Radio commentary, June 25, 2009
In the economic news, the mixed bag theme continues. On Thursday morning, the Labor Department reported reported some deterioration in the unemployment claims figures, contrary to a recent trend of improvement. First-time claims, filed by people who’ve just lost their jobs, rose by 15,000, to where they were about a month ago. The four-week average, a better way to look at this often volatile series, rose by 1,000. The year-to-year change in this series, which as I’ve been emphasizing here for some time has proved an excellent guide to the end of recessions, is still in a downtrend. But this surprising uptick isn’t a good sign. Neither is the 29,000 increase in the number of continuing claims—that is, the number of people still drawing benefits. Most of last week’s sharp decline is still intact, but this increase is also unwelcome news. These weekly figures are very hard to adjust for seasonal variation, and are also pretty noisy, so it’d be too much to say that the slight improvement in the job market has gone into reverse. But this is worrisome, and bears close watching.
On Wednesday, the Federal Reserve decided to keep interest rates unchanged, with its target for the rate under the Fed’s most direct control, the federal funds rate, still effectively zero. The statement reporting the decision, while noting some slowing in the rate of economic decline—less bad news, but still not good news—still characterized the U.S. economy as “weak” and likely to stay that way “for a time.” They also expect inflation to remain subdued, and anticipate that they will keep interest rates at “exceptionally low levels…for an extended period.” Because they removed some end-of-the-worldish language they’d used in previous statements, some people in the financial markets took this as a hawkish statement suggestive of a tightening soon, but that strikes me as demented. The economy remains very fragile, and the Fed knows it and will remain indulgent for as long as they can.
Since we’ll be discussing housing in a few minutes, some words on the state of that market. Sales of existing houses rose modestly in May, while sales of new houses fell. Since the market for existing houses is four or five times as big as the new house market, the overall conclusion was slightly upbeat—but the levels of both are still down from a year ago. There’s little doubt that sales of foreclosed properties are lifting the sales of existing houses, which isn’t really a sign of returning health. The average new house that sold in May had been on the market for almost a year, more than twice the long-term average, and an all-time record. Prices are also looking weak, with the average existing house price off 16% from May 2008, up slightly from April’s all-time low. The new house market showed a little more lift, with prices down just 3% from a year earlier, compared with almost 14% in April—but sales are down over 30% from a year earlier. So, on balance, the familiar theme: some less bad news, but not yet good news.
One bit of good news, though: sales of durable goods, items designed to last three years or more, rose almost 2% in May—and for capital goods (meaning the machines that businesses invest in, which are the principal motor of long-term economic growth), rose almost 5%. Additionally, the Kansas City Fed’s surve of manufacturing in its neighborhood was up for the first time since August. Maybe the bloodletting in manufacturing is coming to an end. Maybe.
And the Economic Cycles Research Institute’s weekly leading index, designed to forecast changes in the broad economy three to six months out, continues its improvement, suggesting that we could be exiting the recession by fall. That doesn’t mean that happy days are here again, but it does mean that this is not 1931 all over again.
Turning to the outside world, 40 of the world’s governments convenining under the auspices of the Organization for Economic Cooperation and Development, the Paris-based think tank and chat shop dominated by the rich countries, agreed that what they’re calling “green growth” is the way out of the economic crisis. The 40 countries represented account for about 80% of world economic activity, and included, aside from the rich countries of the North, the so-called BRICs, Brazil, Russia, India, and China. The OECD’s secretary general, Angel Gurría of Mexico, said that participants “have made a solemn pledge to promote environmentally friendly green growth policies in favour of sustainable economic growth based on low carbon energy use,” Two cliches come to mind on reading this: “let’s hope so,” and “we’ll see.” This meeting was in part preparation for the UN climate change conference to be held in Cophenhagen in December; you do have to wonder whether the pretty words will translate into any actual commitments. Changing the prevailing discourse from going green as a cost, in narrowly economic terms, to a potential benefit, would make a big difference, especially in a time of recession when it’s tempting to cut corners.
And finally, a rather telling quote from conservative Democratic Senator Ben Nelson of Nebraska. Explaining why he was opposed to the so-called public option—including in a health insurance overhaul a government-run scheme open to all, which is about all that’s left of any half-“progressive” position in Obama’s Washington—Nelson said: “It would be too attractive and would hurt the private insurance plans.” Well, yeah. Let’s hurt those private plans so bad they die, eh?