NYC Letter: The Obama Economy, Part I

Day 161 of CHOPE

Q: When should we judge the stimulus package -- whether it's working or not?

Well, I think we should judge it, ah, we should begin to judge it now, ah...

Q: To judge it now?

Absolutely!

Robert Gibbs,
WH spokesperson, officially retiring the GWB economy
WASHINGTON June 29, 2009 (MSNBC/YouTube)

Finally! It's here. The Obama economy. [We briefly jubilate.] OK. Let's start judging.

JUNE FEDERAL RECEIPTS: THE DIVE CONTINUES,
AS DOES MEDIA NEAR SILENCE

June 30, 2009 (bizzyblog.com) - As we near the end of June, which is supposed to be one of the four biggest months for federal tax collections (January, April, and September are the others), it is clear that the serious receipts shortfalls are not only continuing, but have caused the March 20 projections of the administration and the Congressional Budget Office (CBO) outdated.

Federal tax receipts were down 34% this April compared to a year ago.

[A]s we approach the end of the month, June 2009 receipts from economic activity are down 25% from last year. It’s clear from last year’s results that it would be unreasonable to expect a high level of receipts from other than withholdings in the final two days of this year.

Detailed analysis worth the full read.

GLOOMY U.S. CONSUMERS CLIP HOUSING RECOVERY HOPES

WASHINGTON June 30, 2009 (Reuters) - U.S. consumer confidence took an unexpectedly steep slide in June, figures released on Tuesday showed, suggesting the 18-month-long recession had yet to loosen its grip on the economy.

... Major stock market indexes fell after the Conference Board's consumer confidence index showed households felt gloomier about their current situation and less optimistic about what the coming months might bring.

HOUSING IN PERIL AS OBAMA FAILS TO GET BREAKTHROUGH

June 29, 2009 (Bloomberg) - Four months after President Barack Obama pledged $275 billion to shore up home sales, the engine that powered every U.S. recovery since 1960 is stalled. Bankers’ reluctance to finance buyers who won’t live in properties is one barrier to a turnaround. Stricter qualifying rules and a rise in the cost of residential loans to 5.42 percent have impeded new mortgage lending, which is at a 13-year low. An inventory of 2.1 million unoccupied houses on the market, created by the fastest foreclosure pace in history, may be a drag on a revival.

The $8,000 first-time homebuyer tax credit in the U.S. economic stimulus package and a government program to subsidize some mortgage payments have had little effect, according to Eric Belsky, executive director of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts.

... Existing U.S. home sales in May rose 2.4 percent to an annual rate of 4.77 million, lower than forecast, and the median price was down 16.8 percent from the same month in 2008, according to the Chicago-based National Realtors Association.

There’s little chance the turnover will increase enough this year to end the housing recession, said Andres Carbacho- Burgos, an economist with Moody’s Economy.com in West Chester, Pennsylvania.

Housing typically leads American recoveries.

RECORD UNEMPLOYMENT RATES IN EIGHT STATES

June 19, 2009 (calculatedriskblog.com) - From the BLS: Regional and State Employment and Unemployment Summary

Michigan again reported the highest jobless rate, 14.1 percent in May. The states with the next highest rates were Oregon, 12.4 percent; Rhode Island and South Carolina, 12.1 percent each; California, 11.5 percent; Nevada, 11.3 percent; and North Carolina, 11.1 percent. Six additional states and the District of Columbia recorded unemployment rates of at least 10.0 percent. The California, Nevada, North Carolina, Oregon, Rhode Island, and South Carolina rates were the highest on record for those states. Florida, at 10.2 percent, and Georgia, at 9.7 percent, also posted series highs.

Many news media skip the lack of improvement and dress up Mr. Obama's economy with upbeat headlines declaring declines less than the running forecasts. But, gentle skimmer, the running forecasts long ago surpassed the working forecasts used to sell the stimulus.

A FORECAST WITH HOPE BUILT IN

WASHINGTON June 30, 2009 (NYT) - In the weeks just before President Obama took office, his economic advisers made a mistake. They got a little carried away with hope.

To make the case for a big stimulus package, they released their economic forecast for the next few years. Without the stimulus, they saw the unemployment rate — then 7.2 percent — rising above 8 percent in 2009 and peaking at 9 percent next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year.

We now know that this forecast was terribly optimistic. The jobless rate has already reached 9.4 percent. On Thursday, the Labor Department will announce the latest number, for June, and forecasters are expecting it to rise further. In concrete terms, the difference between the situation that the Obama advisers predicted and the one that has come to pass is about 2.5 million jobs.

... There are two possible explanations that the administration was so wrong. ... The first explanation is that the economy has deteriorated because the stimulus package failed. Some critics say that stimulus just doesn’t work, while others argue that this particular package was too small or too badly constructed to make a difference. ... The second answer is that the economy has deteriorated in spite of the stimulus.

... It’s not fair to expect Mr. Obama’s economists to be clairvoyant. But they did make one avoidable mistake that led directly to their overoptimism. They relied on the same forecasting models that had completely failed to see the crisis coming.

Amidst all the bad news, not everyone is cheerless.

ROMER UPBEAT ON US ECONOMY

June 28, 2009 (FT) - The US economy will feel a substantial boost from the Obama administration’s emergency spending package over the next few months, says Christina Romer, a senior White House official, who has warned against tightening monetary and fiscal policy before recovery is well established.

Not to put too fine a point on this, but we expected something more from $787B of "emergency" spending than a 3-6 or 9-month downstream boost. Ms. Romer's lagging boost just happens to coincide with consensus opinion on a non-stimulus recovery. [Pause.] Damnedest thing.

Ms Romer, chairman of the US president’s council of econ­omic advisers, told the Financial Times in an interview she was “more optimistic” that the economy was close to stabilisation.

Ms Romer said stimulus spending was “going to ramp up strongly through the summer and the fall”.

Oh, good. Another "ramp-up" promise from Team Barry.

“We always knew we were not going to get all that much fiscal impact during the first five to six months. The big impact starts to hit from about now onwards,” she said.

Apparently Ms. Romer was only fooling back in January when she published the administration's stimulus expectations captured in the chart below.

FIGURE 1 (A)
[Graphic Source: Job Impact Of The American Recovery
And Reinvestment Plan, January 9, 2009]

That didn't pan out. Not only did Team Barry completely guess wrong on the stimulus, they spectacularly guessed wrong on the recession itself.

FIGURE 1 (B)

Ms. Romer:

I still hold out hope it will be a V-shaped recovery. It might not be the most likely scenario but it is not as unlikely as many people think.

For Team Barry CHOPE springs eternal.

CHOPE.

The Obama economy. Not what you were told. Not what you were sold.

Posted by Damian at June 30, 2009 11:45 PM