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  Posted on: Thursday, January 7, 2010
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Recovery or Recession? A Distinction Without a Difference

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Bombarded by a constant stream of primary, secondary and tertiary economic statistics being released daily with a highly positive spin in the financial media, investors need to be reminded that the numbers that really count indicate an economy still in a deep rut.  Let's take a look at the major numbers that tell us what the economy is really doing---employment, retail spending, new single family home sales, core new durable goods orders and production.

1)  Payroll employment has dropped 5.2% from the peak.  That's 7.2 million jobs. Perhaps tomorrow's report will show the first increase, but even so it will amount to a slim fraction of the number of jobs lost.  Keep in mind, too, that the Bureau of Labor Statistics has already told us that the next benchmark revision will bring last year's numbers down significantly.  (See archives for 10/15/09).  We also note that it takes somewhere between 100,000 and 150,000 new jobs each month just to keep unemployment flat.

2)  At the lows retail spending was down 12.4% from the peak and has since gained back 5.1%.  However, even now spending remains at a recessionary 8.4% from the top despite near-zero interest rates, the cash for clunkers program and a tax refund.

3)  New single-family home sales plunged 75.4% peak-to-tough and has bounced by only 2.6% despite record low mortgage rates, home-buyer tax credits and government purchases of mortgage-backed securities and Treasury bonds.

4)  Core durable goods orders declined 27.3% overall and have climbed back 10.5% where they are still down 19.6% from the peak.

5)  Industrial production fell 14.8% from the top and has come back 3.8% where it is still a dismal 11.5% below the peak.

So let's sum this up.  Even in this big "recovery" that is being spun so heavily on financial TV, employment is still down 5.2%, retail spending 8.4%, new single-family home sales 73.3%, core new durable goods orders 19.6% and industrial production 11.5%.  Since the numbers have moved up slightly we suppose that by definition it's technically a "recovery" rather than a recession, but it does seem like a distinction without a difference.  And remember this is all we've gotten from the stimulus plans, the first-time home-buyer credit, cash for clunkers, the foreclosure moratoriums, zero interest rates, unprecedented quantitative easing, mortgage-backed security purchases, Treasury bond purchases, virtual government takeover of the housing market  massive aid to the GSEs and record deficits.  As we have previously pointed out all we have done is shift private debt burdens to the Federal government.  With all that, it is still doubtful that the economy can stand on its own once these artificial supports are removed.  Nevertheless the debts will remain, eventually to be resolved either by future inflation or default.     


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