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Obama's Economic Sunshine Under a Cloud

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Twice last week, President Obama told the nation the economy was getting stronger by the day.

Sounds great, but some growing signs of softness on the economic front -- especially conspicuously renewed weakness in the all-important areas of housing and employment -- suggest otherwise.

Sometimes silence is golden and it may be that the President should heed the advice of one of his esteemed predecessors, Abraham Lincoln, who wrote "Better to remain silent and be thought a fool than to speak and remove all doubt."

Meanwhile, a rising number of economists and market pros are speaking out against the President's sunny economic assessment which, like Mickey Mouse and Charlie Brown, are not real life characters, but a figment of someone's imagination.

Take, for example, Peter Morici, an outspoken economics professor at the University of Maryland. He contends "the economy is skating precariously on the edge of a double dip -- this time into a depression."

The economy is faltering, he says, because U.S. businesses lack customers to justify new employees and the capital to expand. Likewise, he notes, demand for U.S. products is growing a faint 2% a year because of capping trade-deficit purchases of oil and from China sending too many dollars abroad that don't return to buy U.S. exports.

"Either Obama fixes what's broken in economy, or he will be remembered for spending his entire first term blaming George Bush," Morici says.

The Safe Money Report, a newsletter out of Jupiter, Fla., has made a series of excellent economic calls in recent years by alerting its subscribers to many of the negative trends, such a major credit crunch, a housing bust and a slew of bank failures.

Once again, the letter is hoisting warning flags about the economy. "The risk of a double-dip recession is surging," says associate editor Michael Larson. The government stimulus packages have temporarily bolstered the economy, he observes, but "the underlying problems -- too much debt and too many disincentives for growth and investment -- remain."

As Larson sees it, the U.S. recovery is running out of gas and he points to a number of recent admonitions, among them:

  • Building permits for single and multi-family homes tanked 11.5% in April, which left permits at a seasonably adjusted rate of 606,000, the lowest since last October.
  • Builders are pulling permits before they begin projects, suggesting this leading indicator of construction activity is pointing to a renewed slump in coming months.
  • Initial jobless claims stopped declining in February at 439,000 and now they've begun a gradual upward climb again.
  • Almost 4.7 million Americans are stuck on the jobless rolls, with little prospects of finding gainful employment. That's roughly one million above average.
  • Durable goods orders outside the volatile transportation sector fell 1% in April. Further, a key indicator of business investment in this area slumped 2.4%.
  • First quarter GDP fell to 3% from 5.6% at in the fourth quarter of 2009.
  • Personal spending growth dropped from 0.6% in March to nil in April.
  • To top it off, a benchmark gauge of manufacturing activity lost steam in May, while purchase mortgage applications just fell to the lowest level in more than 13 years.

"We're seeing a real pattern here," says Larson. "Manufacturing, retail sales, construction and employment are all softening again. As a result," he notes, "the economic reports we'll be getting in coming months will likely look worse than what we've seen in the past year."

What is so troubling, Larson observes, is that all the massive borrowing and spending in Congress and all the easy money spewing forth from the Federal Reserve had a simple purpose. It was supposed to prime the pump for sustainable, self-feeding growth -- to bridge the gap from recession to recovery. Instead, says Larson, it looks like the hand-off isn't working. On top of this, we have near zero-percent interest rates from the Federal Reserve.

Indicative of the government's failure, Larson points out, the $787 billion stimulus package was supposed to start winding down now. Instead, the Obama Administration is pushing a "son of stimulus" package, with up to $200 billion of new spending and aid measures.

Related to all of this, Larson poses an intriguing question. "If $13 trillion in bailouts and backstops and other aids didn't work over the long term, why should we expect some half-baked batch of additional measures to work?"

Our economic skeptic winds up on an ominous note. His key indicators -- ones that presaged the 2007-2009 market crash -- are flashing red again.

What do you think? E-mail me at Dandordan@aol.com