Monday Business Edition
G.D.P. Shocker: U.S. on Verge of Double-Dip Recession
Posted by John Cassidy, The New Yorker
July 29, 2011
When healthy, the American economy grows at an annual rate of close to three per cent. The Commerce Department’s latest report on the gross domestic product (pdf) shows that between April and June, it expanded at an annual rate of 1.3 per cent, and between January and March it grew at an annual rate of just 0.4 per cent. The first-quarter figure is particularly stunning. Previously, the Commerce Department had estimated growth in the period at 1.9 per cent. What is to prevent a similar downward revision to the second-quarter figures? Nobody can say.
Consumer spending, which is the driving force of the American economy-it makes up more than two thirds of G.D.P.-has stalled badly. After expanding at an annual rate of more than two per cent for the previous year and a half, it was essentially flat in the second quarter. Unless consumers spend more readily in the second half of the year, there is no prospect of an economic rebound. But with gas prices still high, unemployment ticking up again, and their elected representatives in Washington paralyzed, it seems unlikely that American families will be flocking back to the malls anytime soon.
Retail sales hardly grew at all in June. Wall Street analysts who had been predicting growth of close to three per cent for the rest of the year are now busy trimming their estimates. Industrial production, the other item that the N.B.E.R. watches closely, has also been showing weakness. The Fed’s index of industrial production declined slightly in April and May, before rising slightly in June. Manufacturing, the biggest component of industrial production, had its weakest quarter since the previous recession ended in mid-2009.
In one sense, the new G.D.P. figures are even worse than they seem. Bear in mind that they are all annualized. This means the government statisticians take the actual growth rate in the quarter and (roughly speaking) multiply it by four. Reversing the process (dividing by four) reveals that the economy expanded by just 0.1 percent in the first quarter and by roughly 0.3 per cent in the second quarter. These figures are so small as to be trivial.
We know what happens from implementing austerity policies in a Lesser Depression from the examples in Britain-
British Economy, After Austerity, at Zero Growth in the Past Nine Months
By: David Dayen, Firedog Lake
Tuesday July 26, 2011 8:15 am
What’s amazing about this debt limit debate, and the headlong rush to austerity, is that we have empirical evidence of what can result, in this kind of economy, when you massively roll back spending. We even know what happens when you do that amid the threat of a debt downgrade rather than the fundamentals of the financial markets. All you have to do is look to Britain, which has never been the same since their austerity package was unveiled by the Tories.
Britain rolled back demand during a time when the economy was already weak, and they are suffering through the consequences. Instead of looking at this as a problem to be avoided, US policymakers are on the verge of emulating it. And not even in a good way: the British plan was at least somewhat balanced, with tax increases along with the spending cuts. This shows that the idea of a “balanced approach” is still flawed, because either way, you’re reducing demand during a time with a demand shortfall.
And in States–
- Bigger State Spending Cuts == Higher Unemployment Rates
- Each 10% Cut == .04% Increased Unemployment
- Bigger State Spending Cuts == More Private Employment Losses
- Each 10% Cut == 1.6% Lost Private Employment
- Bigger State Spending Cuts == Weaker Economies
- Each 10% Cut == 1.6% Economic Contraction
State spending data are adjusted for inflation using the GDP price index. National changes have been removed from data on state unemployment rates, private payroll employment, and inflation-adjusted GDP growth to more clearly identify state-level economic performance. The analysis in the three charts weights each state’s data by population size to give a better reflection of a national average effect of cutting state government spending on economic performance. Weighting the analysis as such does not materially change the significance or size of the effect of cutting state spending.
AUSTERITY DOES NOT REDUCE THE DEFICIT OR DEBT!
Sure Cure for the Debt Problem: Economic Growth
By CATHERINE RAMPELL, The New York Times
Published: July 30, 2011
Before its economy crashed, Ireland was a star of this sort of debt reduction. In the 1980s, Ireland’s debt dwarfed its economy. Over the next two decades, though, that debt shrank to about a quarter of gross domestic product, largely because the economy went gangbusters.
“Ireland went from being, you know, the emerging market in a European context, to a very dynamic economy,” says Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics and co-author of “This Time Is Different,” a history of debt crises.
The same happened during the prosperous 1990s, which began with deficits and ended with surpluses. Former President Bill Clinton is often credited for that turnabout, as he engineered higher tax rates. But most economists attribute the surplus years primarily to extraordinarily rapid growth.
While it may be difficult or impossible to grow our way out of debt, the G.D.P. figures announced on Friday suggest that we could quite possibly shrink our way into bankruptcy. The austerity measures that Congress is debating would almost certainly slow growth further. That, in turn, might actually worsen the debt problem – the exact opposite of what their proponents suggest.
The problem is that reducing spending or raising taxes just now would hurt the already fragile economy. Another recession would not only be painful for ordinary Americans but would actually worsen the debt problem by reducing tax revenue.
Don’t believe it? Consider this: Of the $12.7 trillion in additional federal debt that was accumulated over the last decade, about a third came from the souring economy.
Back in the Great Depression, Washington tightened its belt with disastrous results. Congress severely reduced spending in 1937, plunging the economy back into the hole. Ultimately, that meant even more federal borrowing.
Leaving aside the moral bankruptcy of starving the poor and elderly to death while leaving the wealthiest one tenth of one pecent untouched and accelerating their robbery of the middle class, this is bad, bad, bad economic policy.
And Barack Obama and the Democrats know it. The People know it too.
Obama Approval Drops to New Low of 40%
Similar to his approval rating for handling the debt ceiling negotiations
by Jeffrey M. Jones, Gallup
July 29, 2011
PRINCETON, NJ — President Obama’s job approval rating is at a new low, averaging 40% in July 26-28 Gallup Daily tracking. His prior low rating of 41% occurred several times, the last of which was in April. As recently as June 7, Obama had 50% job approval.
Though Americans rate Obama poorly for his handling of the situation, they are less approving of how House Speaker John Boehner and Senate Majority Leader Harry Reid are handling it. Gallup does not include ratings of Congress or congressional leaders in its Daily tracking, and thus, there is no overall job approval rating of Boehner, Reid, or Congress directly comparable to Obama’s current 40% overall job approval rating.
Obama’s job approval rating among Democrats is 72%, compared with 34% among independents and 13% among Republicans. In the prior three weeks, his average approval rating was 79% among Democrats, 41% among independents, and 12% among Republicans.
Americans’ Ratings of the Economy Also More Negative Amid Stalemate
The debt crisis may be contributing to a generally sour mood for Americans that stretches beyond political ratings. For example, Gallup’s Economic Confidence Index, which is also tracked daily, averaged
49 July 2628, down 8 points in the last week and down 19 points since early July. The current index score is the worst Gallup has measured since March 2009.
The index consists of two questions, measuring Americans’ ratings of current economic conditions and their assessments of whether the economy is getting better or worse. Currently, 52% say economic conditions are poor, the highest since August 2010. And 75% of Americans say economic conditions are getting worse, a level not seen since March 2009.
Electoral victory my ass.