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GDP Growth Slowing

By Big Tent Democrat, Section Economy
Posted on Fri Jul 30, 2010 at 12:15:49 PM EST
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NYTimes:

The United States economy expanded at an annual rate of 2.4 percent in the second quarter, after expanding a revised 3.7 percent in the previous three months, the Commerce Department reported on Friday. [. . .] Growth in consumer spending, which is usually a leading indicator of a recovery in part because it accounts for such a large share of the economy, has been leveling off. It grew at an annual rate of 1.6 percent in the second quarter, after an annual increase of 1.9 percent in the previous quarter.

The economy is in serious trouble. Will the Beltway wake up to this fact? The Fed seems to be waking up, but what about the President and the Congress? Can you spell double-dip?

Speaking for me only

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    GDP Growth Slowing | 33 comments (33 topical)

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    Article in the Sentinel this am (5.00 / 2) (#1)
    by ruffian on Fri Jul 30, 2010 at 12:29:25 PM EST
    about the coming second dip in local home values.

    The foreclosure crisis is not nearly over. Consumer spending is not going to recover until people are secure in their housing - either not about to lose it, or not about to lose their shirts if they sell their house. No one wants to admit that because at some point it means forcing the banks to renogotiate principal on millions of loans. Really bad tasting medicine, but it is what the patient needs.

    That makes sense (5.00 / 1) (#2)
    by MKS on Fri Jul 30, 2010 at 12:40:09 PM EST
    Consumer spending is still down because people are not secure in their homes.....

    That is probably the best explanation....

    The Greek debt crisis, and the Gulf spill weirding people out, didn't help.

    Foreclousres are up and mortgage rates are now in the 4% range....

    Parent

    If our leaders... (5.00 / 2) (#11)
    by kdog on Fri Jul 30, 2010 at 01:28:24 PM EST
    won't force their banker buddies to renegotiate, we could do it ourselves with a little organizing and agressive negotiating.

    Everybody stop paying their mortgages until the banks renegotiate back to reality...there simply aren't enough sheriffs to evict everybody. A couple months of no receivables and the banks will get real right quick.

    Parent

    Your point is well taken, but (none / 0) (#3)
    by Pegasus on Fri Jul 30, 2010 at 12:41:45 PM EST
    it goes beyond just housing.  There's been IMO a massive psychological shift in how households view consumer debt in general.  Until people get their own fiscal houses in order, it's hard to expect a major rebound in consumer spending.  Without that driver of economic growth, where does it come from?  Our trade partners aren't in any better shape than we are.

    The only silver lining I've seen from Q2 is that imports are at their highest level since 1984.  That doesn't LOOK like a silver lining in its own right, but since it appears to be largely caused by high capital investment by businesses, I take it as at least slightly encouraging.  Very slightly.

    Parent

    I think it's all related (5.00 / 2) (#12)
    by ruffian on Fri Jul 30, 2010 at 01:49:14 PM EST
    People have to reconsider the way they look at consumer debt, or consumer spending at all, when the safety net of their home equity is removed. If your fallback position was always, 'well, if I lose my job I'll sell my house', and now you can't do that, you are not going to risk your ready cash. And you certainly rethink any purchases for home improvements.

    Parent
    Stop it ruffian, you make too much sense (5.00 / 1) (#13)
    by Slado on Fri Jul 30, 2010 at 02:11:00 PM EST
    The country is broke.  The government, businesses, the banks, cities, states, home owners, renters, everyone.

    We've established a level of existence that is unsustainable.

    The kind of economy that BTD and others are asking the government to generate is impossible.   The longer we keep trying the deeper and deeper in debt we collectively will become.

    After reading "The Big Short" I am convinced that the economy we all grew accustomed to starting in the 1980's was a mirage.  We ran up our standard of living on the good name of American society and the dollar and now the rent is due.   The rest of the world has caught on and we are the last ones to realize that the good old days are over.

    Unfortunately the response of this administration and the last one was to keep trying the idiotic monetary and fiscal policies that created this mess.  More cheap money and more government spending.  

    BTD and the Krugmans of the world think we can turn this economy around simply by asking our government and the American people to become more in debt.  If we just borrow or print enough money we'll create a new bubble and we can all go back to pretending that a consumer only economy is sustainable.  How's that going to work?

    Americans are tapped out.  We have no more money.  We have no excuse to borrow more and a World War isn't coming along anytime soon that will take out our economic rivals.  

    Unless we start producing new ideas and new products (and the green fantasy isn't enough) the economy is not going to grow large enough to afford our inflated standard of living.

    The economy is trying to contract and our fearless leaders are attempting every trick in economic handbook to keep it from doing what it would otherwise do.

    Come back to earth.

    Think of all the things Bush and Obama have done since 2008.   BTD would argue that if they'd just spent more money the economy would be growing.  I look at it the other way.  All the stimulus, rate cuts, handouts, extra spending etc... and all we have to show for it is 2.4% GDP growth.    

    Something isn't working.

    Parent

    thanks...but no one wants (5.00 / 1) (#21)
    by ruffian on Fri Jul 30, 2010 at 03:46:56 PM EST
    the economy to be built on unsustainable consumer debt. In moderation, it does provide a certain level of stable demand though, there is no doubt about it.

    Demand would come back reasonably well if real unemployment levels were not in the teens.  I have no issue with government going more into debt putting people to work to prime the demand pump.

    But I do believe it will not come back to anything approaching the 90's level as long as so many people are underwater on their mortgages. Situations caused by bad housing investments are just as much the fault of the banks as the homedebtors, and I think the banks should have to share the pain in a HOLC-like program of principle reduction.

    Parent

    A few points: (5.00 / 3) (#25)
    by my opinion on Fri Jul 30, 2010 at 03:59:39 PM EST
    1. Our federal government can't go broke.
    2. Federal debt is not like personal debt.
    3. The "stimulus" was not successful due to being too small and not being properly focused. This was known at the time.
    4. Americans are not as a whole broke. The problem is that the rich are doing better than ever at the expense of all others. So there is plenty of money if those that have benefited so greatly on the backs of our people and society pay to save that society.


    Parent
    BTD has asked for HOLC (none / 0) (#14)
    by Militarytracy on Fri Jul 30, 2010 at 02:18:08 PM EST
    BTD has asked for the banks to be taken over and the depositors honored.  I don't think you understand what it is that he has asked for, and things still would not be perfect but economic vitality would have been preserved.  We would not be looking at a lost decade.

    Parent
    New ideas and new products... (none / 0) (#16)
    by kdog on Fri Jul 30, 2010 at 02:36:11 PM EST
    it certainly isn't a cure-all (there is no cure-all), but how about a "new" old idea and product...marijuana and her brother industrial hemp.  Huge potential to create new legit market business and make some cash.

    I mean just look at all the sectors...medicine, recreation, tourism, food, clothing, paper, fuel...just to name a few.

    The only downside I see is really no downside at all...loss of jobs in the tyranny sector.

    Parent

    There are all sorts of places for fresh (none / 0) (#17)
    by Militarytracy on Fri Jul 30, 2010 at 02:57:08 PM EST
    economy to grow, but the way the White House has gone about it all, trying to protect those who sold the "Big Short", it is only bleeding the middle class dry.  If the middle class has some dollars it will search to have needs fulfilled.  It will fuel new economies.

    Many of the ideas still being played though involve bleeding the middle class though, to include the notion that entitlements need to be scaled back in order to continue to service the "Big Short".

    The idea about how to deal with the banks is to allow them to earn their way out of this.  But everyone has been shorted, so allowing them to rape consumers so they don't have to be declared insolvent only bleeds the last bit of precious energy and resources out of the middle class.  It will take years for the middle class to gain new resources to purchase new economic growth with using the equations being used.

    Parent

    If you cut spending (none / 0) (#19)
    by MKS on Fri Jul 30, 2010 at 03:17:24 PM EST
    you would make it worse....

    It is easy to say that we all should just get used to a lesser standard of living and stop borrowing, etc.

    That kind of thinking would result in a Depression with much higher unemployment, probably rivaling the 25% of the Great Depression.....

    2.4% GDP growth is not bad.  It is better than negative growth.  The concern is not with 2.4% GDP, it is that it might slow to a negative number.

    Your views were echoed in 1937 when those concerned with too much federal spending won the day.  The Federal government cut back its spending and umemployment went way (back) up.  FDR then pressed the gas and unemployment went back down.  We did not come out of the Great Depression until spending went way up in WWII.  We apparently do not have the political will to have such spending short of war....

    But we can at least not make the situation worse by contracting spending now.

    Even Reagan was a Keynesian--he increased military spending and cut taxes--a fiscal stimulus.

    Cutting spending is the way off of the cliff.....If we had trouble with inflation, then perhaps you might have a point.  But we have more of a risk right now with deflation.

    I do not agree with your view of spending.  The deficit is not causing the current mess.  It is a lack of consumer demand--the classic problem that Keynes struggled with.

    Parent

    Whose economy? (5.00 / 3) (#6)
    by BDB on Fri Jul 30, 2010 at 12:54:30 PM EST
    Corporate profits are way up.  That's about all our political class and their masters care about.  That was pretty clear when they bailed out the banks and did nothing for home owners.  So long as they can cut and offshore their way to profit and donate to the political parties, who cares if a bunch of lazy losers are out of work?

    Unless and until people realize being a citizen means more than pulling a lever for some corporatist politician, nobody is going to do anything for the people (and even then, I'm not so sure).  For the most part, people are going to be on their own.  The Government won't help them.  In many cases, as with the impending social security cuts, it will actually hurt them.

    CRE is the next shoe to drop (5.00 / 1) (#8)
    by BTAL on Fri Jul 30, 2010 at 01:06:43 PM EST
    From 2005-2007/8 CRE bubbled just like residential RE.  The same valuation drops have impacted CRE.

    The big coming problem is that CRE loans are normally 10/30 (payments amortized for 30 years with a term/balloon at the 10 year mark).  There are a vast number that are 5/30.  The banks and the businesses are massively underwater.  Unlike residential, the amounts per loan are multi-millions.

    Look for the number of vacant shopping centers, warehouses, etc. to skyrocket.

    Many of the new ones are vacant (none / 0) (#9)
    by Militarytracy on Fri Jul 30, 2010 at 01:11:56 PM EST
    here now.  New businesses can't afford the rent, particularly in this economy.  It does seem like a few were built simply to build them too...as if if they built them the business would come.  Unmaintained buildings in the deep South deteriorate very quickly too.

    Parent
    Correct (none / 0) (#10)
    by BTAL on Fri Jul 30, 2010 at 01:26:45 PM EST
    there was just as much speculation in CRE as residential "flippers".  

    Parent
    Not sure about that (none / 0) (#18)
    by MKS on Fri Jul 30, 2010 at 03:03:19 PM EST
    The bubble was primarily in residential real estate.

    A bigger bubble in commerical real estate occurred in the early 90s--where you had the S&Ls lending money for the most improbable projects.  There is a downturn now in commerical real estate but not on the scale of the early 90s.....

    Commerical loans are not sold as often as residential loans, so you have less speculation.  The originating lenders often (usually) keep the loans, so the care-free environment of the residential market does not come into play as much.

    The commerical real estate market is suffering the collateral damage from the recession.  I'm not so sure it is an anchor so much as a barometer....If the overall economy improves, commercial real estate will survive....  

    Parent

    2007 was the peak (none / 0) (#20)
    by BTAL on Fri Jul 30, 2010 at 03:27:49 PM EST
    Even the much adored Elizabeth Warren concurs.

    From a HuffPost article:

    Over the next five years, about $1.4 trillion in commercial real estate loans will reach the end of their terms and require new financing. Nearly half are "underwater," meaning the borrower owes more than the property is worth. Commercial property values have fallen more than 40 percent nationally since their 2007 peak. Vacancy rates are up and rents are down, further driving down the value of these properties.

    A simple Google of "commerical real estate bubble" immediately gives you at least 3 pages of 2010 articles from a myriad of sources and perspectives.

    This one even describes how it is significantly larger and more dangerous than the SubPrime bubble.

    Parent

    Coming due and losses (none / 0) (#22)
    by MKS on Fri Jul 30, 2010 at 03:52:34 PM EST
    projected in 2011 with major problems in 2012 and 2013.

    So, there is still time.  

    I still go back to consumer demand--well over 60% of our economy.  If the overall economy improves, so will commercial real estate values.  Commerical real estate is almost always valued on an income, as opposed to comparative sales, approach.  So, if tenants are viable and paying rent, malls do well, etc.  Tenants do well when consumers buy their products....

    If consumer spending goes back up at the malls, then tenants pay their rent, new tenants are secured, and the income generated from the property goes up, and the landlords pay back their loans.  The appraisal of the mall, or other commerical property, based on the standard income approach, will go back up; and many of the loans can be rolled over.

    As to empty shopping malls, go ask Phoenix.  There are a couple of empty ones in Latino neighborhoods....

    Parent

    Krugman published a Moody/MIT (none / 0) (#27)
    by BTAL on Fri Jul 30, 2010 at 04:26:05 PM EST
    chart here comparing the residential vs commercial bubbles.  CRE was larger and the bust is continuing deeper.

    Here is an article that includes a CNBC video interview with Warren.  Jump to ~5:10 point.  To your point about CRE mortgages not being resold (like residential), she points out the vast number of smaller regional/local banks that are holding the majority of these underwater CRE paper.  The very same banks who small businesses rely on for other operational credit.  It is a very bad scenario.

    Businesses are still on the hook for these properties - rental rates are based on income but not the property purchases - this only helps the small businesses who rent their storefronts.  

    The businesses on the hook for these mortgages, which again have to be rolled over every 5 years, don't have the financials to qualify for the refinance.  Consumer demand will not arrive in time.

    Parent

    So, many say that 2-3 years (none / 0) (#26)
    by MKS on Fri Jul 30, 2010 at 04:01:40 PM EST
    in the future, there will be a crash of commercial real estate.....

    But, you know what Keynes said about the long run?

    Parent

    O.K, let's lay it on the table (5.00 / 4) (#15)
    by NYShooter on Fri Jul 30, 2010 at 02:32:58 PM EST
    While I may not be as active in the markets as I was, I still have my friends and sources. And it is now a matter of record that their information, analysis, and actions over the last 2-4 years have been right on, bull's-eye.

    About two years ago, as we were firmly in the grip of the downturn, the question was, "what kind of a recession it would be, and more specifically, what kind of recovery we could look forward to. The choices put forth were" a "V" shaped bounce, a "W" formation, or a stretched out long "U" shaped recovery.

    I posted here at TL that I was being told it would be none of the above. I said it would drop, and stay dropped. There's no law that says every recession must have a recovery. I said that the consensus among the "Players" was that the Oligarchs correctly sized up the situation. They determined that the Country could no longer support all the classes of people in the standard of living they've grown accustomed to. They had "gamed" the system in a way that transferred trillions of dollars from the many into the pockets, and bank accounts, of the few. And they ain't giving it back.

    So, just do the math; The top 1%, the Internationalists, are firmly in control of (effectively) all the money, and certainly all the power. So then we have the same number of "all the rest" as before, but a much smaller pie to share. So, when the dust settles, and considering it's a zero sum game, what we are left with is a permanent reduction in our standard of living.

    I never could see how a recovery would happen (5.00 / 1) (#23)
    by ruffian on Fri Jul 30, 2010 at 03:54:15 PM EST
    for "all the rest" given what I see on the ground around me.

    Although i have always contributed to my various employers'401k plans  because it seemed silly not to, I used to tell co-workers I only half expect to ever see any of it back - 'Do you really think they are going to let the likes of me accumulate 1 million dollars in assets?', I would ask.

    What do you think about that? are they going to continually game the markets to rob me blind over the next 15 yrs?

    Parent

    Yes, they are. (5.00 / 2) (#28)
    by caseyOR on Fri Jul 30, 2010 at 05:14:53 PM EST
    And they are going to snatch your Social Security away just because they can.

    Parent
    Ruffian (none / 0) (#29)
    by NYShooter on Fri Jul 30, 2010 at 10:27:03 PM EST
    First, to Casey's query below, I have no opinion as to SS's ability to fulfill its obligations going forward. That's a political problem, not an economic one.

    But, to your points, Ruf; Yes they are going to let you accumulate.....whatever, and Yes, they will continue to "game" the system.

    On the first point, if your time horizon is, say 10-15 yrs or more, and you institute a program of consistent "Dollar Cost Averaging," you have an excellent chance of ending up with a nest egg larger than your input + inflation. You won't be betting against the Oligarchs, you'll be betting with them. And,

    To your second point: of course they are going to continue gaming the system, however, LOL, they really are not out to "rob" little ole Ruffian "blind," not over the long haul, anyway; day to day, Yes, but you're not going to be a day-trader. So, who cares what gyrations they put the markets through on any given day?

    So here's the way you should look at this.....and let's please put the snark and cynicism on hold for just a couple mins.  You've got these fantastic companies, let's say IBM, or Microsoft, or Pfizer. And they employ an army of really brilliant scientists, engineers, management experts, etc. And this army of people go to work every day with one goal in mind, to build, grow, invent, innovate, and compete. They do it for many, many reasons, but certainly self interest is right there near the top. And, no matter the daily ups and downs, and all sorts of vacillations, over the long run They Will Succeed. Goldman, Morgan, and Citi can play with their stock price from day to day, but they have no logical incentive to hurt them into the future.

    "Ruffian," our own Oligarch Banksta!!....Go Get'm!

    Parent

    Average people will not be (5.00 / 1) (#31)
    by Militarytracy on Sat Jul 31, 2010 at 09:37:17 AM EST
    allowed to "bet" with the oligarchs.  Sorry, not true....when were any of us in on an IPO?  There is no way to play with the big dogs, and that is how they get big and stay big.  

    Parent
    Thank you. I really do worry about it (none / 0) (#30)
    by ruffian on Sat Jul 31, 2010 at 06:55:39 AM EST


    Parent
    Anything I really have to say (none / 0) (#4)
    by Militarytracy on Fri Jul 30, 2010 at 12:48:34 PM EST
    would now be a 15,000 word essay.  What's the point? All the obvious ones would not be entertained, my fingers are no longer crossed....just my eyes.

    Why I doubt the double-dip: (none / 0) (#5)
    by steviez314 on Fri Jul 30, 2010 at 12:52:48 PM EST
    1.  GDP is like a rear-view mirror.  Today's release of the Chicago Purchasing Managers Index was very encouraging, a 62.3 reading, well above the 59.1 in June, and 56.3 estimates.  This index is more forward looking.

    2.  I wonder how much the Gulf oil spill affected 2nd Q GDP, both in actual economic activity in the South, and general emotional effects.  If they finally fix the darn thing, this should help both.

    3.  Lastly, I have to think the unfreaking-believable heat in June also hurt economic activity.  I know conventional wisdom is that during heat waves people go to A/C'ed malls, but it might have been too hot for even that.

    And it's still just the advance GDP look.  See those revisions for 1Q and 2007-2009?  

    Still, the FED should do more.  If inflation was 9.5% and unemployment was 1%, they'd be raising rates and he!!.

    Census bureau announced job fairs for (none / 0) (#7)
    by oculus on Fri Jul 30, 2010 at 12:55:09 PM EST
    terminated census workers--in Sept.  

    In case you are wondering how dumb some (none / 0) (#24)
    by ruffian on Fri Jul 30, 2010 at 03:58:10 PM EST
    Floridians are....there was a story in the paper this AM about a census worker who quit last week because his boss asked him to go back and canvas some houses a third time.  I know there is honor in not wanting to waste gov. money...but I tend to let management make that decision.

    Hope he enjoys the job fair.

    Parent

    tracy (none / 0) (#32)
    by NYShooter on Sat Jul 31, 2010 at 03:31:25 PM EST
    There's an old saying that goes something like this: "If you want to feed the birds, give the horse a lot of oats."

    Of course you won't get in on an IPO, but so what. The Big Boys have a vested interest in growing industry. And there's no reason why anyone can't buy a ticket, hop aboard, and enjoy the ride.

    We'll see who goes on what ride :) (none / 0) (#33)
    by Militarytracy on Sat Jul 31, 2010 at 09:13:44 PM EST


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    GDP Growth Slowing | 33 comments (33 topical)

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