Radio commentary, March 25, 2010
Not much in the way of economic news since last we spoke. The U.S. economy continues to flatline, which only looks good next to the collapse of 2008 and 2009. The Chicago branch of the Federal Reserve puts out a monthly National Activity Index (CFNAI), a composite of 85 separate indicators, that’s a good a single measure of the state of the economy that we have. When it’s at 0, the economy is expanding at its historical average; below 0, it’s growing below trend; above 0, it’s growing above trend. The CFNAI broke above 0, barely, in January—but fell back below in February. The thing is volatile, so it’s best to average it out over a few months. Such averaging is telling us that while the economy is picking up some, it’s still pretty feeble. The Feburary decline was driven by weakness in the housing market and a slowdown in the factory sector; Some of that manufacturing weakness may have been the result of the bad snowstorms last month. But it’s also the case that the economy—to move from abstraction to personification—is so punch-drunk that it needs to lie on the floor for a while until the room stops spinning.
housing: still sick
The housing market, of course a major culprit in the economic mess we’re in, just can’t get up either. Sales of existing houses fell slightly in Feburary, the third consecutive decline (the previous two were much bigger), bringing the sales pace back to where it was last June. That suggests that the recovery we saw in the second half of last year—nearly a 30% rise, now largely reversed—was the result of the special tax credit granted to first-time house buyers, and not what Wall Street calls organic growth.
Sales of new houses, a much smaller market than already-existing ones, fell for the fourth consecutive month in February, to an all-time low for 47 years of data. Setting five-decade record lows is not what an economic recovery is supposed to look like. Here too, some analysts are blaming February’s bad weather for some of the weakness. Maybe. March has been more lamb-like than lion-like, so we’ll get a test of the weather thesis pretty soon. My guess is that weather depressed things a bit, but that the real problem is the economy and credit markets are still sick.
Housing is important not only because it was so central to both bubble and bust, but also because it’s historically been the first major economic sector to lead a recovery. Certainly the authorities are doing all they can to promote a recovery. Not only was there a federal credit, which I mentioned earlier, they’re also doing them at the state level. California, for example, which is so broke that it’s laying off 30,000 teachers, is nonetheless going to offer up to $10,000 tax credits for people who buy houses, which will cost the state $200 million—twice as much as last year’s similar program. That $200 million is the equivalent of about 4,000 teachers, but goosing the real estate business is apparently more important than teaching kids.
unemployment claims: back in decline
And, in an indicator I haven’t cited in a while, first-time applications for unemployment insurance, a very timely and sensitive indicator of the state of the job market, fell by 14,000 last week, the third decline in four weeks. This measure had declined steadily for most of 2009, portending the stabilization of the labor market that we saw late last year, but had stalled out at the turn of the year. Unemployment claims are still at a pretty high level though, which means that employment is likely to hang just on either side of unchanged for the next few months.
In longer-term news, The Pew Charitable Trusts—a philanthropy, ironically enough, that got its money from an oil fortune—is just out with a report on the global state of investment in clean energy technologies. The sensational soundbite: China is taking the lead, and the U.S. is falling behind. Globally, Pew reports, clean energy investments fell only modestly during the recession, and have since recovered nicely.
But no thanks to the USA. China’s total stock of renewable energy generation is about to surpass the U.S., even though our economy is far bigger. Total U.S. clean energy investment actually fell by 40% in 2009, though it’s picking up some this year. If you rank the world’s nations by clean energy investment as a share of GDP, the U.S. comes in 11th, lagging much poorer countries like Mexico and Turkey. Compared to the leaders, the U.S. performance is shameful: one-sixth the clean energy investment share of Spain, a quarter that of the UK, a third that of China and Brazil.
Although the Obama administration has made a lot of noise about investing in clean energy and other green technologies, they’re really not asking for much in their 2011 budget—yeah, anything ambitious would probably be DOA in Congress, but you’ll never get what you don’t ask for. Bigger numbers could stimulate the economy while saving life on earth, but change we can believe in apparently does not extend to actual change. Maybe we should have read that slogan more carefully: maybe it’s always been more about the believing than actual change.