Tuesday, May 31, 2011

It's Still the Economy, Stupid!

So today, we got another slew of economic indicators showing the economy continues to be on the skids.  And you thought 1.8% GDP growth in the first quarter was bad:

  • The Dallas Fed Texas Manufacturing Survey index for business activity fell from 10.5 in April to -7.4 in May.  The worst part was that expectations were for a positive 8.5.
  • The Chicago Purchasing Managers Index (PMI) Business Barometer fell from 67.6 in April to 56.6 in May, the biggest monthly drop since Lehman went bankrupt.  Once again, this is much worse than expectations of 62.
  • S&P/Cash-Shiller Home Price Indices hit a recession low in March.  The National Home Price Index fell 4.2% in the first quarter after falling 3.6% in the fourth.  Nationally, home prices are down to levels not seen since mid-2002.  Also, there is only one metro area seeing positive home price trends, Washington, DC.  Now how is Washington different from all other areas?  Oh yeah, incomes there are more tied to government and government spending than anywhere else. 
  • The Conference Board Consume Confidence Index also declined more than expected dropping to 60.8 from 66 in April.  Just so you know, this is an index where the value for 1985, the base year, was 100. 
And that was just today!  Late last week we had pending home sales, a leading indicator of actual completed sales, which fell 11.6% in April, compared to March and fell 26.5% compared to April 2010.  And spring is supposed to be the busy season for realtors!  Looks like the homebuying tax credit, just like cash for clunkers, did nothing but accelerate the timing of purchases, not actually spur purchases that would not otherwise happen.  Things are getting so bad that even the New York Times is saying something despite the fact that there is nothing the White House would like more than to have everyone ignore the numbers.  The Times even said "no one in Washington is pushing policies to promote stronger growth now".  Not that the Times actually provides any real solutions either.  They suggest easier rules to refinance mortgages backed by Fannie Mae and Freddie Mac.  From what I can tell, the only people having problems refinancing right now are people who either are currently underwater or just can't justify having as high a mortgage as they need with the income they have.  How exactly would the Times like to fix that?  That should be a hoot.  And, of course, the Times wants the Federal Reserve to keep doing what they are doing for as long as possible.  As if the inflationary monetization of the debt and devaluing the dollar which is sending commodities spiraling have been complete victories.  There is no such thing as a free lunch and the longer the Fed maintains its current policies the greater the pain later on.  It wasn't that long ago that Paul Volcker had to increase interest rates to 20% to combat inflation and in an already weak stagflationary economy!

It would be nice if our President could get out of campaign mode and actually think about some pro-growth policies that don't just mean public sector growth.  First, he should cancel Obamacare, which is already increasing costs for most consumers and increasing the cost of hiring new workers thanks to premiums that started to spiral out of control once Obama "reformed" the health insurance market by no longer allowing pre-existing condition exclusions.  Perhaps announce a moratorium on new regulations and a full review of existing regulations to figure out which ones are actually needed and which are just increasing costs for businesses and depressing their ability to hire.  The current weak dollar policy creates an incentive for US companies to invest overseas and a disincentive for foreign companies to invest here, how about reversing that?  And this is just the tip of the iceberg of what he should do...

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