Is the economy standing on the front end of a new recession? As IMF executive director Christine Lagarde and World Bank president Robert Zoellick warn that the global economy is entering a new economic danger zone, there’s plenty to be worried about right here in the U.S.A.
The August batch of economic stats shows zero jobs and zero retail sales. Industrial production rose slightly to save us from a clean zero sweep, but it was only two-tenths of 1 percent. However, manufacturing registered by the New York Fed and the Philly Fed showed continued declines. Jobless claims continue to rise. On top of all that, consumer prices showed a surprising increase.
So at best, we have a stagflationary stall in the economy, while at worst a recession could take hold.
Even on the profits front, which has been strong, top Wall Street economist Ed Yardeni reports a large drop in the growth of corporate tax receipts, suggesting a major profits slowdown. A Wall Street Journal story reports a profits squeeze from manufacturers. With productivity slipping, unit labor costs paid by business are rising faster than the prices business can get. Echoing that, producer prices are rising much faster than consumer inflation at retail.
The recession call is not conclusive. I’m the first to admit it. And my optimistic instincts rebel against the downturn scenario. But facts are facts. They must be reported. And the numbers aren’t good.
At this stage there’s virtually nothing the Federal Reserve can do. It caused the huge oil shock by depreciating the dollar during QE2. That’s been a killer. Now it’s time for some pro-growth fiscal policy. The Obama stimulus package repeats all the president’s past mistakes: temporary tax cuts, big spending, government planning (think Solyndra), and all these targeted clean-energy and infrastructure plans that spend the public’s money but do not on balance create new jobs — and certainly do not create new entrepreneurial start-up businesses.
House Republicans ought to take a look at the revolt against Obamanomics. All the polls show it. Republican Bob Turner’s dramatic election win in Queens, N.Y., shows it. The voter zeitgeist has turned against the president’s policies. The GOP should rip up the Obama plan and come down with fundamental tax and regulatory reform to generate new economic-growth incentives and roll back the big-government regulatory costs on business.
The force is with the Republican party as the country awaits bold new action to get us out this economic mess.
A double dip assumes there was a recovery. I suspect that we will later learn that there was never any real recovery--these numbers are always revised downward. However, if there was a recovery, it was only felt on Wall Street. Main Street continued with high unemployment and foreclosures without interruption.
The truth is that for a limited period of time, profits were sustained by the Asian economies. Now that Asia is slowing, there is nothing left to prop us up.
Add to that an inevitable Greek default, the Lehman Brothers of Europe, likely Italian, Irish and Spanish defaults and the possible breakup of the EU and dissolution of the Euro, and another recession would be a blessing. Instead, a global depression looks likely.
Reply to this commentLinkReport AbuseArt Gilbert:
Golly, I was framing a comment in my mind as I finished the article and you had already written it!
In my life and business I have seen no recovery, just holding at a low level and new people who have held on as long as they could and are dropping off the edge.
Reply to this commentLinkReport AbuseOn the other side of my business there are a few people that don't even know about the recession, they mostly work for the government, defense and assorted other government contractors and college professors.
If our ever optimistic friend Larry is afraid of a double dip everybody to the boats, we are sinking.
Reply to this commentLinkReport AbuseIf we're lucky, Obama will take another vacation. This one for 14 months.
Reply to this commentLinkReport AbuseSame old, same old <> hope and change.
Mr. Kudlow's agenda is clear. What reform are you specifically suggesting.
Reply to this commentLinkReport AbuseThe one thing in that article which should be encouraging - Republicans doing something - somehow is not. All they will do is cower in some corner somewhere.
Reply to this commentLinkReport AbuseRepublican revolt 101
Reply to this commentLinkReport AbuseRepeal:
Sarbanes-Oxley
Gramm, Leach, Bliley
Dodd-Frank
Rinse and repeat.
"So at best, we have a stagflationary stall in the economy, while at worst a recession could take hold."
We are now in outright depression, and have been for several years. The current depression has been concealed by massive increases in food stamps and other entitlements, federal government hiring, a huge runup in consumer debt, squatting after mortgage default, 99-week unemployment insurance, continued deficit spending at all levels of government, unaffordable public sector wages, benefits and pensions, "stimulus", phony unemployment numbers, high levels of college enrollment (dead-end, and funded by debt), and unsustainable social security payouts.
Were it not for all of that, we would have Hoovervilles and soup kitchens.
(...and watch what happens to the US when the Ponzi economies of Europe, China, and Australia fall apart.)
Reply to this commentLinkReport AbuseLarry,
I grew up politically during the Reagan administration while educating myself by reading Milton Friedman. I have always admired your optimism but common sense has been telling me since the Tea Party began it's growth that the economic recovery would not begin until a new President is elected. I think you can take that to the bank. I only hope we can survive the wait.
Reply to this commentLinkReport AbuseMy view from the cave watching the shadows is that we never left the recession and all the printing presses in the world, the state-level carefully worded and timed conference pronouncements, the market rallies with imaginary fiat, back door banking swaps (making private debt public), or Chinese fingers stuck in the holes in the dyke cannot stop the dam from bursting overwhelming what remains of the economy, nor prevent a royal soaking of the taxpayer. Facts are facts as you say and debt is still debt. All the rest is prestidigitation. Can the Republicans pull a rabbit out the hat or do a Houdini? It had best be soon. Don’t like the shadow labeled ‘October’.
Reply to this commentLinkReport AbuseBut Larry, you said (repeatedly) it would be a "V" shaped recession. Now you are editorializing something different! What's up guy. Are ye daft?
Reply to this commentLinkReport AbuseThe real problem in the U.S. is the loss of our once magnificent manufacturing base. That loss has been caused, not only by the wage difference vis a vis China et al, but by the increased overhead costs imposed on the products of American industry, but not on imports, by the likes of OSHA, the EPA, and ADA. While each of them was well intentioned and has a positive impact in turn on the safety of workers, the state of the environment, and the employment opportunities for those with disabilities, they act in concert to make manufactiring somewhere other than here at home more profitable.
Real jobs, good jobs, permanent jobs will only return when steps are taken to level the playing field on all of the above plus the rigged value of some currencies.
Right now, for U.S. industry, it is like trying to win a hockey game with the ice tilted up hill towards the goal you have to put the puck in.
Reply to this commentLinkReport AbuseAs to so-called Obamanomics , the Holman Jenkins article/"speech " last weekend exposes all the smoke and mirrors behind that notion : all Big G all the Time ,with special handouts to the connected . No Hope or Change there until Jan 2013. But the larger debacle is the eurozone banks , who by any reasonable mark-to-market rubric are looking at major recapitalisation needs ,meaning massive dilution to present shareholders. Extend and pretend may work for stripmalls and such , but the fundamentals of the P G S crowd are just not going to change . As the problem gets politicised it will end Merkel's career and perhaps Sarkozy's as well .Where that ensuing chaos comes to rest may make Sept 2008 look like a walk in the park . As to these United States , it begins and ends with Obama : One and Done . Or better said ,Obama Delenda Est
Reply to this commentLinkReport AbuseWhen Larry worries, I worry more.
Curious of the parallels he sees between 1979 (or thereabouts) and today.
I'd want Mr. Kudlow as my Secretary of Treasury if I were elected president.
Reply to this commentLinkReport AbuseKudlow as Fed Chairman would be even better!
Reply to this commentLinkReport AbuseSome commenters here suggest that we are not of recession. Remember, the NBER makes the call, and it makes the call based on many things besides GDP. So, I'll accept their call that we are not in recession. By the same token, I can say the "recovery" such as it is, is very anemic. That is why we continue to feel like we are in a recession. Certainly, all the job-killing uncertainty imposed by O's Administration has been, I think, one of the main contributors to the recovery's being so anemic.
Having said, I am somewhat (but a not whole lot) more optimistic than Mr. Kudlow. The initial effects of QE2 was to fill the bank vaults with lots of cash (or, the equivalent, reserves at the Federal Reserve). Since the end of June, the effect has finally shown up the money supply numbers (MZM and M2). They have been growoing lag gangusters. (Do not confuse the money supply with government spending; the latter is fiscal policy, the former is monetary policy.) In any event, typically when the M-s get going, the economy improves 9 to 16 months afterwards. One caveat, though. It is quite possible that the uncertainty caused by O's Administration may even swamp monetary effects. In that case, we will not see a recovery until he leaves office and much of the damage he did is undone.
Reply to this commentLinkReport AbuseWhenever someone says "since the recession ended", as I often hear in other articles and blogs, I cringe. It should read something more like:
"Since the recession technically so-called ended maybe perhaps, while unemployment rose, the housing market continued to tank, federal debt skyrocketed even further, we entered another war, poverty spread, French fries were policed, federal regulations multiplied like rabbits, the EU crumbled, the Obamas went on another glorious multi-million dollar vacation, and overall economic conditions grew more bleak..."
Etc.
Reply to this commentLinkReport Abused, you are 100% correct.
Reply to this commentLinkReport AbuseAmaqing that the experts don't recognize this.
In Dec 2007 he predicted a continuation of the "Bush Boom". Then he predicted a "V"-shaped recovery. Then he predicted depressed stock market after QE2. I'd feel much better if Larry would just out and predict a recession. Then I'd know we were on the cusp of recovery. O well
Reply to this commentLinkReport AbuseIf a perma-optimist like Larry is at all pessimistic, we must be in for a real doozy of a crash.
I think the fundamental explanation for our economic troubles is energy supplies. Real wages in the US topped out the same year domestic oil production topped out (1973). Global oil production topped in 2005, and all energy growth since then has been coal, mostly consumed in China. Economic growth requires growth in energy consumption, and global growth cannot exceed the sum of energy supply growth and energy efficiency growth. Printing money doesn't do much good when the system is energy limited.
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