll see if it works. I am waiting for the scoring from the CBO to see what the timeline is on funds to be spent and the estimated impact on the deficit.
Some positive economic news?
Meanwhile the economy is not looking as grim. This is something I have felt for a while and it's not clear if I'm right or not, but what if we have not fallen into a black hole? Democrats have cast everything in the worst possible light to try and push through the stimulus plan.... What your mother is sick? See, that's why we need a stimulus plan...and so on. This has helped to color perceptions about how the economy is doing. The recession is in some ways severe, but not in all ways.
Yes, positive news!
In fact retail sales jumped by 1% in a surprising January result. Let's not try to extrapolate that trend. But it is good news for retailers since it suggests that they were able to make some real progress with inventory reduction. The SALE is the only way for them to do that. Firms can cut or halt orders for new merchandise, but inventories don't decline unless consumers are taking goods off the shelves. So the retail sales report - to me- more than being a signal of a strong consumer, is a sign that inventories are not going to continue to bloat. The rise in sales also helps the inventory-to-sales figure look better, a key gauge of inventory adequacy. In the report nondurable goods spending was quite lively but durable goods spending is still spotty.
Reason to be upbeat?
In a research piece I sent out earlier in the day, I pointed out that in the two previous long recessions it was about at this point in the cycle when retail sales stopped dropping. Remember that while unemployment is growing MOST people still have jobs and the population is still growing as well. Retail sales are 10% lower in real terms than their level at the threshold of recession. There has been a lot of adjustment, a lot of damage and consumers have postponed a lot of spending. It's a good time to recognize that the coming stimulus should tilt the odds of an improvement continuing. How much and how fast the economy improves depends on the profile and speed of the spending in the package.
Other positive signs, events?
Consumer confidence has also showed some signs of bottoming, in at least one the major monthly surveys. While the job losses have been severe, jobs are being cut faster than hours-worked. Moreover, the severe phase of job loss in recession is usually not a long one- especially if there are flashes of positive events like a consumer spending picking up and a stimulus package. Interestingly in the retail report auto sales rose; the weakness in m/m auto sales previously released had a large component of weak sales to corporate customers.
Comparing recessions: this one is weak and strong, but not yet over
When we look at this recession compared to others the things that really stand out are how weak imports are in this cycle and how strong productivity has been. Along with exports, that had been very strong, but now are falling sharply, we can identify the three mains reasons that GDP in this recession is the strongest after five quarters of recession compared to any previous post 1960 recession that lasted that long. That's right- the STRONGEST. While there is commentary about how bad this recession is, let's realize that most of this weakness is from labor market gauges. Job losses are severe and the rise of the unemployment rate from its cycle trough has been faster in this recession than in any other since 1960.
Wave the pom-poms
We can take the attitude that things are weak and troubled and say 'yes we might'. Or we can take the high road and be optimistic that our economy with a stimulus package, help from the treasury in spending its special funds and assistance from an active Fed mean 'Yes we can'. Let's see if the administration can bring itself to take a more positive view and try to encourage workers instead of depressing them.