Radio commentary, December 6, 2008

Audio: December 4, 2008

[The first part of this commentary was delivered on WBAI, December 4, 2008. I added an analysis of the November employment report, which was released on December 5, for the KPFA version, broadcast December 6.]

Economies continue to deteriorate, at home and abroad. I often cite the surveys done by the Institute for Supply Management, or ISM, the trade association for purchasing managers, who buy things for large corporations. Their job puts them in close contact with the state of the business, and business is not good. The ISM surveys of both manufacturing companies and service companies, both released over the last week, were very ugly, and consistent with a deep recession.

And speaking of recession, as you’ve probably heard, it’s official. The arbiter of these things, the Business Cycle Dating Committee of the National Bureau of Economic Research, declared earlier this week that the expansion that was born in 2001 died last December. Yes, it took them a year to make up their minds—about twice as long as usual. Hey, guys, I had it figured out in February, when the January employment report was released. But I’m not a high-paid, prestigious economist, so who’s listening?

For the first six or eight months of the recession, it looked pretty mild. There were job losses, but not as bad as in earlier downturns. Other economic indicators headed south, but most not so sharply. But over the last few months, there’s been an acceleration to the downside. Job losses are now averaging close to the 300,000 a month neighborhood that’s characteristic of recessions—and we may see that many Friday morning, when the November report is released.

But I’ve been reviewing some of the major economic indicators, including the ones the Business Cycle Daters (a group whose name almost demands a joke) look at, and several things stand out. While the declines in employment, household incomes, and business investment aren’t out of line with historical averages, their growth going into last December’s cyclical peak was a lot weaker than those averages. In fact, the expansion, which lasted a month longer than six years, was the weakest by a considerable margin of any of the 10 we’ve had since 1948, whether you measure by the economists’ favorite indicator, GDP growth, or by a more humanly relevant indicator like employment growth. GDP growth was a third below historical expansion averages; employment growth, two-thirds below. That suggests to me that there are some real structural problems with the U.S. economy, like low levels of real investment, excessive reliance on borrowed money, and a malignantly lopsided income distribution that are now undermining its performance even by conventional measures. All this suggests that this recession could be long and deep—and, as for length, it’s already a month longer than the post-World War II average downturn. It need only extend into May, which seems quite likely, to become the longest since the 1929-33 affair. Of course, with central banks cutting interest rates and printing lots of money, and with governments around the world plotting huge stimulus spending programs, they probably can avoid the worst. But I’m still guessing that 2009 will be ugly.

Barack Obama’s cabinet choices are getting high praise from all the centrist and right-wing pundits, while his liberal cheerleaders are searching for nice things to say. But let’s leave aside, for a moment, the residence of his cabinet nominees on the political spectrum. Let’s just talk a moment about their alleged experience. Could someone tell me what foreign policy experience Hillary Clinton has? She lived with a president for eight years, though probably on many occasions they slept in separate bedrooms. But why is she greeted as such an experienced hand?

And, more criticisms of the big economic guys are in order. Timothy Geithner, the Treasury nominee, reportedly wants to get Sheila Bair out as head of the FDIC. By most accounts, Bair has done an admirable job in saving some banks on conditions favorable to the government and to homeowners. But Geithner thinks she’s not a team player. More likely is that he sees her as a rival. If he prevails, this will be a signal that not only will the new gang be a political disappointment, they might be lacking in competence as well.

And then there’s the eminence grise Robert Rubin, whom I kicked about last week for having resisted regulation of derivatives when he was Clinton’s Treasury Secretary and having helped drive Citigroup into the ground during his term as a “senior counselor” at the bank. Last weekend, Rubin was quoted in the Wall Street Journal as having said no one could have foreseen this crisis—in fact many people did, including some of Rubin’s colleagues in the Clinton administration—so no one should be held accountable for the failure. Asked if he had any regrets, Rubin said “I guess that I don’t think of it quite that way.”

I think we’ve got a theme song for the new administration: Edith Piaf singing “Non, je ne regrette rien.” 

And here’s an update added [December 6] just for the KPFA (and podcast) audience. That commentary was recorded on Thursday evening, before the release of the November employment report on Friday morning. Now we have it, and it was horrid, from top to bottom. About the only bright spot you can find in it is was a small drop in the teen unemployment rate. That’s it. Almost everything else in it was dismal.

Employers shed 533,000 jobs in November. Worse, initial estimates of the job losses in September and October were increased by almost 200,000, bringing the three-month total job loss to 1.3 million. While these aren’t the worst in history, they’re still very very bad. The losses were widely distributed across economic sectors. Construction and manufacturing got hit very hard, losing over 160,000 between them. And it wasn’t just houses and cars; nonresidential construction actually lost more jobs than residential, and almost every line of factory work was down. About the only sectors adding jobs were state and local government and health care. And given the fiscal pressures facing the public sector, expect those to start shrinking soon.

Taking a longer-term perspective, while losses so far since the December 2007 peak are slightly less than recession averages, most previous recessions were drawing to a close a year after their peaks. Not this time.

Those numbers all come from a survey of employers. The Bureau of Labor Statistics also does a monthly survey of households, and its findings were equally dismal. The unemployment rate rose 0.2 point to 6.7%, its highest level in 15 years – and almost all the rise was the result of permanent job loss, as opposed to temporary layoffs or new entrants. The rise over the last several months isn’t record-setting, but it is still very large. The so-called employment/population ratio, the share of the adult population working, fell 0.4 point to 61.4%, its lowest level in 15 years. The employment boom of the late 1990s has been largely undone in a year.

While it’s a common practice in Europe to cite the number of unemployed as a headline indicator, we don’t do that often in the U.S. But it is worth pointing out that the ranks of the officially jobless crossed 10 million in October, and rose by another quarter-million in November. More than 5 million are classed as not in the labor force but wanting a job now. The broadest measure of unemployment, the U-6 rate, which includes both these sets of would-be workers, along with people who want full-time work but can only find part-time, rose to 12.5%. That’s the highest level since the BLS began reporting the number in 1994.

As bad as this report is, it’s still “bad recession” and not “total collapse,” though who’s to say what December and January may bring? The need for a very large fiscal stimulus now looks undebatable, even to highly orthodox sorts.

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