Hunker down

Get snug, and wait for the storm to blow over:

Roughly speaking, consumers have two modalities: surging and dwelling.

In the surging modality, consumers have momentum. We have a vivid sense of forward motion. Life is getting better. Each purchase is an improvement onthe last one. Clothes change with fashion. The material world teems with new features, new things, new opportunities, new excitement. We look ahead constantly, keeping one foot in the present, putting one in the future. The good life is America is always a better life. That's the fundamental promise of the consumer society.

In the dwelling modality, the consumer is not forward looking, but concentrated on the here and now. Now most of life's pleasure comes from counting one's blessings. This is a dwelling modality, because the individual is no longer in transit, racing towards a better tomorrow. Now the consumer is focused on what is good about what one has. The consumer stops anticipating and starts savoring.

Of course, ceasing to buy will bring the entire global economy to a crashing stand still. Because we need to be constantly buying more and more stuff.

It gets worser and worser

NEW YORK (CNNMoney.com) -- The credit market freeze has added to an incredibly tough sales year for U.S. retailers, and analysts warn that these challenges are just the beginning of what could be a brutal 2009 for merchants.

"The worst is yet to come," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm.

"We'll see some tried and true [retail] names disappear," said Marti Kopacz, managing principal with corporate advisory and restructuring firm Grant Thornton.

Prior to the credit crunch, retailers were already struggling with softening sales as higher gas prices and falling home equity forced Americans to curtail purchases.

Last month's sales at stores open at least a year, which is a key measure of a retailer's performance known as same-store sales, rose just 0.8%, according to sales tracker Thomson Financial. Forecasts were for a 1.5% increase, according to Thomson.

Analysts say same-store sales of 3% or higher typically reflect a healthy U.S. consumer. Since consumer spending fuels two-thirds of the nation's economy, such a low same-store sales number is a bad sign.

Update:

Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years, driving the stock market lower after it rallied the most in seven decades yesterday.

Motto for the post Bush era:

Use it up, wear it out,make it do, or do without.

The center cannot hold

Jobs?

WASHINGTON - The nation's unemployment rate jumped to 5.5 percent in May — the biggest monthly rise since 1986 — as nervous employers cut 49,000 jobs.

The latest snapshot of business conditions showed a deeply troubled economy, with dwindling job opportunities in a time of continuing hardship in the housing, credit and financial sectors.

"It was ugly," said Richard Yamarone, economist at Argus Research.

With employers worried about a sharp slowdown and their own prospects, they clamped down on hiring in May, said Friday's report from the Labor Department. The unemployment rate soared from 5 percent in April to 5.5 percent in May. That was the biggest one-month jump in the rate since February 1986. The increase left the jobless rate at its highest since October 2004.

Financial institutions?

Federal regulators warned Thursday that banking-industry turmoil would continue as financial institutions come to terms with piles of bad loans they made to finance the construction of homes and condominiums.

Until now, most of the damage to banks from the housing crisis has come from homeowners defaulting on their mortgages. But amid a dismal spring sales season for new homes, loans to home and condo builders are looking increasingly shaky. Banks have begun to dump them at what will likely be steep discounts, setting the stage for billions of dollars in fresh losses.

"As long as the housing market is on a downward path, as long as those prices continue to fall, I think there's a risk that the losses could continue to mount on a variety of loans," Federal Reserve Vice Chairman Donald Kohn told the Senate Banking Committee Thursday.

And:

WASHINGTON (Reuters) - Future U.S. bank failures linked to the downturn in the real estate market may include "institutions of greater size" than in the recent past, Federal Deposit Insurance Corp Chairman Sheila Bair said on Thursday.

In testimony prepared for a Senate Banking Committee hearing on the state of the banking industry, Bair said an increasing number of problem banks face high exposure to commercial real estate and construction lending.

"There is also the possibility that future failures could include institutions of greater size than we have seen in the recent past," Bair said. "Uncertainties in today's economic environment continue to pose significant challenges for the banking industry, households, and bank regulators."

The FDIC, which has about $52.8 billion in its deposit insurance fund, has launched a review of its risk-assessment rates for larger banks to determine if they reflect current conditions, she said.

Oil?: (my bold)

NEW YORK - Oil prices shot up nearly $7 a barrel Friday, extending big gains from the previous day and racing toward an all-time high after a Morgan Stanley analyst predicted prices could hit $150 by the Fourth of July.

Light, sweet crude for July delivery jumped $6.27 to $134.06 on the New York Mercantile Exchange. Earlier, the contract rose as high as $134.68.

Friday's surge builds on a $5.49 gain Thursday, which was the biggest single-day price increase in the history of the Nymex crude contract. That spike came as the dollar fell in response to comments by the European Central Bank suggesting the bank could raise interest rates.

Prices pushed sharply higher Friday after Morgan Stanley analyst Ole Slorer said he expected strong demand in Asia that could drive prices to $150 by July 4.

Consumer confidence?:

WASHINGTON (Reuters) - U.S. consumers are socking more money into savings, as fears of a weakening economy may be making them reluctant to spend their tax rebate checks, according to analysts who say that may mean the economy faces a prolonged period of slower growth.

In fact, consumers have been slowly rebuilding savings since hitting a low point in November 2007, when they drew down savings in order to keep spending. Since November's negative 0.1
percent savings rate, it has slowly climbed to reach 0.7 percent of disposable income in April.

[snip]

As of last Friday, the U.S. Treasury had mailed out tax rebate checks of up to $600 for individuals and $1,200 for couples, worth a total of $50.041 billion. The rebates are part of a $152 billion stimulus program signed into law in February by President George W. Bush aimed at giving the flagging economy a quick lift.

CONSUMERS JITTERY

Economists, however, think much of the money will be directed by jittery consumers toward reducing existing debts, instead of more spending on goods and services.

"If people are looking ahead to next winter and thinking how much it is going to take to fill up the heating oil tank ... it is not going to help the economy in the short run," said Gary Thayer, senior economist for Wachovia Securities.

There is evidence people are shopping less. Last week's personal income report showed that spending rose a meager 0.2 percent in April after a 0.4 percent gain in March.

And a Reuters/University of Michigan Survey of Consumers data showed consumer confidence in May dropped to its lowest level in 28 years, a signal that consumers are not about to open their wallets easily.

Bush's legacy. We didn't go shopping when he told us to.

If only Georgie would tell us to go shopping again...

Because we obviously don't elect Republicans to govern and to lead because they truly hate government and governing, but to be father figures and lay comfort on us poor folks:

Concerns about the direction of the country and personal finances rose sharply, and dissatisfaction with Bush, Congress and the administration's economic and foreign policy all climbed.

Bush's approval rating fell 4 percentage points to 23 percent, a record low for pollster John Zogby, and positive marks for the U.S. Congress fell 5 points to tie an all-time low at 11 percent.

The number of Americans who believe the country is on the right track fell from 23 percent to an abysmal 16 percent, another record for pessimism, as uncertainty about the economy and rising gas prices fuelled growing doubts about the future.

"Bad economic news is settling in and Americans are getting anxiety ridden," Zogby said.

See? We need someone to give us sympathy in our hour of need!



The frightened population needs reassurance:



And then we need to given something to strive for:



There. Don't you feel better? I knew Bush understood us:

When Bush tells you to go shopping

And you don't want to .... have the terrorists won?:

NEW YORK (Reuters) - Consumer sentiment fell sharply in early February to levels associated with previous recessions, dragged down by concerns a bleak economic outlook would raise the unemployment rate, a survey showed on Friday.

The Reuters/University of Michigan Surveys of Consumers index of consumer sentiment dropped to 69.6, the lowest reading since February 1992, and below analysts' median forecast for a preliminary reading of 76.3.

The index was at 78.4 at the end of January.

"The sentiment index has only been this low during the recessions of the mid 1970s, the early 1980s and the early 1990s," survey director Richard Curtin said in a statement.

[snip]

Pessimism was widespread among households of all incomes and age groups, with half the consumers surveyed expecting declines in real incomes and higher unemployment in the year ahead.

In addition, 86 percent of consumers believed the economy was in decline, the highest number since 1982. The current economic conditions index fell to 85.4 in early February, the lowest level since October 1992, and below a reading of 94.4 at the end of January.

(crossposted at SteveAudio)

The Deciderer has speechified!

WASHINGTON (AP) -- The economy nearly stalled in the fourth quarter with a growth rate of just 0.6 percent, capping its worst year since 2002.

Wednesday's Commerce Department report showed that the economy that deteriorated considerably during the October-to-December quarter as worsening problems in the housing market and harder-to-get credit made individuals and businesses more cautious in their spending. Fears of a recession have grown, even as inflation remained elevated.

For all of 2007, the economy grew by just 2.2 percent, the weakest performance in five years, when the country was struggling to recover from the 2001 recession. The housing collapse was the biggest culprit; builders slashed spending on housing projects by 16.9 percent on an annualized basis, the most in 25 years.

But that doesn't matter! Consumers are confident!:

Consumer spending, which is a key to economic activity, slowed to a two per cent annual pace in the fourth quarter, down from 2.8 per cent in the previous quarter.

Businesses also responded by shaving their inventories of goods, which trimmed 1.25 percentage points from fourth-quarter gross domestic product.

"The U.S. economy fired on just two cylinders late last year (business investment and exports), both of which are likely to downshift just when the consumer faces brisk headwinds," said BMO Capital Markets economist Sal Guatieri in a commentary.

"Looking ahead, we expect consumer spending to slow further in the first quarter of 2008, reflecting softer labour markets, elevated energy prices and declining house prices," said RBC economist Rishi Sondhi.

"On the corporate side, we also expect some weakening in business investment, owing to the effects of the financial market deterioration," Sondhi added.

We're not panicking:

WASHINGTON (AP) -- The Federal Reserve on Wednesday cut a key interest rate for the second time in just over a week, reducing the federal funds rate by a half point. It signaled that further rate cuts were possible.

The Fed action pushed the funds rate to 3 percent. It followed a three-fourths of a percentage point cut on Jan. 22, a day after financial markets around the world had plummeted on fears that the U.S. economy was heading into a recession. That decrease had been the biggest one-day move in more than two decades.

The half-point cut Wednesday followed news that the economy had slowed significantly in the final three months of last year with the gross domestic product expanding at a barely discernible pace of 0.6 percent, less than half what had been expected. The report came amid increased concern from several quarters about a possible recession.

In a brief statement explaining their decision, Federal Reserve Chairman Ben Bernanke and his colleagues said that "financial markets remain under considerable stress."

Recalling an earlier post, remember the discussion of liquidity traps.

But there's no need for panic. Not yet, anyway.

Hurtling towards the finish line

On October 11, 2007, Bush said:

"The deficit today is at 1.2 percent of GDP, which is lower than the average of the last 40 years. In other words, we have told the American people that by keeping taxes low we can grow the economy, and by working with Congress to set priorities we can be fiscally responsible and we can head toward balance," said President Bush in a statement to the press. "And that's exactly where we're headed."

Did you read that quote really carefully? Did you catch the 'non-action' words he always uses? He's 'telling the American people', 'can grow', 'set priorities, 'can be fiscally responsible', 'can head toward balance'. Nice, Georgie. You've covered your ass by telling us. So the incoming recession just can't be your fault, can it?

And if we're 'headed toward balance', doesn't that mean we are out of balance right now with your borrow and spend policies?

Well... The US economy can withstand much if we keep the consumer confidence high.....

WASHINGTON (AP) - Consumer confidence fell to an all-time low as worries about jobs, energy bills and home foreclosures darkened people's feelings about the country's economic health and their own financial well-being.

According to the RBC Cash Index, confidence tumbled to a mark of 56.3 in early January. That compares with a reading of 65.9 in December - and a benchmark of 100 - and was the worst since the index began in 2002.

"People are anxious because everything sounds pretty awful these days," said Bill Cheney, chief economist at John Hancock Financial Services Group.

Well, at least we had a good Christmas season?

Credit card usage and other data showed a disappointing shopping season for US retailers after consumer spending rose 3.6 percent over the holiday spending period, the slowest growth rate in four years, media reports said Wednesday.

The figure, calculated from Nov 23 to Dec 24, rose 6.6 percent in 2006 and 8.7 percent in 2005, according to MasterCard's SpendingPulse data.

The report was cited by The New York Times and Washington Post in their online editions.

The US economy has been sluggish all year, and consumer confidence has been eroded by the crisis in the mortgage industry. Tens of thousands of homes have been repossessed by banks after high-risk borrowers could not keep up with interest rates that were jacked up after initial low rates.

The SpendingPulse report cited high fuel and food costs as also working against holiday spending. It was based on credit card purchases made by more than 300 million MasterCard holders and cash and cheque use, the reports said.

About 20 percent of annual revenues for the US retail industry depend on Christmas holiday shopping.

Ah. I'm sure Bernanke is right on this, and Bush is doing a heckovajob:

The White House is exploring a rescue plan, possibly including a tax cut, to aid the ailing economy. Federal Reserve Chairman Ben Bernanke, criticized for not doing enough, pledged on Thursday to keep lowering interest rates. They are expected to drop by as much as one-half of a percentage point when central bank policymakers meet later this month.

The public is giving President Bush low marks for his economic stewardship. His approval rating on the economy dipped slightly to 33 percent in January, from 36 percent in December, according to a separate Associated Press-Ipsos poll. His overall job-approval rating was 34 percent, compared with 36 percent last month.

Um, just an aside, but if you keep lowering interest rates, aren't you in danger of a liquidity trap?:

In monetary economics, a liquidity trap occurs when the economy is stagnant, the nominal interest rate is close or equal to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they keep assets in short-term cash bank accounts or hoards rather than making long-term investments. This makes the recession even more severe.

But I'm sure Bush is listening to his advisors:

The White House is more sanguine than several of the nation's most prominent economists, who have been urging the federal government in recent days to adopt a much more vigorous fiscal policy to head off the possibility of a damaging long-term recession.

Martin S. Feldstein, a Harvard economist who was an adviser to President Ronald Reagan, has said that he thinks there is a 50 percent chance of a recession next year and that Congress should pass a tax cut that would depend on how much the economy slows. Lawrence H. Summers, who was Treasury secretary in President Bill Clinton's administration, called this week for a temporary tax cut, longer-lasting unemployment insurance benefits and additional money for food stamps. Former Federal Reserve chairman Alan Greenspan has said that he thinks the considerable risk of a recession warrants making emergency aid available to homeowners at risk.

But in an interview this week, Bush's outgoing economic policy adviser, Allan Hubbard, said the White House does not see the need for such measures at the moment. "We just don't see any reason why the economy won't continue to expand," he said.

Well... at least everybody will share in whatever is coming at us:

The increase in incomes of the top 1 percent of Americans from 2003 to 2005 exceeded the total income of the poorest 20 percent of Americans, data in a new report by the Congressional Budget Office show.

The poorest fifth of households had total income of $383.4 billion in 2005, while just the increase in income for the top 1 percent came to $524.8 billion, a figure 37 percent higher.

The total income of the top 1.1 million households was $1.8 trillion, or 18.1 percent of the total income of all Americans, up from 14.3 percent of all income in 2003. The total 2005 income of the 3 million individual Americans at the top was roughly equal to that of the bottom 166 million Americans, analysis of the report showed.

The report is the latest to document the growing concentration of income at the top, a trend that President George W. Bush said last January had been under way for more than 25 years.

Earlier reports, based on tax returns, showed that in 2005, the top 10 percent, top 1 percent and fractions of the top 1 percent enjoyed their greatest share of income since 1928 and 1929.

Apparently Bush thinks another Gilded Age is a good thing, but 1929? Didn't something interesting happen around that time?

Don't think Bush will be too happy about having a really painful recession tagged onto his legacy... But if the recession truly kicks in after January 20, 2009, it can't be Bush's fault, can it?
(crossposted at SteveAudio)

How can you restore confidence when the dollar and house prices are tanking?

Bet you retail's counted-on-to-keep-in-the-black Christmas spending spree will be a dud, too:

The dollar has fallen to yet another all-time low against the euro, after further weak US economic data.

Figures showed that US consumer confidence has fallen to a near two-year low, while house prices have seen the sharpest drop in 16 years.

Analysts said the data boosted expectations that the Federal Reserve will cut interest rates still further.

In early trading on Wednesday, the euro hit a high of $1.4162, before pulling back to $1.4131 by 2230 GMT.

'Anti-dollar momentum'

The Fed cut US interest rates to 4.75% from 5.25% last week, in a move aimed at restoring confidence in both the housing and financial markets.

And then this by Max Fraad Wolff of The Asia Times:

New data for September are available now - after all, it is September now. These data suggest rising prices led by surging oil, wheat, gold and foreign-currency prices. Not to worry, the Fed will monitor that while pumping money into banks and slashing rates to prevent the economic downturn that has already arrived!

In early August it was clear that foreclosures were spiking, markets were boiling over and panic was rife. Bernanke decided that it was time to sound the all-clear with a cautionary note on inflation risks. After all, oil was a whopping and scary US$70 a barrel back then. Now it has settled down to $82, and so the worry has lifted?

Food costs - especially wheat - have surged in the month since the Fed worried about inflation. I guess that is why we are now worried about financial-market conditions. Across the one month and one week between the meetings, the broadest US stock-market index, S&P500, went from 1,476.71 to Monday's close of 1,476.65. This must have been the radical deterioration that caused the about-face!

Bernanke is ideally focused on inflation-fighting, price stability and economic growth. It would seem he is concerned about bank demands for liquidity and equity-market indices. I am not saying there is anything wrong with that. I am saying the talk, the action and the statements are not anywhere near to being on the same page.

[snip]

The truth is that Tuesday's reassurance and logic are as frightening as the logic and all-clear sounded on August 7. Buckling under Wall Street pressure and slashing rates help stock prices. The way and timing in which the discount rate was cut - twice now - attack market shorts and artificially push up stock prices.

Thus it will be seen as genius by those you hear on TV, radio, and many newspapers. I am concerned that the Fed acted late, is confused about where we are in the calendar year, pays no mind to its recent statements, and is acting to head off future economic trouble that everyone else knows is already here.

Now... just exactly how do I go about changing my dollars into Euros?