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Wednesday, November 3, 2010

The Economy - Good News - Bad News

In my ongoing feature about the state of the economy I thought today I would take a slight change.  Often I have reported on stories which may be perceived as positive or negative.  Problem is, no one seems to know for sure which direction we are headed.  So today I report some good news and some, shall we say, less than positive news from some of my favorite blogs.

Calculated Risk - Headlines from today:
  • General Motors: October U.S. sales increase year-over-year
  • ISM non-Manufacturing Index increases in October
  • ADP: Private Employment increases by 43,000 in October

The one note that I add to the good news from Calculated Risk is the caveat they include regarding employment:
Since employment began rising in February, the monthly gain has averaged 34,000 with a range of -2,000 to +65,000 during the period. October’s figure is within this recent range and is consistent with the deceleration of economic growth that occurred in the spring. Employment gains of this magnitude are not sufficient to lower the unemployment rate.

Mish's Global Economic Analysis - "Economic Conditions Deteriorating":

Unfortunately, but not unexpectedly, things are getting worse since mid-summer.
Adding to the housing misery, over 2 million unemployed workers will lose benefits starting November 30 unless Congress acts to extend benefits in the lame-duck session. Don't count on it.
Furthermore, gallup surveys point to a flat Christmas season at best, so seasonal hiring may not be as good as expected. Finally, stimulus money is spent and there is no driver for jobs with inventory replenishment nearing the end.
These factors will put still more pressure on delinquent loans and foreclosures, which in turn will further pressure prices.
The housing bottom may be a lot further off than most think, in terms of time and price.
Without offering anyone advice (I am no investment advisor), it seems that housing is certainly headed for a double-dip.  As long as unemployment continues at around this level and other economic forces remain tight, housing will suffer.

It also seems like the economy is heading into some strong headwinds.  And - and this is a big AND - the election of Republicans on a low government, less spending agenda, while it may be great for the Country in the long term, will put strong downward pressure on any current economic recovery.  Millions are scheduled to loose their unemployment insurance; we can expect no further stimulus spending; and, expect the Federal Reserve to be under increased pressure.  Those all are ingredients for a slower economy.  You may ask what about extending the Bush Tax Cuts?  Those tax cuts will have a marginal benefit on the middle class (yes they will have a little more money to spend), but it will give the rich a bunch more disposable income to spend at Tiffany's and Gucci. 

On a more cynical note:
How is it possible that consumer spending is back and the economy is nearly fully recovered while unemployment hovers around 10%, foreclosures are mounting, poverty has reached a 15-year high and great parts of the public are struggling with debt? Because the richest 5% account for 37% of all consumer spending. Sorry, but most of the American public simply don't matter.

To the victor goes the spoils.  Buy Tiffany's stock?

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