Recovery?

Fed Chairmen (paternal or motherly)
Have made a depressing discovery:
If demand isn't great,
You can lower the rate
But you can't cut your way to recovery.

Post-Holiday Blues

The December performance of retail
Was bullish in ever-y detail;
All the gifts that were sold
Decisively told
A surprisingly good Christmas tree tale.

But the 1st quarter figures & facts
Describe a consumer that lacks
A spending position,
Since broad imposition
Of 2% more payroll tax.

The US retail sales numbers for December were announced on Tuesday, and painted a picture of robust holiday consumption.  The 0.5% quarterly increase was much better than expected, and much faster than the rate for the previous two quarters.  However, it looks as though the momentum may not carry through to the 1st quarter of the new year.  Weekly retail reports in January have already fallen below expectations, and the reason seems clear: most US workers now have less take-home pay, thanks to the increase in the payroll tax by two percentage points to 6.2%, from the temporary, "stimulus" rate of 4.2%.  Other indicators appear less than bullish, as well: the Federal Reserve Bank of New York reports that manufacturers in its district (which is also my district) continue to reduce their activity.  The ongoing drama of the fiscal cliff and debt ceiling doesn't help, either.

A Chicken & Egg Problem

For GDP growth to look handsome,
Manufacturing's got to expand some,
But someone must buy
That expanded supply,
So we've got to expand our demand some.

"Without Demand, Manufacturing Can’t Pump Up Output or Jobs," says The Wall Street Journal's Real Time Economics blog. As much as many, including the White House, have pinned their expansionary hopes on a US manufacturing renaissance, this only works if foreign and domestic demand keeps those factories busy. Right now, both appear to be softening.

Recent factory surveys from the Federal Reserve Banks of New York, Philadelphia, Richmond and Kansas City show more respondents reporting falling orders than expanding. Moreover, "a third-quarter survey done by professional services firm PwC found 67% of major U.S. industrial multinationals said 'lack of demand' was an expected barrier to their company’s growth over the next year. That was the No. 1 choice among a list of obstacles that included energy prices, regulatory pressures and taxes, and was a jump from 48% pointing to a lack of demand in the second quarter."

Third quarter US GDP is set to be announced this morning at 8:30, with the consensus forecast of an expansion at a tepid 1.7% annualized rate. At the moment, the prospect of manufacturing our way to faster growth looks dim.

Delayed Gratification

Said a young man without a home loan,
Back at home with his folks in Bayonne:
"While household formation
Is met with frustration,
My wild oats are sitting unsown."

Might there be demographic implications in the US economic data and outlook? A couple of current posts in The Wall Street Journal's Real Time Economics blog leave one to wonder if a "baby bust" may be developing. First, stagnant wages are limiting consumer spending; since October 2010, real wages have declined 1.2%, and consumers have limited capacity to tap their already tapped-out credit card lines to propel domestic spending. Secondly, RTE reports that the Conference Board has looked into the future of housing and seen a wave of renting and downsizing; actually, that sounds like the present if you add living at home with the parents. It all adds up to less room for the pitter-pattering of little feet, and less money to keep them in baby booties, in the foreseeable future.

Student Loan Bubble

When Millicent borrowed for college, she
Was taken aback by the knowledge she
Could have them remit
As much for French Lit
As for Health Information Technology.

The Wall Street Journal's Real Time Economics reports that surging federal student loans are confounding the general trend of consumer debt reduction. Thanks to our highly leveraged collegians, overall consumer debt increased by $18 billion (+0.7%) in January. As Dr. Goose and many others have warned previously, the rise in student debt, coupled with rising unemployment among young people, is an explosive trend. One step that could deflate this student loan bubble would be to introduce some form of credit underwriting to the process. Linking the availability of loans to the likelihood of a program of study to produce employable skills would help to restrain excess lending and direct young people into viable careers.

More Thrift Is A Gift

When economists found more frugality,
They hoped it was no abnormality,
As the habit of saving
Is useful in paving
The road to financial reality.

Countering the notion that more US consumer spending is unambiguously good for the economy, The Wall Street Journal's Real-Time Economics blog asserts: "For the U.S. recovery to last, savings are just as important as spending." RTE has been hopefully following a recent development in the data on incomes, spending and saving, whereby, for the last three months, rising incomes have not led to rising spending. The 5% savings rate of the last two years has been holding fairly steady, in contrast to the 3.1% average savings rate of the previous ten go-go years. That's a good thing because, as RTE notes: "It’s been long known that baby boomers need to save more now to have spending money during their retirements–an imperative that may increase if social security benefits are altered."

For those looking to boost their own personal savings rate, the Marketplace Money website is a good place for information and advice.

The Too-Quiet Markets

The US is counting the days away
From default, which we surely hope stays away,
But the markets' reaction
Shows great satisfaction
Catastrophe's still quite a ways away.

Confounding the expectations of financial journalists, the international financial markets remained calm with less than a week to go before August 2, understood by all as the date on which the US Treasury could no longer pay its bills without an increase in the federal debt ceiling. Like Sherlock Holmes investigating the case of the dog that didn't bark, the Wall Street Journal contacted fixed income portfolio managers to explain this odd silence. The general answer seems to be an expectation that the immediate problem of the debt ceiling can and will be solved quickly, even if the larger problem of deficits may be thornier.

* * *

Is there a limerick writer in you waiting to get out? Dr. Goose will appear on Marketplace Money with Tess Vigeland this weekend, and they would like your debt ceiling limericks to add to the fun! You can post them on the Marketplace Money Facebook page, or tweet them to @radiotess.

It Isn't a SNAP

An American family who,
On a pittance, must try to make do,
Turns to fed'ral assistance
To get their subsistence,
As one out of seven do, too.

The Wall Street Journal's Real Time Economics reports that the proportion of the US population receiving food stamps has stabilized (if that's the word for it) at 14.3%. The USDA's Supplemental Nutritional Assistance Program , or SNAP, helps poor Americans - for example, a family of four with gross annual income of less than $28,700 - get basic nutrition. Almost two years after the "Great Recession" was declared over, a surprisingly large number remain in the qualifying pool.

How Stimulating

Said a team from the N.B.E.R.,
On how rousing our stimuli are:
"You should give to the poor
If you want to insure
That your stimulus dollars go far."

The National Bureau of Economic Research looked into the effectiveness of federal stimulus spending.  This is an inherently ambiguous line of inquiry, given that one asks how the results have differed from a hypothetical case in which the government did nothing.  According to Real Time Economics, the NBER compared states that did or did not request stimulus dollars and determined that, while aid to states to retain public employees made no improvement on overall employment, aid to low-income families had a significantly stimulative effect.

Fed Foments Revolution?

Said conspiracy theorists: "Debatably,  
That the cost of food acted inflatably  
Brought Egyptians to crisis,  
But started when prices  
Were eased by the Fed quantitatively."    


The Wall Street Journal's Real Time Economics reports on a speech yesterday by Fed Chairman Ben Bernanke, in which he said that it's unfair to blame global food inflation (and by extension, political unrest) on US monetary policy.  Recent spikes in the prices of such commodities as wheat, soy and sugar are due to supply constraints such as bad weather, and increased demand from increasingly prosperous emerging markets, says Bernanke.

Too Big to Save?

Those banks that were too big to founder
Have grown bigger without growing sounder;
So, what to do then,
If they founder again,
As sooner or later they're bound ter?  

The top five US banks now comprise 13.3% of the nation's financial firms' assets, as Real Time Economics points out in its Number of the Week. This is up from 11.8% in 2007, when Bank of America, JP Morgan Chase, Citi, Wells Fargo and Goldman Sachs were all considered too big to fail. In a comment echoed by MIT economist Simon Johnson, RTE's Mark Whitehouse wonders if these banks, in comparison with the federal government's strapped resources, are now too big to save.

Deleveraging or Defaulting?

US consumer debts' lightening
Has been thought to result from belts' tightening,
But those falling exposures
Have tracked loan foreclosures,
Which leads to conclusions more frightening. 


Thanks to Mark Whitehouse of the Wall Street Journal's Real Time Economics for his timely analysis of an uncomfortable truth.

Mr. Hoenig's FOMC Dissent

"I've said at each meeting I've been to,
We should hike rates to one point and then two;
If recession resumes
Now there's no wiggle room
In this corner you've painted us into."

Employers Pay More, Workers Get Less

At the Labor Department they noted,
"Compensation expenses are bloated."
Replied Commerce to that,
"Workers' wages are flat."
...And Aetna declined to be quoted.

Thanks to Real Time Economics, for keeping it real.

Happiness is Just Around the Corner

An economist wanted to teach
What the prophets purported to preach:
With material gains,
Satisfaction remains
Elusively just out of reach.

Thanks to Real Time Economics, for illuminating the economics of happiness through the work of Prof. Richard Easterlin.

A Shameless Plug

Real Time Economics converses
In topics that speak to our purses, 
But they’ll kick up their heels 
With a few Irish reels, 
And a couple of Keynesian verses.

Thank you, Phil Izzo, and all your colleagues at Real Time Economics, for appreciating the limericks (when you're not on the clock, of course)!