Now's the time for the American economy to be unplugged from the ventilator. Without decisive action, the U.S. will plunge into the abyss of an economic depression that will ruin far more lives than Covid-19. The longer the lockdown continues the country risks plummeting into financial ruin.
There are growing signs that Americans are fed up with the quarantine. Protests are popping up in many cities. For example, in Michigan thousand gathered to protest sweeping restrictions imposed by the governor. Americans yearn to return to their jobs. Politicians are starting to take notice.
A growing number of governors are contemplating reopening for business. Texas Governor Greg Abbott has announced a gradual plan to allow workers to return by Friday. If it happens, there will be domino effect across the country. States that remain shutdown will face criticism from voters.
House Speaker Nancy Pelosi has raised impossible hurdles to any lifting of the lockdown. She and other Democrats are demanding a "guarantee of a safe world" before returning to normalcy. No doctor, scientist or politician can make such a guarantee. The world, by nature, is not a safe place.
Governors understand better than Pelosi the inherent risks. They are staring at data that suggests an economic Armageddon will bankrupt their states. Even states whose economy was booming before the outbreak are not immune from an epic disaster for their workers.
At the current pace, COVID-19 will trigger the worst economic collapse in U.S. history. Whole industries are on life support: Travel, airlines, aircraft manufacturers, oil, hotels, tourist operators, cruise lines, conventions, food and beverage service and virtually every small business in America.
Small businesses under 500 workers, which employ half of the American workforce, are particularly vulnerable. Most operate on a razor's edge between profitability and insolvency. The new Small Business Administration loan program will help cover some expenses but only about 50%.
Loans will not cover payments due suppliers, maintenance and loan repayments from previous borrowing. By some estimates, these small businesses generate 44% of the country's Gross Domestic Product, a measurement of economic output. Many are in danger of permanent closure.
Corporate furloughs are at historic levels. Macy's has furloughed most of its 125,000 workers. Boeing plans "voluntary" layoffs to slice its 160,000 workforce. Walt Disney has furloughed 43,000 employees. J.C. Penny is cleaving most of its 85,000 workforce. Furloughs will soon turn to layoffs.
The Department of Labor calculated a record-shattering 22 million Americans have applied for unemployment in the last four weeks. For perspective, at the worst of the Great Depression there were 15 million unemployed. In the 2008 financial meltdown, unemployment peaked at 9 million.
The current situation is unprecedented in American history. A stunning 13.25% of the workforce has disappeared from the rolls of the employed. The country is losing 33,000 jobs every hour of every day right now. Based on unofficial figures, experts estimate the current unemployment rate is 16%.
Unemployment is the tip of the iceberg. Credit card companies and banks are holding their collective breaths in the face of a expected wave of defaults. These institutions are extending credit for now, but at some point, borrowers will be required to repay. Economic freefall will make it impossible.
At this juncture, household and business debt are already at historic highs. Delinquency on student and auto loans is skyrocketing. The spectre of a financial pandemic is real. If you thought the last $700 billion government bailout in 2008 was unfathomable, just wait a few more months.
Economists are predicting the Gross Domestic Product will shrink by 25%-to-50% in the second quarter. Any rebound depends on consumer spending, which represents about 68%-72% of the economy. Bloated unemployment data offers little hope for an uptick in consumer spending.
That's causing hand wringing among states because economic decline equals less tax revenue. An economic collapse will force steep government budget cuts. An even larger issue is state worker pension funds, estimated at $1.2 trillion in obligations. Most state plans are underfunded now.
The American financial system is precariously nearing the precipice. Even the U.S. government cannot print enough money to paper over the looming disaster that will all but render a recovery a moot point. These are dire times but most Americans are unaware of the scale of the consequences.
All the focus in the media has been on the toll of the virus and rightly so. But workers have been forgotten in the stampede to staunch the virus. No one appears concerned about what will happen to everyday, ordinary Americans. This has been deliberate, especially by the mainstream media.
The nation is in uncharted territory. The U.S. has never, repeat never, voluntarily shuttered business activity, even in world wars or during past pandemics. Those experts predicting a sudden, rapid economic recovery are fool hearted. A long, painful road awaits the economy and its workers.
No one, certainly not this journalist, is underestimating the risks of opening up America. Precautions need to be in place: testing kits, thermometers, masks, appropriate distancing. The timing should be dictated by scientific and economic experts, not by politically motivated guidelines in newspapers.
In states where the virus is scarcely present, people should be allowed to go back to work, open up shops and congregate in churches. Wyoming, Alaska, Idaho, North Dakota and South Dakota come to mind. On the other hand, New York and California may need months before normalcy returns.
Some will read this and assume your writer has no empathy for the sick and dying. Believe as you wish. The real concern here is that by continuing a lockdown America will be forcing millions more than this virus affected to suffer lost of jobs, homes, cars, life savings, credit access and more.
Yet some politicians are huffing the country needs to remain in quarantine until a vaccine is readily available. That could be months or even more than a year away based on the record of vaccine development for previous coronavirus contagions. In a year, there will be no American economy.
Presidential candidate Joe Biden famously said this: "We need to accelerate the development and treatment (sic) of a vaccine. Science takes time." The nation does not have time to wait on the FDA and scientists to plod along using endless trials before approving any new drug or vaccine.
No one can deny there are risks to resuming commerce. A second wave of virus cases. A spike in hospitalizations. Fatalities may continue. There simply is no way to erase every risk no matter what criteria the nation uses for business resumption. Even a zillion tests will not eliminate every risk.
This isn't a choice between commerce and saving lives as some would construct it. This is a choice about the best way to spare lives and prevent unparalleled economic agony. It is not an either or proposition as politicians suggest. Why can't we have both? We have done it before.
Of course, when the initial state resumes business the media will pounce on the first virus death that occurs. The cry will be the governor has "blood on her (or his) hands." This hyper partisan nation knows no shame. Ignore the politicians and media invested in promoting economic bondage.
When this virus recedes into history, the prediction here is a day of reckoning is coming when American anger turns on politicians, especially governors and mayors who dictated arbitrary restrictions that defied common sense. The uproar will be thunderous and will have repercussions.
Showing posts with label Economic Recovery. Show all posts
Showing posts with label Economic Recovery. Show all posts
Monday, April 20, 2020
Monday, October 10, 2011
President's Jobs Kill Bill
If the President's lofty promises about his new jobs bill sound familiar, it's because he has recycled the same tired, old rationale he used to cajole Congress to approve his $787 billion stimulus boondoggle shortly after he took office.
To refresh your memory, the Obama administration's economic team predicted that the president's stimulus package would create three to four millions jobs by the end of 2010. They boldly forecast that the unemployment rate would peak at just under 8 percent in 2009.
Many Democrats now deny these claims were ever made. However, the numbers are contained in a report entitled, "Job Impact of American Recovery & Reinvestment Plan," published January 9, 2009. The authors were Christina Roma, then chairwoman of the President's Council of Economic Advisers and Jared Bernstein, the vice president's top economic counselor.
Their predictions, used to justify the massive spending, were grossly inflated. Unemployment peaked at more than 10 percent in early 2010. It remains today at 9.1 percent. As far as those promised jobs, even Vice President Joe Biden has given up trying to use creative math to prove the stimulus delivered on the administration's prophecy.
Now the president is on the road again clamoring for Congress to buy into new promises of economic nirvana. In speeches, he continues to claim his job proposal will grow the economy two percent and create two million new jobs. Obama will need more than snake oil to convince wary Republicans and Democrats that his forecasts are any better than they were the last time he trotted out an economic recovery plan.
In fact, there is evidence that the new jobs bill will harm rather than help the economy. The chief reason is the president's plan would finance the $447 billion scheme mainly by limiting the percentage of income the top wage earners can write off their taxes. For example, the same write-offs that average taxpayers use would be reduced for high income households and individuals from 35 percent of their earned income to 28 percent. That would include donations to charitable organizations.
It means a charitable gift of $100,000 would save a donor $28,000 in taxes, which is $7,000 less than the write off allowed under today's formula. The lower deductions would apply to households earning at least $250,000 and $200,000 for individuals. Studies have shown that individual giving is influenced to varying degrees by the tax write-off.
Not only would the change have a chilling effect on donations, it also could impact jobs at one of the nation's top employers. "Nonprofits employ almost 10 percent of the workforce nationwide and in many states nonprofits are the largest employers. In our view, cutting the deduction is like cutting off your nose to spite your face," protested William Daroff, vice president of Public Policy at the Jewish Federation of North America.
If donations decline as a result of individuals cutting back on their giving, charitable groups will be forced to cut expenses, making employee layoffs likely. Even more worrisome, the poor, sick and elderly who benefit from the charitable organizations' outreach programs will lose a safety net.
Yet the charitable deduction issue is not even the most egregious example of flawed logic contained in the bill. The president's plan also includes extending unemployment benefits for another year for recipients at a taxpayer cost of $62 billion Most credible economists argue that extending benefits will discourage the unemployed from seeking work. At the very least, it further delays their job search until benefits run out. Either outcome will negatively impact job growth.
None of this will deter Obama. He appears obsessed as ever with the idea that bigger government and more spending will solve the country's economic problems. After being hoodwinked on the stimulus plan, Congress must not allow itself to succumb to Obama's empty promises a second time.
To refresh your memory, the Obama administration's economic team predicted that the president's stimulus package would create three to four millions jobs by the end of 2010. They boldly forecast that the unemployment rate would peak at just under 8 percent in 2009.
Many Democrats now deny these claims were ever made. However, the numbers are contained in a report entitled, "Job Impact of American Recovery & Reinvestment Plan," published January 9, 2009. The authors were Christina Roma, then chairwoman of the President's Council of Economic Advisers and Jared Bernstein, the vice president's top economic counselor.
Their predictions, used to justify the massive spending, were grossly inflated. Unemployment peaked at more than 10 percent in early 2010. It remains today at 9.1 percent. As far as those promised jobs, even Vice President Joe Biden has given up trying to use creative math to prove the stimulus delivered on the administration's prophecy.
Now the president is on the road again clamoring for Congress to buy into new promises of economic nirvana. In speeches, he continues to claim his job proposal will grow the economy two percent and create two million new jobs. Obama will need more than snake oil to convince wary Republicans and Democrats that his forecasts are any better than they were the last time he trotted out an economic recovery plan.
In fact, there is evidence that the new jobs bill will harm rather than help the economy. The chief reason is the president's plan would finance the $447 billion scheme mainly by limiting the percentage of income the top wage earners can write off their taxes. For example, the same write-offs that average taxpayers use would be reduced for high income households and individuals from 35 percent of their earned income to 28 percent. That would include donations to charitable organizations.
It means a charitable gift of $100,000 would save a donor $28,000 in taxes, which is $7,000 less than the write off allowed under today's formula. The lower deductions would apply to households earning at least $250,000 and $200,000 for individuals. Studies have shown that individual giving is influenced to varying degrees by the tax write-off.
Not only would the change have a chilling effect on donations, it also could impact jobs at one of the nation's top employers. "Nonprofits employ almost 10 percent of the workforce nationwide and in many states nonprofits are the largest employers. In our view, cutting the deduction is like cutting off your nose to spite your face," protested William Daroff, vice president of Public Policy at the Jewish Federation of North America.
If donations decline as a result of individuals cutting back on their giving, charitable groups will be forced to cut expenses, making employee layoffs likely. Even more worrisome, the poor, sick and elderly who benefit from the charitable organizations' outreach programs will lose a safety net.
Yet the charitable deduction issue is not even the most egregious example of flawed logic contained in the bill. The president's plan also includes extending unemployment benefits for another year for recipients at a taxpayer cost of $62 billion Most credible economists argue that extending benefits will discourage the unemployed from seeking work. At the very least, it further delays their job search until benefits run out. Either outcome will negatively impact job growth.
None of this will deter Obama. He appears obsessed as ever with the idea that bigger government and more spending will solve the country's economic problems. After being hoodwinked on the stimulus plan, Congress must not allow itself to succumb to Obama's empty promises a second time.
Sunday, July 17, 2011
Why the Economy Won't Soon Improve
Prospects are dim for an economic rebound unless the Obama Administration takes off its blinders long enough to see that its policies are undermining small businesses. Without vibrant small business growth, the economy will never be able to generate the jobs needed to significantly lower unemployment.
The jobs data for June was a further indictment of the president's handling of the economy. Unemployment ticked up to 9.2 percent, rising for the second straight month. The economy grew a puny 18,000 jobs in the month. Job growth at small businesses was virtually nonexistent.
To understand the scope of the problem, consider this analysis from Heritage Foundation. Using data from the Bureau of Labor, the think-thank estimated that employers must create an average of 260,000 net jobs every month until August, 2014, to lower unemployment to the normal rate. Job growth hasn't approached those numbers since the tech bubble in the late 1990s, so the odds are not good it will happen.
Changing the current direction on job growth depends on small businesses with under 500 employees. These firms represent 99.9 percent of the total of 27.5 million business operating in the United States. Large companies, including the Goliaths in Fortune's 500, account for far fewer enterprises, about 18,311 firms, according to the Small Business Administration (SBA).
Department of Labor data also shows that small businesses employ more people than their big company cousins. Fifty-two percent of the nation's workforce is employed by small businesses. In rural areas of the country, small firms' share of employment is even higher.
Nothing underscores the importance of small businesses to the economy better than job creation statistics from the SBA and Labor Department. These small firms have generated 65 percent of the net new jobs in the economy during the past 17 years.
To put that into perspective, small businesses accounted for 9.8 million of the net new jobs created between 1993 and 2009. By comparison, the corporate behemoths generated 5.2 million jobs during the same period. Clearly, small businesses hold the key to job growth.
Small businesses create their share of high tech jobs, too. Government data shows that smaller firms hire 43 percent of the scientists, engineers, computer programmers and other professionals with high-tech skills. The little guys are also more innovative, producing 13 times more patents per employee than the big boys.
Despite the obvious importance of small businesses to the economy, the Obama Administration has mostly ignored them. Billions of dollars in bailouts went to the Wall Street crowd, including big banks, financial institutions and even some of the world's largest automobile manufacturers.
While emptying the U.S. Treasury for big businesses, the president's answer for the little guys was the "Small Business Jobs Act of 2010." By any measure, the legislation has done nothing to address small businesses' problems. The National Federation of Independent Businesses, the largest association representing small firms, has pronounced the law an abject failure, falling short of dealing with "the most significant problems" facing its members.
Instead of a helping hand, the federal government has piled on more regulations for small businesses. The SBA found that the smallest firms, those with fewer than 20 employees, spend 36 percent more per worker on average to comply with federal regulations. By some estimates, the price tag for government regulations is $1.75 trillion annually.
In the latest example, the Environmental Protection Agency (EPA) has unleashed 30 new costly regulations that will further cripple small business job growth. The rules were handed down without a vote in the Congress and with no study on its impact on small businesses.
That moved the chief executive of the Small Business And Entrepreneurship Council to scold Washington for its heavy handedness. "More government spending, increased regulation and higher taxes are not economic tonics. But that is what small business owners are getting from Washington. The White House needs to wake up."
Unfortunately for small businesses, regulatory burdens aren't the only thing tamping down growth. Banks have been slow to open their vaults to small businesses desperate for capital. Business loans for under $100,000 have declined 18.1 percent during the recession, reports the Federal Reserve. The overwhelming majority of those loans are made to businesses with under 500 employees.
Small business firms rely heavily upon bank credit for injections of cash needed for everything from office space to inventory. Without financing, small businesses have to make tough choices. In 2009, the SBA reports that 660,900 small firms shuttered their doors. Another 60,837 declared bankruptcy. That same year only 552,600 small business starts up were counted by the SBA, putting growth in negative territory.
New financial regulations, many contained in the 2,300-page Dodd-Frank Wall Street Reform and Consumer Protection Act, have further crimped lending. Yet the billions of dollars in taxpayer bailouts handed to banks were supposed to allow these institutions to continue to loan money to forestall an economic catastrophe. As far as small businesses are concerned, banks are not showing them the money.
Another round of wasteful stimulus spending by the Obama Administration won't cure what ails the economy. Small businesses don't want a handout. All that is needed is for the government to lift burdensome regulations and make it easier for banks to resume lending at normal levels.
Don't expect an about face from the administration. It has shown a callous disregard for all things small. Big businesses have feasted at the government money trough, sucking up most of the financial aid. In an election year, it's not surprising the Obama Administration has chosen to lavish more attention on large firms because it gives them access to fat cat political donors.
By abandoning small businesses, the president has not only jeopardized the nation's chances at regaining its economic footing, but he has exposed his ignorance about job creation in the United States.
The jobs data for June was a further indictment of the president's handling of the economy. Unemployment ticked up to 9.2 percent, rising for the second straight month. The economy grew a puny 18,000 jobs in the month. Job growth at small businesses was virtually nonexistent.
To understand the scope of the problem, consider this analysis from Heritage Foundation. Using data from the Bureau of Labor, the think-thank estimated that employers must create an average of 260,000 net jobs every month until August, 2014, to lower unemployment to the normal rate. Job growth hasn't approached those numbers since the tech bubble in the late 1990s, so the odds are not good it will happen.
Changing the current direction on job growth depends on small businesses with under 500 employees. These firms represent 99.9 percent of the total of 27.5 million business operating in the United States. Large companies, including the Goliaths in Fortune's 500, account for far fewer enterprises, about 18,311 firms, according to the Small Business Administration (SBA).
Department of Labor data also shows that small businesses employ more people than their big company cousins. Fifty-two percent of the nation's workforce is employed by small businesses. In rural areas of the country, small firms' share of employment is even higher.
Nothing underscores the importance of small businesses to the economy better than job creation statistics from the SBA and Labor Department. These small firms have generated 65 percent of the net new jobs in the economy during the past 17 years.
To put that into perspective, small businesses accounted for 9.8 million of the net new jobs created between 1993 and 2009. By comparison, the corporate behemoths generated 5.2 million jobs during the same period. Clearly, small businesses hold the key to job growth.
Small businesses create their share of high tech jobs, too. Government data shows that smaller firms hire 43 percent of the scientists, engineers, computer programmers and other professionals with high-tech skills. The little guys are also more innovative, producing 13 times more patents per employee than the big boys.
Despite the obvious importance of small businesses to the economy, the Obama Administration has mostly ignored them. Billions of dollars in bailouts went to the Wall Street crowd, including big banks, financial institutions and even some of the world's largest automobile manufacturers.
While emptying the U.S. Treasury for big businesses, the president's answer for the little guys was the "Small Business Jobs Act of 2010." By any measure, the legislation has done nothing to address small businesses' problems. The National Federation of Independent Businesses, the largest association representing small firms, has pronounced the law an abject failure, falling short of dealing with "the most significant problems" facing its members.
Instead of a helping hand, the federal government has piled on more regulations for small businesses. The SBA found that the smallest firms, those with fewer than 20 employees, spend 36 percent more per worker on average to comply with federal regulations. By some estimates, the price tag for government regulations is $1.75 trillion annually.
In the latest example, the Environmental Protection Agency (EPA) has unleashed 30 new costly regulations that will further cripple small business job growth. The rules were handed down without a vote in the Congress and with no study on its impact on small businesses.
That moved the chief executive of the Small Business And Entrepreneurship Council to scold Washington for its heavy handedness. "More government spending, increased regulation and higher taxes are not economic tonics. But that is what small business owners are getting from Washington. The White House needs to wake up."
Unfortunately for small businesses, regulatory burdens aren't the only thing tamping down growth. Banks have been slow to open their vaults to small businesses desperate for capital. Business loans for under $100,000 have declined 18.1 percent during the recession, reports the Federal Reserve. The overwhelming majority of those loans are made to businesses with under 500 employees.
Small business firms rely heavily upon bank credit for injections of cash needed for everything from office space to inventory. Without financing, small businesses have to make tough choices. In 2009, the SBA reports that 660,900 small firms shuttered their doors. Another 60,837 declared bankruptcy. That same year only 552,600 small business starts up were counted by the SBA, putting growth in negative territory.
New financial regulations, many contained in the 2,300-page Dodd-Frank Wall Street Reform and Consumer Protection Act, have further crimped lending. Yet the billions of dollars in taxpayer bailouts handed to banks were supposed to allow these institutions to continue to loan money to forestall an economic catastrophe. As far as small businesses are concerned, banks are not showing them the money.
Another round of wasteful stimulus spending by the Obama Administration won't cure what ails the economy. Small businesses don't want a handout. All that is needed is for the government to lift burdensome regulations and make it easier for banks to resume lending at normal levels.
Don't expect an about face from the administration. It has shown a callous disregard for all things small. Big businesses have feasted at the government money trough, sucking up most of the financial aid. In an election year, it's not surprising the Obama Administration has chosen to lavish more attention on large firms because it gives them access to fat cat political donors.
By abandoning small businesses, the president has not only jeopardized the nation's chances at regaining its economic footing, but he has exposed his ignorance about job creation in the United States.
Saturday, March 5, 2011
Don't Be Fooled By Jobless Numbers
Once again the mainstream media is trumpeting jobless numbers that show the economy picked up steam last month, making Democrats practically giddy. However, as with previous figures released by the Labor Department, the data falls woefully short of painting a true picture of the nation's employment.
In the latest figures, the bureau pegged unemployment at 8.9 percent in February. That was down from 9.0 percent in January and marked the most favorable reading since April of 2009. Democrats and their surrogates on Wall Street and in academia pointed to the numbers as proof the economy is roaring back.
White House economist Austan Goolsbee had the audacity to claim the government authored jobs report offered proof that President Obama's policies were working to revive the moribund economy.
Not so fast. As this scribe has pointed out before, the government's Labor Department uses outdated methodology to calculate its monthly numbers. This skews the data rendering it practically useless in determining the real unemployment situation.
The independent Gallup polling organization's unemployment data offers a more sobering assessment of the nation's economy. The pollster's data pegged unemployment at 10 percent in mid-February. (Note: Gallup figures for the end of February have not been released.) Gallup's January unemployment number was 9.8 percent. Clearly, unemployment is not improving as the government contends.
But that's not even the worst news. Underemployment has soared to a whopping 19.6 percent. This statistic combines unemployment with the number of part-time workers who want full-time employment.
In its report on the economy, Gallup had this somber warning. "Jobs remain the key to getting the U.S. economy moving, and mid-February underemployment results suggest little or no progress is being made in that regard," the report concluded.
Even the Labor Department's monthly summary contained troubling news. Buried in the otherwise glowing account was this nugget: the participation rate in the labor force is stuck at its lowest point since the mid-1980's.For those unfamiliar with the participation rate, this key barometer measures the percentage of adults who have jobs or are seeking them. In February, the bureau estimated the labor force participation rate was 64.2 percent.
There is another way to look at this number. In the current economy, about 25.8 percent of adults are either not working or not trying to find a job. Even the President's hand-picked economist Goolsbee would find it difficult to gloss over this finding.
It is time for the administration to level with Americans on the economy. Despite trillions in bailouts, stimulus spending and worthless earmarks, the American economic engine remains stalled.
Obama-nomics have been an utter failure. If America is to regain its economic footing, Republicans must chart a new course designed to rev-up the engine of prosperity, which will lead to real job growth.
In the latest figures, the bureau pegged unemployment at 8.9 percent in February. That was down from 9.0 percent in January and marked the most favorable reading since April of 2009. Democrats and their surrogates on Wall Street and in academia pointed to the numbers as proof the economy is roaring back.
White House economist Austan Goolsbee had the audacity to claim the government authored jobs report offered proof that President Obama's policies were working to revive the moribund economy.
Not so fast. As this scribe has pointed out before, the government's Labor Department uses outdated methodology to calculate its monthly numbers. This skews the data rendering it practically useless in determining the real unemployment situation.
The independent Gallup polling organization's unemployment data offers a more sobering assessment of the nation's economy. The pollster's data pegged unemployment at 10 percent in mid-February. (Note: Gallup figures for the end of February have not been released.) Gallup's January unemployment number was 9.8 percent. Clearly, unemployment is not improving as the government contends.
But that's not even the worst news. Underemployment has soared to a whopping 19.6 percent. This statistic combines unemployment with the number of part-time workers who want full-time employment.
In its report on the economy, Gallup had this somber warning. "Jobs remain the key to getting the U.S. economy moving, and mid-February underemployment results suggest little or no progress is being made in that regard," the report concluded.
Even the Labor Department's monthly summary contained troubling news. Buried in the otherwise glowing account was this nugget: the participation rate in the labor force is stuck at its lowest point since the mid-1980's.For those unfamiliar with the participation rate, this key barometer measures the percentage of adults who have jobs or are seeking them. In February, the bureau estimated the labor force participation rate was 64.2 percent.
There is another way to look at this number. In the current economy, about 25.8 percent of adults are either not working or not trying to find a job. Even the President's hand-picked economist Goolsbee would find it difficult to gloss over this finding.
It is time for the administration to level with Americans on the economy. Despite trillions in bailouts, stimulus spending and worthless earmarks, the American economic engine remains stalled.
Obama-nomics have been an utter failure. If America is to regain its economic footing, Republicans must chart a new course designed to rev-up the engine of prosperity, which will lead to real job growth.
Friday, January 7, 2011
Phony Unemployment Numbers
As expected, the news media practically wet its pants reporting that the unemployment rate in December fell to 9.4 percent, the lowest level in more than a year. More than 105,000 new jobs were added to non-farm payrolls, offering further proof of a rebounding economy, according to media hype.
Before you break out the confetti to celebrate the end of the recession, it pays to consider the source of the data: the government-controlled Bureau of Labor Statistics.
The mainstream media regularly reports the bureau's data as gospel without bothering to question the numbers or look for alternative corroboration. As with all other information issued by the government, the data is often manipulated to fit the administration's agenda. This is another example.
There are two nuggets of data buried in the bureau's report that escaped media attention. Most damning of all, the number of discouraged workers increased a whopping 389,000 in December, raising the total to 1.3 million.
To put it succinctly, more workers believe their prospects for hiring are practically nil. They have given up all hope of finding a job. That is a bad sign for recovery and means the pressure for Congress to extend jobless benefits will continue to increase.
The second piece of data that leaps out is the nature of the job growth. It has not been an across-the-board recovery. Only three industries recorded any rise in hiring: leisure, hospitality and health care. By the bureau's own admission, the prospects for job growth have changed little for most major industries.
For a more balanced view of the job picture, here's what the non-partisan Gallup organization found in its monthly job survey. It pegged unemployment at 9.6 percent at the end of December. Their numbers reflect rolling averages for 30-day periods, a more accurate measurement than the methodology used by the Bureau of Labor Statistics. Gallup also does not use seasonal adjustments as the bureau does. These adjustments usually have the effect of skewing the numbers, often inflating job data.
Most troubling of all, the Gallup data found that the true unemployment rate is closer to 19 percent. That number includes the unemployed combined with part-time workers who want full-time employment. At the same time, Gallup's Job Creation Index showed monthly hiring and firing conditions were essentially unchanged over the past three months.
Check your daily newspaper, news website or evening newscast this week. Make a note of how many balance their coverage of the unemployment data issued by the Bureau of Labor Statistics with the non-partisan Gallup information.
My guess is that the media will take the road it always does: one-sided, unbalanced coverage designed to give the Obama Administration talking points to convince the American public that the job situation is improving.
Before you break out the confetti to celebrate the end of the recession, it pays to consider the source of the data: the government-controlled Bureau of Labor Statistics.
The mainstream media regularly reports the bureau's data as gospel without bothering to question the numbers or look for alternative corroboration. As with all other information issued by the government, the data is often manipulated to fit the administration's agenda. This is another example.
There are two nuggets of data buried in the bureau's report that escaped media attention. Most damning of all, the number of discouraged workers increased a whopping 389,000 in December, raising the total to 1.3 million.
To put it succinctly, more workers believe their prospects for hiring are practically nil. They have given up all hope of finding a job. That is a bad sign for recovery and means the pressure for Congress to extend jobless benefits will continue to increase.
The second piece of data that leaps out is the nature of the job growth. It has not been an across-the-board recovery. Only three industries recorded any rise in hiring: leisure, hospitality and health care. By the bureau's own admission, the prospects for job growth have changed little for most major industries.
For a more balanced view of the job picture, here's what the non-partisan Gallup organization found in its monthly job survey. It pegged unemployment at 9.6 percent at the end of December. Their numbers reflect rolling averages for 30-day periods, a more accurate measurement than the methodology used by the Bureau of Labor Statistics. Gallup also does not use seasonal adjustments as the bureau does. These adjustments usually have the effect of skewing the numbers, often inflating job data.
Most troubling of all, the Gallup data found that the true unemployment rate is closer to 19 percent. That number includes the unemployed combined with part-time workers who want full-time employment. At the same time, Gallup's Job Creation Index showed monthly hiring and firing conditions were essentially unchanged over the past three months.
Check your daily newspaper, news website or evening newscast this week. Make a note of how many balance their coverage of the unemployment data issued by the Bureau of Labor Statistics with the non-partisan Gallup information.
My guess is that the media will take the road it always does: one-sided, unbalanced coverage designed to give the Obama Administration talking points to convince the American public that the job situation is improving.
Saturday, September 25, 2010
Economic Nonsense: How the Obama Administration is Prolonging the Recession
President Obama's economic team is jumping ship as it becomes clearer each day that the administration has botched attempts to recharge the flagging economy. The latest rat leaving the sinking ship of state is top economic adviser Larry Summers, who is better suited for academia than the rough-and-tumble world of politics. His departure hopefully is not the end of the housecleaning. Treasury Secretary Tim (Tax Cheat) Geitner needs to walk the plank, too.
Even the most ardent Obama supporter cannot defend the administration's spectacular failures in the economy arena. Despite spending trillions in bailouts and economic stimulus programs, unemployment has not budged. In fact, it has gone from 7.7 percent when the President assumed office to nearly 10 percent. Consumer spending has all but dried up as people prop up their savings and pay down credit card debt.
This economic reality has escaped the attention of the Obama Administration, whose only solution is to keep driving the country deeper into debt with frivolous government programs that do not address the real economic issue. In fact, this scribe is convinced the administration and its army of economic lightweights don't have a clue about what is the problem. Obama and his sycophants in the media believe it is about jobs. But joblessness is only the symptom of the larger problem.
For months, your faithful journalist has been pointing out that it is all about real estate prices, foreclosures and underwater mortgages. This recession was the byproduct of a real estate bubble that burst, sending ripples through the financial system. Liberals like to argue that it was all Wall Street's fault because the financial firms sold risky derivatives based on underlying housing mortgages. But, what they fail to acknowledge is that if the mortgages had been sound, then the derivatives would have paid off handsomely. Everyone would have won.
Fingering the derivatives is like blaming the sneeze for your cold. Outlandishly lax lending practices, championed by Freddie Mac and Fannie Mae, led to unhealthy homeowner speculation and saddled under qualified buyers with mortgages they couldn't afford. That is what drove the real estate market off the cliff and sunk the derivatives, leaving homeowners, banks and financial firms in dire financial straits. That shouldn't be too hard to understand, especially for anyone with an ounce of economic acumen.
Yet Obama's so-called economic dream team has spent precious few dollars and efforts on addressing this problem. Instead, they have bailed out billion-dollar banks, papered over financial loses at big Wall Street firms and doled out nearly a trillion dollars for wasteful programs designed to reward Democrats up for reelection under the guise of economic stimulus.
Until the administration addresses the real estate issue, the economy will continue to slumber. Here's why: For most consumers, their home is their biggest asset. When the price of this asset goes down, they rein in spending. They don't feel as "rich" when their home's market value dives 10 to 25 percent, as real estate prices have done in the past two years. When values fall, homeowners who might have been considering moving, put off plans for fear they won't be able to sell their domicile. Or if they do sell, they will have to take a bath, leaving them too little profit to put down on a new home.
There are broader ramifications for the economy. Many homeowners have mortgages that are underwater. That means they owe more on their home than the asset is worth. When this happens, consumers are less likely to spend money renovating their homes or buying new furniture or appliances. Their spending on big ticket items evaporates.
In addition, a depressed housing sector costs jobs. Construction workers, realtors, home builders, suppliers and others have been forced to lay off people. In some cases, industry firms have shuttered their businesses. Housing is a huge employer and when construction falls, there is an aftershock through the entire economy.
Until the Obama administration fixes housing, the economy will remain stalled. No amount of money thrown at big banks, small businesses, stimulus, job retraining and jobless benefits will change that. It is merely dumping taxpayer money down the drain without moving the economic needle.
So what needs to be done? Here are a few modest proposals for reversing the housing crisis and shock the economy into recovery:
ADDRESS UNDERWATER MORTGAGES: This should should have been the very first initiative of the Obama Administration when it assumed office. When home prices fell, lenders began demanding higher payments when mortgages dipped underwater. This sent many homeowners running for the cover of bankruptcy or drove them into foreclosure. The government could have given incentives for lenders to hold the line on payments by relaxing requirements on capital to shore up bank balance sheets. Then the feds should have required (not suggested) lenders to restructure the loans at prevailing interest rates, eliminating adjustable rates mortgages, which have been the scourge of the real estate recovery. If this had been done early on, not only would have more owners been able to remain in their homes, but the market would not have been flooded with foreclosed homes which in turn crippled home prices even further.
INCENTIVES FOR HOME BUYERS: The administration's lone attempt to boost home sales was to launch a program to reward buyers with tax credits. Under the plan, first-time homebuyers received an $8,000 tax credit, while repeat purchasers got $6,500. The program ends September 30, but sales contracts had to be signed by April 30 to qualify. Sales figures were impressive during the short-lived effort, but never reversed the housing slide. The program was too late to turn the tide and was too short in duration. Most realtors also will tell you that the administration's program suffered from paperwork logjams, delays in approvals and government blunders that forced some home buyers to make multiple applications. Many frustrated home buyers simply gave up. Instead of tax credits, the government could sweetened the deal by refunding the money directly to homebuyers upon completion of the sale. Tax credits are "soft" money because in many cases it probably will only reduce income taxes for the buyer. There is no guarantee of a tax refund which would put money in the pockets of buyers. Cash always works better than credits when it comes to buyer motivation.
STRENGTHEN EXISTING HOME SALES: When the housing market collapsed, the market was saturated with existing stock that was not moving. There were too few buyers and too many homes for sale. This is what tanked housing prices. As foreclosures mounted, that exacerbated the problem, causing the supply of homes to far outstrip demand. In this environment, prices plummeted. It's the law of real estate. The administration should have zeroed in on this issue by undertaking efforts to help reduce the supply. In addition to the refund idea mentioned above, the government should have funded a program to waive closing costs on existing homes. Under this plan, the government would send money directly to lenders to cover the costs.
SUBSIDIES TO BUILDERS: The final linchpin in this housing program should have included direct subsidies to home builders. The money would be used to reduce new home prices, while encouraging builders to continue construction. Lower home prices would have attracted buyers, which would have helped deplete the existing inventory of new homes on the market. As new home sales increased, fewer workers would have been laid off and construction would have continued, albeit at a reduced rate.
Like me, you probably are wondering what all of this would have cost the taxpayer. Whatever the price tag, I guarantee it would be far less than what the Obama economic gang has dumped into the stimulus boondoggle, car company and bank bailouts and a host of other programs. Liberals would tell you helping homeowners would not have solved the banking mess or halted the job losses. They are dead wrong.
Liberals don't understand the American economy. It is 75 percent driven by consumer spending. When consumers shut their wallets, no amount of economic pump priming will dig the economy out of its hole. The current problem is even consumers with jobs aren't spending. They look at their devalued homes and tighten their belts another notch. Sure, they are worried about their jobs too. But once consumers start spending, big companies will prosper, small businesses will rally, Wall Street will boom, new capital will flow into the market and the American enterprise system will grow.
However, don't hold your breath waiting for this to happen. The current administration, led by clueless academic classroom economists, are misguided and ill equipped to deal with the realities of our economic malaise. Only a change in administrations will brighten the outlook for economic recovery.
Even the most ardent Obama supporter cannot defend the administration's spectacular failures in the economy arena. Despite spending trillions in bailouts and economic stimulus programs, unemployment has not budged. In fact, it has gone from 7.7 percent when the President assumed office to nearly 10 percent. Consumer spending has all but dried up as people prop up their savings and pay down credit card debt.
This economic reality has escaped the attention of the Obama Administration, whose only solution is to keep driving the country deeper into debt with frivolous government programs that do not address the real economic issue. In fact, this scribe is convinced the administration and its army of economic lightweights don't have a clue about what is the problem. Obama and his sycophants in the media believe it is about jobs. But joblessness is only the symptom of the larger problem.
For months, your faithful journalist has been pointing out that it is all about real estate prices, foreclosures and underwater mortgages. This recession was the byproduct of a real estate bubble that burst, sending ripples through the financial system. Liberals like to argue that it was all Wall Street's fault because the financial firms sold risky derivatives based on underlying housing mortgages. But, what they fail to acknowledge is that if the mortgages had been sound, then the derivatives would have paid off handsomely. Everyone would have won.
Fingering the derivatives is like blaming the sneeze for your cold. Outlandishly lax lending practices, championed by Freddie Mac and Fannie Mae, led to unhealthy homeowner speculation and saddled under qualified buyers with mortgages they couldn't afford. That is what drove the real estate market off the cliff and sunk the derivatives, leaving homeowners, banks and financial firms in dire financial straits. That shouldn't be too hard to understand, especially for anyone with an ounce of economic acumen.
Yet Obama's so-called economic dream team has spent precious few dollars and efforts on addressing this problem. Instead, they have bailed out billion-dollar banks, papered over financial loses at big Wall Street firms and doled out nearly a trillion dollars for wasteful programs designed to reward Democrats up for reelection under the guise of economic stimulus.
Until the administration addresses the real estate issue, the economy will continue to slumber. Here's why: For most consumers, their home is their biggest asset. When the price of this asset goes down, they rein in spending. They don't feel as "rich" when their home's market value dives 10 to 25 percent, as real estate prices have done in the past two years. When values fall, homeowners who might have been considering moving, put off plans for fear they won't be able to sell their domicile. Or if they do sell, they will have to take a bath, leaving them too little profit to put down on a new home.
There are broader ramifications for the economy. Many homeowners have mortgages that are underwater. That means they owe more on their home than the asset is worth. When this happens, consumers are less likely to spend money renovating their homes or buying new furniture or appliances. Their spending on big ticket items evaporates.
In addition, a depressed housing sector costs jobs. Construction workers, realtors, home builders, suppliers and others have been forced to lay off people. In some cases, industry firms have shuttered their businesses. Housing is a huge employer and when construction falls, there is an aftershock through the entire economy.
Until the Obama administration fixes housing, the economy will remain stalled. No amount of money thrown at big banks, small businesses, stimulus, job retraining and jobless benefits will change that. It is merely dumping taxpayer money down the drain without moving the economic needle.
So what needs to be done? Here are a few modest proposals for reversing the housing crisis and shock the economy into recovery:
ADDRESS UNDERWATER MORTGAGES: This should should have been the very first initiative of the Obama Administration when it assumed office. When home prices fell, lenders began demanding higher payments when mortgages dipped underwater. This sent many homeowners running for the cover of bankruptcy or drove them into foreclosure. The government could have given incentives for lenders to hold the line on payments by relaxing requirements on capital to shore up bank balance sheets. Then the feds should have required (not suggested) lenders to restructure the loans at prevailing interest rates, eliminating adjustable rates mortgages, which have been the scourge of the real estate recovery. If this had been done early on, not only would have more owners been able to remain in their homes, but the market would not have been flooded with foreclosed homes which in turn crippled home prices even further.
INCENTIVES FOR HOME BUYERS: The administration's lone attempt to boost home sales was to launch a program to reward buyers with tax credits. Under the plan, first-time homebuyers received an $8,000 tax credit, while repeat purchasers got $6,500. The program ends September 30, but sales contracts had to be signed by April 30 to qualify. Sales figures were impressive during the short-lived effort, but never reversed the housing slide. The program was too late to turn the tide and was too short in duration. Most realtors also will tell you that the administration's program suffered from paperwork logjams, delays in approvals and government blunders that forced some home buyers to make multiple applications. Many frustrated home buyers simply gave up. Instead of tax credits, the government could sweetened the deal by refunding the money directly to homebuyers upon completion of the sale. Tax credits are "soft" money because in many cases it probably will only reduce income taxes for the buyer. There is no guarantee of a tax refund which would put money in the pockets of buyers. Cash always works better than credits when it comes to buyer motivation.
STRENGTHEN EXISTING HOME SALES: When the housing market collapsed, the market was saturated with existing stock that was not moving. There were too few buyers and too many homes for sale. This is what tanked housing prices. As foreclosures mounted, that exacerbated the problem, causing the supply of homes to far outstrip demand. In this environment, prices plummeted. It's the law of real estate. The administration should have zeroed in on this issue by undertaking efforts to help reduce the supply. In addition to the refund idea mentioned above, the government should have funded a program to waive closing costs on existing homes. Under this plan, the government would send money directly to lenders to cover the costs.
SUBSIDIES TO BUILDERS: The final linchpin in this housing program should have included direct subsidies to home builders. The money would be used to reduce new home prices, while encouraging builders to continue construction. Lower home prices would have attracted buyers, which would have helped deplete the existing inventory of new homes on the market. As new home sales increased, fewer workers would have been laid off and construction would have continued, albeit at a reduced rate.
Like me, you probably are wondering what all of this would have cost the taxpayer. Whatever the price tag, I guarantee it would be far less than what the Obama economic gang has dumped into the stimulus boondoggle, car company and bank bailouts and a host of other programs. Liberals would tell you helping homeowners would not have solved the banking mess or halted the job losses. They are dead wrong.
Liberals don't understand the American economy. It is 75 percent driven by consumer spending. When consumers shut their wallets, no amount of economic pump priming will dig the economy out of its hole. The current problem is even consumers with jobs aren't spending. They look at their devalued homes and tighten their belts another notch. Sure, they are worried about their jobs too. But once consumers start spending, big companies will prosper, small businesses will rally, Wall Street will boom, new capital will flow into the market and the American enterprise system will grow.
However, don't hold your breath waiting for this to happen. The current administration, led by clueless academic classroom economists, are misguided and ill equipped to deal with the realities of our economic malaise. Only a change in administrations will brighten the outlook for economic recovery.
Sunday, June 6, 2010
Presidential Hijinks Stink
Last week President Obama donned his cheer leading outfit, fetched his pom-poms and began turning somersaults over the latest jobs data. The fawning media applauded the stunt and duly reported that the economy is recovering. Apparently, the President and his lapdogs believe you really can fool all the people all the time.
In his role as Cheerleader in Chief, the President used the media megaphone to shill the Labor Department report that showed employment rose by 431,000. The number is about as real as a $3 bill with Elton John's picture plastered on the front. The stock market reacted by falling more than 200 points. So much for good economic news.
To understand the market's decline, all you need to know are two facts. First, all but 41,000 of those 431,000 jobs were created by the federal government. Most were temporary census workers. Secondly, the unemployed are facing the longest wait on record to find work. There just aren't enough available jobs because the private sector isn't hiring. In fact, last week brought fresh news of more corporate layoffs.
That means things are unlikely to get better anytime soon. The economy will have to grow at an annual rate of 3.5 percent for three years to recoup the 8 million jobs that have been lost since the recession began. No self-respecting economist has predicted growth anywhere near that level. Even the optimists in the Federal Reserve are now saying that employment will remain at nine percent or higher until perhaps the end of 2011.
It is time for the media to pronounce the administration's economic stimulus and job plans a total and utter failure. The billions spent to reinvigorate the economy have been wasted on pork projects with no economic benefit. To make matters worse, passage of the Health Care Reform Bill further stalled plans for hiring and business investment because of the uncertainty over future costs.
Meanwhile, consumer spending has sputtered along. It once was the country's economic engine, accounting for 70 percent of spending. However, nothing makes consumers feel "poor" like layoff worries, sinking home prices and a falling stock market. Americans won't be opening their wallets until there are improvements in all three areas, which are critical to consumer confidence. When home prices were skyrocketing, the stock market was soaring and jobs were plentiful, consumers felt "rich," even if their bank accounts remained the same.
As bad as things are on the job front, the home market looks even worse. With the home buyer federal tax credit expired, sales will likely tank. Already, there are signs of a major pull back in sales contracts, according to experts. And more than one-third of this year's sales have been so-called distressed homes selling at deep discounts. Typically, these homes have been taken over by banks or the owners have sold because they are unable to make payments. That has impacted prices for sellers who want to move up, causing them to rethink their decisions. One real estate analyst firm, Core-Logic, predicts the market will continue to fall with next February's prices lower by 4.2 percent.
Meanwhile, the number of bank failures in the country keeps rising. To date, regulators have seized the assets of 78 banks. Bank closures are expected to peak this year, but you have to wonder. The feds closed 140 banks last year. At the current pace, bank failures could eclipse last year's number, considered the worst since the Great Depression.
Instead of trying to whip up enthusiasm for the tepid economy, the President needs to do something more than symbolism. He could start by rescinding the onerous Health Care Reform Bill. Then he should announce tax incentives for hiring and research, followed by a reduction in the federal red tape that adds to the cost of doing business.
Of course, none of this will happen. The President refuses to come to grips with the reality of the economic slide. The country is more likely to see Elton John's picture on a greenback than real economic reform.
In his role as Cheerleader in Chief, the President used the media megaphone to shill the Labor Department report that showed employment rose by 431,000. The number is about as real as a $3 bill with Elton John's picture plastered on the front. The stock market reacted by falling more than 200 points. So much for good economic news.
To understand the market's decline, all you need to know are two facts. First, all but 41,000 of those 431,000 jobs were created by the federal government. Most were temporary census workers. Secondly, the unemployed are facing the longest wait on record to find work. There just aren't enough available jobs because the private sector isn't hiring. In fact, last week brought fresh news of more corporate layoffs.
That means things are unlikely to get better anytime soon. The economy will have to grow at an annual rate of 3.5 percent for three years to recoup the 8 million jobs that have been lost since the recession began. No self-respecting economist has predicted growth anywhere near that level. Even the optimists in the Federal Reserve are now saying that employment will remain at nine percent or higher until perhaps the end of 2011.
It is time for the media to pronounce the administration's economic stimulus and job plans a total and utter failure. The billions spent to reinvigorate the economy have been wasted on pork projects with no economic benefit. To make matters worse, passage of the Health Care Reform Bill further stalled plans for hiring and business investment because of the uncertainty over future costs.
Meanwhile, consumer spending has sputtered along. It once was the country's economic engine, accounting for 70 percent of spending. However, nothing makes consumers feel "poor" like layoff worries, sinking home prices and a falling stock market. Americans won't be opening their wallets until there are improvements in all three areas, which are critical to consumer confidence. When home prices were skyrocketing, the stock market was soaring and jobs were plentiful, consumers felt "rich," even if their bank accounts remained the same.
As bad as things are on the job front, the home market looks even worse. With the home buyer federal tax credit expired, sales will likely tank. Already, there are signs of a major pull back in sales contracts, according to experts. And more than one-third of this year's sales have been so-called distressed homes selling at deep discounts. Typically, these homes have been taken over by banks or the owners have sold because they are unable to make payments. That has impacted prices for sellers who want to move up, causing them to rethink their decisions. One real estate analyst firm, Core-Logic, predicts the market will continue to fall with next February's prices lower by 4.2 percent.
Meanwhile, the number of bank failures in the country keeps rising. To date, regulators have seized the assets of 78 banks. Bank closures are expected to peak this year, but you have to wonder. The feds closed 140 banks last year. At the current pace, bank failures could eclipse last year's number, considered the worst since the Great Depression.
Instead of trying to whip up enthusiasm for the tepid economy, the President needs to do something more than symbolism. He could start by rescinding the onerous Health Care Reform Bill. Then he should announce tax incentives for hiring and research, followed by a reduction in the federal red tape that adds to the cost of doing business.
Of course, none of this will happen. The President refuses to come to grips with the reality of the economic slide. The country is more likely to see Elton John's picture on a greenback than real economic reform.
Thursday, April 22, 2010
Earnings Offer False Hope Of Economic Recovery
It's the earnings season when businesses report their first quarter results. News media headlines have trumpeted the growth in net income or profits at most firms. However, don't be deceived by the dunderhead news reporting. Upon closer examination, most of America's bellwether companies are improving profits by reducing head count, cutting operations and selling off under performing assets. That's hardly a prescription for growth. In fact, its a further sign that economic recovery is a long way off.
If you look beyond the profits, there are troubling signs at many firms. Revenues have fallen or remained flat when compared to the first quarter of last year. Considering that 2009 was an economic disaster, that's not a healthy indicator. When businesses expand, revenues rise along with payrolls and investment. The lack of growth underscores what many already suspect: the economic recovery has stalled.
Another sure way to assess the health of businesses is to look at investment. Are these companies plowing money into their operations to increase output for the future? The answer is a resounding "NO!" A quick check of most big publicly traded firms shows these businesses are hoarding cash. This indicates that these firms have no faith in a strong economic recovery anytime soon. If they believed that recovery was just around the corner, they would be pouring money into things like research, development, infrastructure and new equipment. It's not happening.
To be sure, there are exceptions to the first quarter trend. Apple, Inc. and Goggle both reported strong revenue growth of 49 percent and 23 percent, respectively. But neither is considered a bellwether company that accurately reflects the overall economy. They are high-tech players with proprietary products. A closer look at companies who depend heavily on consumer spending for growth reveals another story.
For example, Emerson Electric's sales were down seven percent. Jack in the Box sales fell 11.1 percent. Coca Cola's sales gained a paltry three percent, but all of the revenue growth came from overseas. AT&T's revenues were flat. KB Homes sales plummeted 14 percent. The list goes on and on. Firms that sell directly to businesses have suffered the same fate. For example, John Deere & Company revenues were down six percent. Caterpillar sales plunged 11 percent. IBM reported a five percent gain in revenues, but when adjusted for the impact of foreign currency, sales were flat. FedEx revenues dove 20 percent.
Wall Street is starting to notice. The indices have taken a hit in recent days. Until business revenues start showing signs of life and investment grows, don't expect the markets to rebound sharply. There may be temporary upticks, fueled by excessive optimism, but in the end, the experts will see earnings for what they are: a lot of bread, lettuce and tomato, but hardly any beef.
If you look beyond the profits, there are troubling signs at many firms. Revenues have fallen or remained flat when compared to the first quarter of last year. Considering that 2009 was an economic disaster, that's not a healthy indicator. When businesses expand, revenues rise along with payrolls and investment. The lack of growth underscores what many already suspect: the economic recovery has stalled.
Another sure way to assess the health of businesses is to look at investment. Are these companies plowing money into their operations to increase output for the future? The answer is a resounding "NO!" A quick check of most big publicly traded firms shows these businesses are hoarding cash. This indicates that these firms have no faith in a strong economic recovery anytime soon. If they believed that recovery was just around the corner, they would be pouring money into things like research, development, infrastructure and new equipment. It's not happening.
To be sure, there are exceptions to the first quarter trend. Apple, Inc. and Goggle both reported strong revenue growth of 49 percent and 23 percent, respectively. But neither is considered a bellwether company that accurately reflects the overall economy. They are high-tech players with proprietary products. A closer look at companies who depend heavily on consumer spending for growth reveals another story.
For example, Emerson Electric's sales were down seven percent. Jack in the Box sales fell 11.1 percent. Coca Cola's sales gained a paltry three percent, but all of the revenue growth came from overseas. AT&T's revenues were flat. KB Homes sales plummeted 14 percent. The list goes on and on. Firms that sell directly to businesses have suffered the same fate. For example, John Deere & Company revenues were down six percent. Caterpillar sales plunged 11 percent. IBM reported a five percent gain in revenues, but when adjusted for the impact of foreign currency, sales were flat. FedEx revenues dove 20 percent.
Wall Street is starting to notice. The indices have taken a hit in recent days. Until business revenues start showing signs of life and investment grows, don't expect the markets to rebound sharply. There may be temporary upticks, fueled by excessive optimism, but in the end, the experts will see earnings for what they are: a lot of bread, lettuce and tomato, but hardly any beef.
Thursday, April 15, 2010
Why Sentiment Matters To Economic Recovery
There is a universal truth that often is overlooked by economists. It is this: perception is reality, especially when it comes to consumers and business people. Economists tend to take comfort in numbers. Think of it as their security blanket. They are consoled by things they can understand. That's why many are now predicting economic recovery, albeit at a snail-like pace.
Economists can find many signs to buttress their beliefs. Manufacturing has inched upward. Some businesses are hiring. Consumer spending has tiptoed upward. However, in every poll of consumers and business leaders, the mood is sour. To put it bluntly, they don't believe the economy is improving. Economic statistics won't convince them otherwise. They know what they know, even if it seems out of sync with reality.
I was reminded of this fact recently when the National Federation of Independent Businesses reported that its optimism index had fallen to an eight month low. A noted economist, William Dunkelberg, seemed perplexed. He said the results were "very inconsistent with the notion that the economy is recovering." Spoken like a guy who embraces numbers, but finds sentiment a touchy-feely concept.
Small businesses aren't convinced things are getting better for obvious reasons. Most have experienced shrinking sales and lower consumer demand. Banks are clamping down on loans to businesses. Congress has just passed a massive health care bill that puts new mandates on small businesses. Taxes are likely to head higher as the government grapples with the federal deficit. These business people are hunkering down for the worst.
In the survey by the NFIB, small business people cited poor sales as their top concern. Most said this is not a good time to expand. A majority reported unfavorable credit conditions. Many said it was not the right time to hire. No matter what economists are saying, these business people don't believe the numbers. Their reality is sales haven't improved. No amount of assurances from economists will convince them that good times are right around the corner.
Predictably, there was a lot of head scratching by economists after the poll was published. They argued that the economic data is at odds with perceptions. They were flummoxed that these business people didn't see that. They ignore that perception is reality, not the other way around. Changing perception is often more difficult than changing reality.
That is the crux of the problem the country faces today. Small businesses aren't alone in their perception of the direction of the country. Consumer indices are at or near all time lows. Large business leaders are cautious about the future. People simply aren't buying that things are getting better, despite determined efforts by the media and the Obama Administration to convince them the economic recession is over.
So how do you change sentiment? Think President Ronald Reagan. When he inherited runaway inflation, a weak economy and a nation in the throes of malaise, he spent a considerable amount of time talking up the country. The President took to the airwaves to assure Americans the country could rise above any obstacles.
What is missing today is that President Obama has taken just the opposite tact. He and his allies have been nabobs of negativism. They have told us that unemployment will not come down soon. They preach higher taxes. They trumpet more government programs instead of American initiative. Some have mentioned that America cannot expect to continue to dominate the world economically forever. Does that sound like optimism?
This raises another question: why would the President and his minions deliberately talk down the economy? The answer should be obvious to even his most ardent supporters. President Obama sees the current economic crisis as an opportunity for more government intervention, more government programs, more government control. It is an inescapable conclusion that we ignore at our own peril.
Economists can find many signs to buttress their beliefs. Manufacturing has inched upward. Some businesses are hiring. Consumer spending has tiptoed upward. However, in every poll of consumers and business leaders, the mood is sour. To put it bluntly, they don't believe the economy is improving. Economic statistics won't convince them otherwise. They know what they know, even if it seems out of sync with reality.
I was reminded of this fact recently when the National Federation of Independent Businesses reported that its optimism index had fallen to an eight month low. A noted economist, William Dunkelberg, seemed perplexed. He said the results were "very inconsistent with the notion that the economy is recovering." Spoken like a guy who embraces numbers, but finds sentiment a touchy-feely concept.
Small businesses aren't convinced things are getting better for obvious reasons. Most have experienced shrinking sales and lower consumer demand. Banks are clamping down on loans to businesses. Congress has just passed a massive health care bill that puts new mandates on small businesses. Taxes are likely to head higher as the government grapples with the federal deficit. These business people are hunkering down for the worst.
In the survey by the NFIB, small business people cited poor sales as their top concern. Most said this is not a good time to expand. A majority reported unfavorable credit conditions. Many said it was not the right time to hire. No matter what economists are saying, these business people don't believe the numbers. Their reality is sales haven't improved. No amount of assurances from economists will convince them that good times are right around the corner.
Predictably, there was a lot of head scratching by economists after the poll was published. They argued that the economic data is at odds with perceptions. They were flummoxed that these business people didn't see that. They ignore that perception is reality, not the other way around. Changing perception is often more difficult than changing reality.
That is the crux of the problem the country faces today. Small businesses aren't alone in their perception of the direction of the country. Consumer indices are at or near all time lows. Large business leaders are cautious about the future. People simply aren't buying that things are getting better, despite determined efforts by the media and the Obama Administration to convince them the economic recession is over.
So how do you change sentiment? Think President Ronald Reagan. When he inherited runaway inflation, a weak economy and a nation in the throes of malaise, he spent a considerable amount of time talking up the country. The President took to the airwaves to assure Americans the country could rise above any obstacles.
What is missing today is that President Obama has taken just the opposite tact. He and his allies have been nabobs of negativism. They have told us that unemployment will not come down soon. They preach higher taxes. They trumpet more government programs instead of American initiative. Some have mentioned that America cannot expect to continue to dominate the world economically forever. Does that sound like optimism?
This raises another question: why would the President and his minions deliberately talk down the economy? The answer should be obvious to even his most ardent supporters. President Obama sees the current economic crisis as an opportunity for more government intervention, more government programs, more government control. It is an inescapable conclusion that we ignore at our own peril.
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