Signs recession nears bottom, but layoffs persist
Huffngton Post sez:
CHRISTOPHER S. RUGABER | April 2,
WASHINGTON — Fresh signs that factories are coming back to life and a bank CEO’s encouraging outlook fueled more hopes Thursday that the economy may soon emerge from the cellar, briefly lifting the Dow Jones industrials over 8,000 for the first time in two months.
The job market, among the last to turn around in an economic recovery, remains weak, though. New claims for unemployment last week were worse than forecast, and Friday’s reading on how many jobs the nation lost in March is widely expected to be grim.
At the G-20 meeting of world powers in London, President Barack Obama said international agreements, including a plan to commit $1.1 trillion to fight the downturn, were a “turning point in our pursuit of global economic recovery.”
The Commerce Department said orders for manufactured goods rose 1.8 percent in February, reversing six straight monthly declines and easily beating estimates of another drop.
“There is now some solid evidence that the period of economic free-fall is now behind us, that the next step will be a slower rate of decline,” said Nigel Gault, chief U.S. economist for consulting firm IHS Global Insight.
Gault predicted in an e-mail that the economy will bottom out in the second half of the year, cautioning that he did not believe the economy was yet ready to grow again.
Economists expect Friday’s jobs report to show U.S. employers cut 654,000 jobs in March, with the unemployment rate rising to 8.5 percent from 8.1 percent, according to a survey by Thomson Reuters. Some economists estimate as many as 750,000 jobs lost for March.
Still, recent economic reports have indisputably been more positive. Earlier this week, pending home sales and construction spending both came in better than expected, and there have also been signs shoppers are loosening the death grip on their wallets.
“Some of the recent economic indicators have been more encouraging than they were in the winter, when every indicator pointed in the same direction: straight down,” said Stuart Hoffman, chief economist at PNC Financial Services Group.
I guess because Obama declares it so, it must be true. We’ve turned the corner. Our economy is fundamentally sound!
Americans have been going broke slowly for decades. In immediate post- WWII period, Americans were able to accumulate wealth. In the hard- currency, moderate taxation regime that existed at the time, they were allowed to keep it. Wages and goods were in a stable and affordable relationship that allowed working people to purchase housing, higher education, health- care services and to also accumulate savings. These savings were the source of investment capital that businesses used to increase production, High relative wages allowed workers to afford the products that they made, and the companies they worked for were also able to earn a profit. Companies returned some of this profit to shareholders in the form of dividends.
Since the Vietnam War, our government and business interests have maintained a parallel war of attrition against American wage earners. The breaking of Bretton Woods and abandonment of the the gold (semi) standard institutionalized persistent inflation, destroying the value of savings and eliminating any incentive to save. Labor unions were co- opted by business management or infiltrated by organized crime. Financial strategies and automation replaced investment in expanding productive employment. Jobs were outsourced to Mexico then China or given to imported workers who would labor with less skill for far less money. Human skills were replaced with the leverage of petroleum. Wage income was replaced with debt. Financial services morphed into gambling and reckless risk- taking. International currency exchange stability was sacrificed for short term trading and arbitrage advantage. Reckless risk and mindless over- investment created excessive oversupply of goods of all kinds in all industries without there being sufficient earning power to support demand. Demand was expected to be supported by a constant increasing level of inflation – credit expansion
The result of this structural alteration, this war of attrition aganst the American worker has been a systemic breakdown of the credit and finance system as it serves to manage supply. There is little real wealth available for the purchase of the goods produced. The wealth is concentrated in the investor class which has no use for cheap, foreign made products. The same sort of earning/ overcapacity relationship existed from 1921 – 1929. As then, the results have been catastrophic.
Additionally, the oversupply has created serious concerns as to whether the amount of necessary raw materials and waste capacity exists to support continuing production at elevated levels in the longer term.
None of these issues are addressed by the G20 or by the US government. There is no change for wage- earner incomes other than the aggregate will continue to decline with the rise in unemployment. Goods prices will also continue to decline in order for them to fall into line with the money available to pay for them. There is no other way. Credit will not expand. People in debt up to their necks will not borrow.
No customers, no recovery. It’s just that simple.
Too much oversupply means lower prices. The expansion of demand is an illusion, the rising of prices for petroleum and other products that ‘anticipate’ the recovery is defying fundamentals. The Energy Information Agency (EIA) has fuel inventories above their upper limit:
U.S. commercial crude oil inventories (excluding those in the Strategic
Petroleum Reserve) increased 2.8 million barrels from the previous week.
At 359.4 million barrels, U.S. crude oil inventories are above the upper limit
of the average range for this time of year. Total motor gasoline inventories
increased 2.2 million barrels last week, and are above the upper limit of the
average range. Finished gasoline inventories fell last week while gasoline
blending components inventories rose during this same time. Distillate fuel
inventories increased by 0.3 million barrels, and are above the upper limit of
the average range for this time of year. Propane/propylene inventories
increased last week by 0.7 million barrels and are above the upper limit of the
average range. Total commercial petroleum inventories increased by 6.4 million
barrels last week and are above the upper limit of average range for this time
of year.
If inventories are at the upper limit, what supports high prices? The distortion of supply/demand dynamics is a primary reason for our current dislocation, People with no job or income cannot afford to buy more expensive products,
Until the fundamentals are brought into alignment, simple supply and demand will continue to demolish the economies of the world. Regardless of what Obama, bank CEO’s or the G20 say.