FRN Columnists'Corner - "The Recession's Growing Credibility Gap" by JohnHuang2

Free Republic Network ^ | 8-18-03 | JohnHuang2

[Bob J]

FRN Columnists' Corner

"The Recession's Growing Credibility Gap"

by JohnHuang2

For Democrats, especially '04 wannabes, a once promising recession appears increasingly mired in quagmire. Deepening quagmire. By almost every key measure, from rising personal income to falling weekly initial jobless claims, the recession is struggling badly.

Democrat campaign strategists had hoped the recession would be a 1-termer lasting all 4 years of Bush's tenure, then resigning from public service in January, 2005 as a new Democrat president gets sworn in. This is the rosey scenario, or cakewalk theory. The hope was that the recession would unseat Bush as it did his father back in '92. Hardline Democrats, the Howard Dean wing of the party, see this recession as recession-lite, and there is no way it can beat Bush by trying to be recession-lite, they argue. Dean proposes disarming the economy — repeal of the Bush tax cuts across-the-board, turning recession-lite into real recession. Less hardline factions, led by Sen. Joe Lieberman of Connecticut, argue that, to increase the recession's appeal among more moderate swing voters and peel them away from Bush, recession-lite is the only way to go. He notes the recession that undid Bush's father was, for all intents and purposes, recession-lite, too.

Although the recession had remained remarkably popular with Democrats since taking office in January 2001, there are growing signs of trouble. Among Democrats, the recession had once commanded towering 100% approval ratings in its handling of the economy, but no more. Recent polls show rising doubts on the recession's credibility as an almost daily barrage of bullish news on the economy, from Wall Street to Main Street, takes its toll. Everyday, it seems gloomy news of an accelerating economy pummels the recession. Some Democrats wonder if the recession had exaggerated evidence of its existence, or of the imminent threat it posed on the Bush administration. The slide in confidence in the recession and rising disapproval of its performance among Democrats likely will only grow worse, if recent economic signs are any harbinger.

Among the slew of worrisome signals fueling growing doubts over the recession's credibility: The latest government report on second quarter GDP (Gross Domestic Product) shows a better-than-expected 2.4% annual growth rate, despite the war in Iraq and terror jitters, with analysts expecting 4%-5% growth for the second half. Not only is consumer spending sizzling, business investment whose anemic performance had been a big drag on the economy since the dot-com collapse, is gaining momentum as well. The surge in business spending is, like the stock market rally, a leading indicator as it presages future hiring, pushing the key unemployment rate down. The housing boom is still booming, despite the recent jump in interest rates (prompted by an accelerating economy), the service sector soared in July, the Institute for Supply Management's key index rocketing to 65.1 percent, up from an already bullish 60.6 in June. The sizzling July figure was the sizzle-ing-est since the survey began exactly 6 years ago, and presages 6% GDP growth for the 3rd quarter. Factory orders in June jumped 1.7% — better than expected, propelled by soaring durable goods orders, the index's 3rd increase these past 4 months. Productivity jumped a 5.7 percent annualized rate for the 2nd quarter, while initial jobless claims dropped below the benchmark 400k/week for the first time in 6 months for the week ending August 2.

Amid the recession's increasingly sluggish performance, the growing frustration has driven Democrats to ask, 'who lost the recession?' Or was the recession distracted by coverage of Kobe Bryant, Scott Peterson and the California recall election? Did the recession mislead us into thinking this would all be a cakewalk? Did the recession willfully exaggerate its capabilities? If the tax cuts undermined the recession's momentum, why not repeal them all?

These are just some of the questions Democrats are increasingly asking themselves these days.

Anyway, that's... My two cents... "JohnHuang2"

© 2003 JohnHuang2 All rights reserved.

[AntiGuv]

In the first quarter of 2002, GDP grew at a rate of 5.0%, followed by similarly impressive 4.0% growth in the third quarter of 2002. We see how much of an impact that made toward the overall vigor of the economy.

There are always reasons for optimism during a cyclical bull phase of any secular bear market. Here's a reason for pessimism:

Secular Bear Markets			Secular Bull Markets
Period	Duration	Annual Real Return	Period	Duration	Annual Real Return
1802-1815	13	+2.8%	1815-1835	20	+9.6%
1835-1843	8	-1.1%	1843-1853	10	+12.5%
1853-1861	8	-2.8%	1861-1881	20	+11.5%
1881-1896	15	+3.7%	1896-1906	10	+11.5%
1906-1921	15	-1.9%	1921-1929	8	+24.8%
1929-1949	20	+1.2%	1949-1966	17	+14.1%
1966-1982	16	-1.5%	1982-2000	18	+14.8%
Overall	95	+0.3%	Overall	103	+13.2%

[harpseal]

John

First you know me and I know you so please understand this is not a personal attack. Economists generally recognize that the recession ended in Nov 2001. However since then there has been a major decrease in employment and the observation has been made that many of these jobs will not be returning to the USA.

In order to be certain that the Democrats can not bring this issue up it is necessary for Republicans to address the underlying structuralproblems in the economy. Bush tax cuts have helped and seriously led yto teh end of the recession and what recoveryy we have experienced but he needs to do more


In no particular order of importance.

1. Get rid of government subsidies for offshore investment of US companies. OPIC is the first such program which should go but support of World Bank programs that subsidize the outflow of Capital would be another.

2. Use tariffs on those nations which are engaged in unfair trade practices such as currency manipulation (China and India for example), those nations which refuse to open their markets to US products (China for example with its 50% tariffs on US consumer goods and non tariff barriers), those nations that subsidize competition to American Industry (airbus for example) and those nations which have slave conditions for their workers.

3. Use tariffs and other means to prevent the relocation of jobs offshore that are essential to the national defense. If necessary take control of the company seeking to export vital technology or industry by means of eminent domain (No I do not like this last option and I will only defend its use as an absolute last resort like say in the case of rare earth magnets essential to smart bomb technology).

4. An immediate end to guest worker programs. If people wish to come to the USA to work and make a life let them immigrate according to the rules.

5 Provide economic development zones where the corporate income tax is zero for operations within these zones. In order to operate in this zone a company must agree to only purchase American components if available and employ only American citizens or legal immigrants in these operations. These economic development zones shall be eventually be expanded to include every bit of every state once the benefits are shown I would like them to be totally implemented immediately but I realize4 that may be overreaching.

6. Scale back unnecessary regulation including the tort system. Institute a cap on punitive damages, limits on class action suits, and limits on liability to the actual percentage of liability with no plaintiff able to collect if said plaintiff was involved in the commission of a felony at the time of the alleged tort or was more than 49% negligent in the alleged tort. Note that the loser in a frivolous lawsuit shall pay the attorney fees of the winner. There are many other regulatory structures that also need to be included that need to be included such as repealing the Family leave mandate, getting rid of OSHA etc.

7. Increase the domestic content in purchases by the Department of defense and give absolute preference in non-domestic content to proven allies of the USA over say the French or Germans. The only reason any content for DOD purchase may come from non US allies is that content is not available elsewhere and is essential.

8. Do not allow expense involved in moving operations overseas to be included in business expenses under the IRS code.

9. Prosecute for perjury anyone who has made a false statement in order to employ an H1B or L1 visa worker. I will be lenient on the actual perjurer if he/she was ordered to make this false statement and he/she provides testimony to aid in the conviction of the person ordering the perjury. Just because a person is a CEO does not give them a pass on criminal behavior.

10. Prosecute anyone who orders the transfer of vital defense technology or funds a R&D project that could be of use to our military overseas except to strong allies of the USA. Make the necessary enhancements to our espionage laws so that continued support or funding of any R&D in a nation whose government has threatened the USA is guilty of espionage. The UK and Australia come to mind as meeting these criteria for being eligible for transfer of technology first. There will be other nations and a gradation of what can be transferred to which specific nation. Under no circumstances may technology be transferred to any nation whose government has threatened the USA within five years without a complete change of government or specific exemption from Congress and the administration.

11. Deport all illegal aliens immediately and take measures that prevent the entry of any more illegal aliens. Fine all companies knowingly employing illegal aliens Criminal sanctions should be imposed on anyone helping an illegal alien stay in the USA in violation of our laws.

12. Decrease the punishing levels of taxation on companies and eliminate the double taxation on corporate dividends. See effects of item 5 for how minimal this will be if item 5 covers the entire USA. Eliminate all IRS provisions that inhibit free use of independent contractors by businesses for example section 1706.

13. Eliminate the minimum wage so that the worker can be paid based on productivity. Overtime compensation will remain the same but instead of 150% of the "wage" the worker would receive 150% of the production pay. If one through 13 are enacted # 14 becomes an irrelevancy as no one will be working for that low a wage.

Now every point in this program is Conservative and based upon Consevative priciples including the works of Adam Smith, the views of Alexander Hamilton, The US Constitution and the experience of over two hundred years of American History.

[Lurker]

Good ideas all my friend.

Regards,

L

[Tokhtamish]

Absolutely right.

We have seen plenty of bear trap rallies over the past few years so there is no cause to break out the champagne. As the regular guy sees it, the recession is over when he gets a stable job. And he's right.

[BushCountry]

Every single day, there is more good news on the economy. The stock market will reach 10,000 easy by next Nov., unemployment will be down at least a 1/2 percentage point and you guys will still be pessimistic.

• GDP up and the most pessimistic prediction is growth over 4% next year.  Some predictions are over 6%.
• The pickup in business investment became evident last month when the Commerce Department reported that purchases of equipment and software rose at a 7.5 percent annual rate from April to June, the biggest quarterly increase in three years
• Spending on new plants, office buildings and other structures, businesses boosted this spending by 4.8 percent in the second quarter.
• Business equipment production, which includes transportation and information processing equipment, rose 0.4 percent in July, matching the June increase. Production of technology equipment, such as computers, communications gear and semiconductors, rose 0.8 percent last month after increasing 0.7 percent.
• A second report from the Federal Reserve offered a fresh sign that the industrial sector of the economy is on the mend. After being flat in June, production at the nation's factories, mines and utilities jumped by 0.5 percent in July, the biggest increase since January.
• "The economy is finally breaking out of its funk," said Stuart Hoffman, chief economist at PNC Financial Services Group. "July is the best month we've had in a long time. We're off to a strong start for the second half of this year."
• U.S. industrial production rose in July by the most in six months, paced by gains in autos, electronics and computers, and a jump in demand at utilities, a report from the Federal Reserve showed.
• Production at the nation's factories, mines and utilities increased 0.5 percent last month, the biggest gain since January, after an being unchanged in June, the Fed said in Washington.
• Automakers are producing more as demand improves. Cars and light trucks sold at a 17.3 million annual rate last month, the strongest performance of the year, separate industry statistics showed earlier this month.
• ``The threat of deflation has passed, and at worst what we are seeing is stabilization,'' said Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson Inc. in Chicago. ``As retail sales have picked up, all of a sudden it looks like some pricing power is returning.''
• Corporate profits have risen five straight quarters for Standard & Poor's 500 companies.
• The US service sector surprised experts with a fourth consecutive month of growth in July.
• Demand for U.S. manufactured goods rose at the sharpest rate in three months in June.
• CEOs saying they're worse off now than they were 6 months ago has dropped from 51% to 26%.
• Companies' unit labor costs, meanwhile, fell at a rate of 2.1 percent in the second quarter.
• The average forecast called for third-quarter U.S. gross domestic product to grow at a 3.7 percent annual rate.
• U.S. retail sales posted an unexpectedly strong advance in July, as spending on a broad array of items shot up, the government said on Wednesday in a report that bolstered hopes of a faster economic recovery.
• Inventories for the last couple of months are low.
• World air traffic is forecast to begin a gradual recovery next year, after three years of recession, holding out hope for an end to the worst financial crisis ever suffered by the global airline industry.
• Looking at gross domestic product, real goods production as a share of real (inflation-adjusted) GDP is close to its all-time high. In the first quarter of 2003 -- the latest data available -- real goods production was 39.2 percent of real GDP. The highest annual figure ever recorded was 40 percent in 2000.
• The University of Michigan's annual economic forecast revealed expectations for "robust" U.S. growth in the second half of 2003 and throughout 2004. Economists at the University believe accommodative interest rate policy from the Federal Reserve, coupled with expansionary federal tax policy and a string of upbeat data on consumer sentiment, retail sales and initial jobless, suggest a recovery is underway. The University of Michigan expects gross domestic product to increase 4 percent in the second half of 2003 and 4.5 percent next year.

[AntiGuv]

The stock market will reach 10,000 easy by next Nov., unemployment will be down at least a 1/2 percentage point and you guys will still be pessimistic.

Well, speaking just for myself, I've been forecasting for months that the Dow will peak around 10,000 by this November, before plunging down 20% or more to close out the year. Moreover, I predict a glorious rally after the probable January trough to last into the spring, before the Dow plunges again. Just because I understand the concept of secular bear markets doesn't mean I never expect to see another countertrend rally ever again...

The higher it climbs the harder it will fall.

[BushCountry]

10,000 this Nov is not gonna happen. LOL.

[AntiGuv]

BTW, the thread just above this one could not more closely resemble a contrarian signal of irrational exuberance. Not that one requires that thread to figure as much out, since sentiment indicators have been moving toward bullish extremes for weeks now - just as one would anticipate near a major downturn. Meanwhile, hedge & commercial traders who haven't been caught on the wrong side of a market move since 1998 [iirc] are moving toward net short positions in their futures commitment....

[harpseal]

Thank you.

I have gotten so I am pretty much involved in teh fight aginst unfair trade. You know me I see something wrong and I open my mouth do my home work and try to get the word out. This is just another aspect of the same battle we have been fighting for years on the other fronts.

[moneyrunner]

Thanks for posting Bob and congratulations as always to an excellent essay to JH2.

There are always people who don't want to take "yes" for an answer, who carry their own rain cloud with them and for whom the end is always near. I would hate to live day after day with that much pessimism.

Be of good cheer. We are winning, they are losing and we will prevail.

[AntiGuv]

We shall see, but if it doesn't happen by this Nov then it almost sure as heck won't happen by next Nov when it's more likely to be hitting 5000 than 10000... The next major downturn will be brutal when all this money that's been thrown into this bubblehype suddenly panics. The market's refused to correct itself this summer so it's not well-primed for another major rally. Actually, a number of indicators have been screaming crash recently so I would not be surprised if all the buyers have spent themselves a month or two early....

[harpseal]

Lat us hope you are right and still cover our butts on the trade front and overall anti-business climate that persists.

[BushCountry]

You are right, a lot business friendly legislation needs to be passed, along with more tax cuts. We disagree on the trade front, however we both agree that it needs to be a level playing field. I just don't think starting a trade war will accomplish our goal (I rather bomb their cheap labor factories to smitherings if our mission is to plunged the world into a deep depression, it is more fun!). We have to face the fact that we are in a world economy, if we hurt our trading partner's economies with draconian traiffs, everyone will suffer. Nobody wins.

[harpseal]

I just don't think starting a trade war will accomplish our goal (I rather bomb their cheap labor factories to smitherings if our mission is to plunged the world into a deep depression, it is more fun!).

China already has average 70% tariffs on American goods coming into China. talking about starting a trade war with them is sort of like some American on Christnmas 1941 taking about how he or she doesn't want to start a war with Japan.

We have to face the fact that we are in a world economy, if we hurt our trading partner's economies with draconian traiffs, everyone will suffer.

Well our trading partners have tariffs like 70% on American autombiles in some European nations. To me those pretty much fit as draconian measures being used against us. I am not in favor of unilateral disarmanet either particularly if we have already been atatcked.

Nobody wins.

Well given the current rule we operating under I do not think tariffs means nobody wins.

[RipSawyer]

"Every single day, there is more good news on the economy. The stock market will reach 10,000 easy by next Nov., unemployment will be down at least a 1/2 percentage point and you guys will still be pessimistic."

Down here in South Carolina it is not difficult to be pessimistic as I swelter in the humidity and read layoff and plant closing announcements. Generous pay reductions also make it easy to be gloomy. But hey, what the heck, Bush Country, I know we just need to look at all the great statistics and everything will be all better.
Seriously, I would like to believe that there is great cause for optimism but I have lived some and seen some and I think there are great structural changes underway that bode ill for some time to come before things really improve.

[BushCountry]

This post is not directed at you, but to all who are on the verge of quiting.

What can I say? Move, try something else, start a business, take life by the horns, take flippin charge of your life, but quit feeling sorry for yourself. The moment you accept defeat, the battle is lost. If you want to create optimism, do it in your life.

The country has been through this before, this isn't the worst economy in the history of mankind. Before our last recession, the US economy has suffered 10 recessions since the end of World War II, the last of which was in March 1991. The recession of 1991 was much worse. You should have been around for the 1980s one (Carter's). America is a strong and resilient nation, but it doesn't need people who give up hope and resign theirselves to failure.

Is moving an option? South Carolina sucks, but nationally the unemployment numbers have been going down for the last month, there are places in this country that are at full employment (under %2.5 unemployment).

In reply to people who say this is a jobless recovery, I have included an excerpt discussing the 1991 recession. Remenber in the 1990s we gained 20 Million jobs, it didn't start out that way though.

The first signs are visible, in retrospect, in the so-called "jobless recovery" of the early 1990s. Production and sales reached their troughs in March 1991, and thereafter began a clear recovery. The unemployment rate, however, kept rising. It rose by more than a full percentage point between the semi-official recession trough of March 1991 and the unemployment rate's peak at 7.6% in June of 1992.

[RipSawyer]

"What can I say? Move, try something else, start a business, take life by the horns, take flippin charge of your life, but quit feeling sorry for yourself. The moment you accept defeat, the battle is lost. If you want to create optimism, do it in your life."

All are possible avenues for the unemployed, I myself will stick to my current job where I am working overtime nearly every week. The pay is low but everything I own is paid for. The point of my post is that I simply do not see the evidence that things are going to improve tremendously in the immediate future. I really do hope I am wrong but I have been right too many times in the past when I would rather have been wrong.
And what do you mean by South Carolina sucks, anyway? Is that why the state is filling up with Yankees? Or am I confusing cause and effect?

[taxed2death]

"Every single day there is more good news for the economy..."

Yup, I'm glad to hear the good news aout paying $2.29 a gallon yesterday for gasoline.

Refinery production is maxed out. We could have a trillion BBLS of oil offshore in tankers and it wouldn't make a damned bit of difference.

[BushCountry]

I am done with these posts, I am going to let you guys wallow in your misery by yourselves. Have fun. };O)