Is the Economy Returning to ‘Normalcy’ ?
By Barry Ritholtz - March 6th, 2010, 8:37AM
Floyd Norris looks at dividends, job cuts and asset prices, and assesses the return to normalcy:
“As the accompanying charts show, three disparate indicators — covering unemployment, corporate financial distress and stock market volatility — have gone from very high to a little below historical averages . . .”
Here’s the mandatory chart:
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click for larger graphic
courtesy of NYT
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Source:
After Jerky Swings, the Economy Begins to Look Nice and Boring
FLOYD NORRIS
NYT, March 5, 2010
http://www.nytimes.com/2010/03/06/business/economy/06charts.html
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March 6th, 2010 at 8:41 am
The consensus seems to be that the recession ended last year (strangely enough, from the same people who didn’t acknowledge we were even in a recession until 3Q after it had begun). If this is the sentiment of the market, it’s time to hide your wallet and head for the bunker.
March 6th, 2010 at 9:16 am
Wow. An article like that coming out the day after the Dow makes a 52 week high, complete with supporting quote from Abby Cohen. Can anybody say “top-tick”?
March 6th, 2010 at 9:20 am
Fed MBS purchase program ending: one of the spigots is being turned off
http://www.calculatedriskblog.com/2010/02/fed-mbs-purchase-program-95-complete.html
March 6th, 2010 at 9:21 am
We are at or very close to the peak effect of the most massive stimulus in US history. Probably not the right time to declare normalcy.
March 6th, 2010 at 9:24 am
Anecdotal- For ~75% of my friends? No way. Things are terrible for so many people I know. Never been worse. Seriously. There’s the paper economy and then there’s the real economy. Wait until the stimulus dries up and taxes rise.
March 6th, 2010 at 9:24 am
It’s a nice optimistic view using somewhat unusual indicators. Returning to near the averages from an extreme does not give me confidence that the economy has returned to normalcy, whatever that is. We may have hit the bottom and be past the worst, but I don’t see that we are near a norm. Improvement is good, but we remain in an economically depressed state.
Typical Y/Y comparisons remain difficult to interpret because of the profound decline in many of the usual indicators that took place during the crisis and ensuing meltdown. It takes little improvement in the numerator to make things look stunning when the denominator shrunk so severely. I will feel more confident that we are getting back to normal when we are steadily adding jobs, banks resume lending and consumer’s resume borrowing, we see declining inventories in the face of growing sales, we see a declining trend in the inventory of houses for sale, we see positive real interest rates and we see a return of the Y/Y change in the monetary base to something near long term norms.
March 6th, 2010 at 9:40 am
Just remember this-
1. The market at some point (soon methinks) will begin to anticipate rising taxes, further deleveraging and stimulus abatement.
2. EVERY SINGLE PERSON on CNBC, in DC, on Wall Street – is WEALTHY. Consequently, EVERY SINGLE WORD and TALKING POINT that comes out of their mouths has little to nothing to do with J6P. J6P is hurting and will continue to hurt for many years.
3. There IS a LOT of wealth in this nation and that will help but only AFTER we discharge debts, break up the TBTF banks and somehow bring jobs back or create new ones. As long as we have unregulated TBTF banks, derivatives, consequence-free risk-taking with 0% free tax-payer backed money, market participants that don’t give a crap about owning equities that generate zero cashflow and a complicit bezzle in DC – things will just get WORSE and WORSE and WORSE until J6P snaps or the top 1% comes to their senses.
4. Markets rallied and so did commodities. The cost of EVERYTHING is higher (‘cept housing) than it was a year ago. The cost of living in this country is going up not down. If J6P made $20K in the market last year – believe me – he gave it ALL back and then some due to oil, food, heat, gas etc. all going up. J6P IS and WAS the loser in the market rally and going forward – he will lose more and more thanks to commodities trading by TBTF banks.
March 6th, 2010 at 9:42 am
Superficially, the averages in the charts seem to be for the same period. This seems to be a strange way to calculate the ‘averages.’ Looking at the ‘normal’ parts of the charts only, the averages would seem to be 50-60% of the ones displayed. We still have a little (but not much at this rate) to go before we really reach normalcy.
March 6th, 2010 at 10:26 am
MayorQuimby Says:
“3. There IS a LOT of wealth in this nation and that will help but only AFTER we discharge debts . . .”
_______________
The wealth of this country is concentrated at the top. The hard and soft resources of our nation were divvied-up long ago, and they were given to a select few (individuals and corporations enjoying the status of individuals). Anyone still believing in redistribution of wealth from the upper to the middle and lower classes via “trickle down” is deluded. Them that has, keeps. Middle class wealth comes from the middle class, and the middle class is broke and broken. We have given the banks virtually unlimited liquidity in a time of massive durable (real) asset deflation. In the end, the banks will buy all of these highly leveraged, devalued or defaulted-on assets for pennies on the dollar. We gave them the dollars with which to do it. We have enabled our own fleecing.
Of course, there are entrepreneurs and innovators creating new products and services (tech products, entertainment, etc.), but the consumer demand for these things is weakening (if consumers can’t even afford adequate healthcare, tech products and entertainment can’t be all that robust). The core resources – agricultural and mineral (hard) and radio spectrum, communications infrastructure, banking and finance (soft), as well as the rights to exploit them, are off the table. The markets in military hardware and software, transportation, infrastructure development and maintenance, energy extraction and generation are all limited to a handful of players. Individual creativity and ability — those demonstrated by athletes/entertainers/writers, etc., will always propel people into the ranks of the wealthy, but they will not drive an economy.
March 6th, 2010 at 10:36 am
Unfortunately, the figure of speech, “Don’t buy until there is blood in the streets.” may not be a figure of speech this time around
March 6th, 2010 at 10:46 am
Marcus-
Not necessarily. There’s lots of know-how, paid-off housing, work-ethic and skilled labor here. LOTS. I know a great many Bob Villa types and VERY talented electrical engineers. I know a lot of people that have paid off houses etc. There IS wealth here but it is tremendously overshadowed by GOBS of DEBT and unfunded liabilities.
March 6th, 2010 at 11:27 am
MayorQuimby,
Skilled labor is worthless if money is not forthcoming for the application of that skill. Talented electrical engineers are a dime a dozen in our global market. Paid-off houses are fine, but for everyone without mortgage, there are several with worthless first- and second-mortgages. Those owning their homes outright have watched the value of their largest (non-productive, BTW) asset slip by half, or so (what happened to all of that “wealth”?).
If “our” wealth was so great, there would be no debt, public or private.
March 6th, 2010 at 11:56 am
Then there’s no value in anything. All land and assets are owned by someone right?
Skills, ambition, education and the ability to innovate are any nation’s only assets in frac reserve.
March 6th, 2010 at 12:00 pm
There’s not normalcy here. These banks failures aren’t only due to bad loans they are also due to savings withdrawals leaving the bank with no financial support.
http://www.usdebtclock.org shows average savings of each citizen at $1000. This is the deposit base the banks use to loan out money. As this deposit base keeps falling more and more banks will go out of business until either debt is paid off or all banks go under. I’m assuming about 50% of banks will fail over the next few years before debt is finally at a reasonable level to go forward.
Simply, banks can’t lend if they don’t have the deposit base to back it and this causes economic stress.
March 6th, 2010 at 12:28 pm
Contrast the NY financial perspective with the chart of Employment Declines Since the Recession Began,
http://link.businessinsider.com/view/bd9.123/eb4c4071
and you come away with the feeling that ol’ Floyd Norris is living in a different reality. Take a look at the rate of bank failures (not the TBTF monsters, nosirree, but the banks outside the NY financial bubble), and it is certainly difficult to see anything but either a gradual worsening or a digging in at the bottom situation in the larger economy.
Perhaps when NYC and NY state (along with a LOT of other states and cities) begin to slide into bankruptcy over the next couple of years the veil will be lifted from his eyes.
Or perhaps it will take having his bloated journalistic compensation slashed to bring him back to earth. That to, is en route to his corner of the Twilight Zone. Newspapers are simply not an essential news outlet anymore.
March 6th, 2010 at 12:34 pm
Floyd misses the difference between a slackening of job cuts (but no big jumps in hiring), of a reduction in dividend cuts or eliminations (can’t cut dividends below zero), and a lessening of the volatility of the S&P 500 (floating on a cushion of bankster zero-interest money, with no place else to go) — with the destruction of a stable and prosperous middle class, filled with ambition and hope, and somehow sees this as “Normalcy?”
What kind of spin job is he putting forth here?
March 6th, 2010 at 2:11 pm
According to many people, this IS the new normal – like the lost decades of Japan (only it’ll get worse here). Noting many of the comments, we see that wage stagnation and lack of production are the new corporate norm, while inflated prices on commodities that should be falling due to far less demand are not due to Wall Street speculation; that the policies of “our” government are actually detrimental to any return to what we once enjoyed with respect to sensible foreign policies, progressive policies of any kind, salaries, the Constitution as the basis for living in a once-free country, fair and consistent application of the law, and privacy; that the value of our currency is doomed to scrip status; and that rearranging the deck chairs will be the only activity on the sinking ship of state with the environment becoming an ever-increasing problem we’ll be unprepared for through our failure to act responsibly.
As Clint Eastwood once remarked (as Dirty Harry): “Swell.”
March 6th, 2010 at 2:16 pm
Mr. Ritholtz,
In Oklahoma, things feel normal, or at least non-painful, if you have a job. If you do not have a job, the chances are you don’t have many prospects and things feel awful. Layoffs and job losses have slowed down considerably. Finding a new job is simply horrible for anyone out of work.
Gasoline prices feel like they are rising, albeit slowly. Grocery prices seem to be going up, particularly meat, poultry and dairy products. Sales tax revenues are abysmal for local governments. The government hiring programs do not seem to be creating jobs. Instead, private contractor jobs and work are simply being transferred “in house”. Instead of hiring folks that are not working, experienced contractors are being transferred from private payrolls to public payrolls. Even in the energy business there is considerable apprehension about the future.
March 6th, 2010 at 2:19 pm
22% unemployment. Who exactly is going to be consuming?
State and federal insolvency.
Normalcy?
Also, I wouldn’t consider the past 10 years normal. People spent 9 billion dollars of BORROWED money at Starbucks in 2008. If that is normal, I’m insane.
March 6th, 2010 at 4:44 pm
RRE and CRE are far from normalized using the same timeframe – they’ve got to fall another 25% or more for that to happen. Once they do let’s revisit these charts and see how “normal” they look
March 6th, 2010 at 5:21 pm
No. It’s all being done with funhouse mirrors. One accurately hurled rock and reality will set in.
The world has gone insane. e.g. 660 unnecessary GM dealers slated to be closed will have to remain open or GM will endure the wrath of its mother, the Congress of the US Government. I believe this is called Socialism-neat.
Next dip comes when CRE losses begin to mount, ARMS set in on other reseidences, and mid-sized banks begin fail and to get their TARP.
Then it all depends an what the ‘new’ normalcy’ is. New normalcy may be managed pretend and extend chaos.
March 6th, 2010 at 5:28 pm
No.
March 6th, 2010 at 9:18 pm
The economy hasn’t been “normal” for at least three decades. That would be a NO then. Wait until those unemployment extensions begin ending and there are still no jobs. That’s when the shit is really going to hit the fan.
March 7th, 2010 at 6:42 am
Do we not, in our bones, feel the sinking of the great ship of state? Squabbling in the wheelhouse while the ship takes on water? We have exported not only dollars but our means of making the next dollar. The big bonuses, the next quarter focus, start-ups going public and other forms of personal nest egg bloating is a general frantic attempt to build a personal financial lifeboat so when the ship sinks one can float away somewhere while staying high and dry. Costa Rica? Australia? or, in an earlier time, Rome to Constantinople?
Is the new normal to be personal wealth accumulation (or call it deleveraging if you like) as opposed to capex? The former protects against a bad outcome. The latter assumes a positive future. Are we not, as a people, clearly signaling where we truly believe things are heading?
March 8th, 2010 at 2:26 am
Joan and Melissa Rivers offer more rigor than that NYT piece.