Let's take a well-deserved break from manufacturing and tax policy and cheer things up with a post on threats to the current recovery.
As I've stressed, in my humble opinion we're not yet into the virtuous cycle where we can count on above-trend growth to generate jobs, which boosts paychecks, which supports consumption, which signals investors to get into the game, which leads to more growth, etc.
But we're headed there. The best evidence for that is the improving job market -- that's been the missing link in the above cycle. Outside of public sector job losses -- there's your first ongoing threat -- net payroll gains have accelerated in recent months and that's helped to nudge down the unemployment rate which has ticked down by one or two tenths every month since last September.
In that spirit, the first two figures show steady, favorable trends in the four-week average of unemployment insurance claims, closing in on pre-recession levels, and the number of job-seekers per job opening, which has recovered about half of its losses since the downturn.
So, what could go wrong?
The conventional list is Europe, oil, and fiscal drag--which, to me at least, are ordered least to most worrisome (though "least" doesn't mean "not").
On fiscal drag, I offer this handy update from GS analysts which quantifies its impact in percentage points of GDP, including the impact of the just passed extension of UI and the payroll tax break (which helps prevent a bit more fiscal drag this year). Compared to the others -- though oil's a close second -- this one worries me the most because a) we see the damage each month with the state/local job losses, and b) given the current Congress, it's not going to improve. The other two can certainly bite us, but we can't know with certainty which way they'll bounce.
On Europe, I see three pieces needing to come together, and in the Lucy-with-the-football way this has consistently evolved, they too are moving forward. They are: Greek restructuring, Troika stability fund (IMF, EU, ECB), and the ECB stepping up to plate with more aggressive purchasing of sovereign (through its members' banks). Don't get me wrong--recession already appears to be once again upon the land over there, in no small part austerity-policy-induced. So real risk here, but compared to say the previous figure on fiscal drag, my median estimate is that Europe shaves 50 bps (half-a-percent) off of US GDP growth this year.
Re oil and gas... Oy. Over the past year, the average price at the pump is up about 40 cents, and that maps onto around $40-$50 billion less in disposable income, which, absent other moving parts, is enough to show up in slightly slower growth. We tend to describe higher gas prices as working like a tax on consumers, but economist Mark Zandi, who also views energy prices as a downside risk, recently wrote: "Worse than a tax, higher oil prices siphon off spending power with no offsetting government expenditures."
There are, however, other moving parts. As the President has pointed out, the payroll tax break is helpful in this regard, as is the fact that at least so far in the Great Recession and its aftermath, people have responded more elastically to higher gas prices (and income losses) by driving less, as shown in the figure at the bottom here. The tax break is also important because real wages (pretax) have been about flat of late, which is actually an improvement over a few months ago.
The US EIA -- a wonderful source for info on such things -- predicts pump prices to go up only a slight bit more, as shown below. Clearly, they're not predicting $4/gallon or above, but who knows? Though slower growth in China has been a bit of a pressure valve here, global oil capacity is once again tight, as are geopolitical tensions vis-à-vis Iran. So this tops my list of nervous makers.
[Note: re the current Republican efforts to ding the President on rising prices at the pump, I'm with Brad Plumer. I'd probably go further and point out that domestic production, including nat gas, is way up, petroleum imports, including crude, are down, and in fact, 2011 was the first year in decades that we were actually a net exporter of petroleum products--see figure here. So the dude's got good street cred on the production side; it's just that he doesn't control the global supply...(not to mention seasonal effects)]
Re housing, it's bumping along the bottom but not getting much better. The best you can say--and this is relevant for this threat survey--is that we've largely flipped from housing bringing down the economy to the economy keeping down housing. If jobs and income continue to grow apace, or better yet, accelerate, we should see some new household formation and new demand for housing, especially given such low mortgage rates, but the system isn't there yet.
There are still millions of foreclosures in the pipeline and prices of distressed sales--short sales and foreclosed properties--continue to decline pretty sharply (the research group CoreLogic helpfully keeps track of these measures). I've written in the past that as long as the share of distressed sales continues to fall, and the prices of non-distressed sales continue to hold up better than the distressed sales, we should be able to carve out a bottom on home prices. But alas, as the CoreLogic figure below shows, the share of distressed sales hasn't come down much at all.
So the housing sector isn't much of a threat but it ain't helping much either.
Finally, one specific threat to the unemployment rate: the share of the population participating in the labor force remains quite low. That has actually helped in terms of getting the unemployment rate down, since if you're not in the labor force, you're not counted as unemployed. But if the participation rate begins to bounce back up--e.g., if the improving economy pulls more sideliners back in--that will put upward pressure on the unemployment rate.
The last figure shows three forecasts of the unemployment rate over this year and next: CBO, Goldman Sachs researchers, and Moody's Analytics. CBO is the most pessimistic, but that's because they assume the "current law" baseline which includes huge tax increases and spending cuts all hitting the economy at once next January. The full sunset of the Bush cuts along with sequestration (automatic budget cuts) leads to a decline in the 2013 budget deficit of about $500 billion. Only the most bloodletting austericons could stomach a fiscal contraction of that magnitude at that point in the cycle.
The Moody's team is most bullish, based on the improving job market boosting consumer income and investor confidence. GS forecasts GDP growth at about trend, so the jobless rate stays around where it is now. I don't think we're likely to let the current law baseline prevail, so I'd say stick with GS but hope for Moody's to be right.
All told, we're into a real recovery, but it remains fragile, it is not yet self-sustaining, and risk factors lurk out there. What worries me most is the lack of a public policy cushion such that if one of those risk factors flared up, we could count on policy makers to fight back. Jeez... imagine that.
Noel A. Poyo: Job Creators: It's Not Just The 1%
Interactive: Tracking the global economic recovery - FT.com
Euro zone crisis biggest threat to global economy: OECD | Reuters
And what of those who have been forced to take low-paying jobs just to survive, whose standard of living is now greatly reduced and outlook for retirement is bleak? The numbers may look good, but they don't reveal the suffering of those on minimum wage jobs.
Some "recovery." Move over, Third World.
The Civilian Participation Rate shows the real story:
http://research.stlouisfed.org/fred2/data/CIVPART_Max_630_378.png
Among many other problems is that unemployment is often looked at as a number, not as a condition that's killing millions of our fellow Americans and our economy.
Look what he says here: "Finally, one specific threat to the unemployment rate: the share of the population participating in the labor force remains quite low. That has actually helped in terms of getting the unemployment rate down, since if you're not in the labor force, you're not counted as unemployed."
He's explaining, while not actually saying so, one major reason the unemployment rate has gone down. It's that fewer people are even out there even looking for a job. But all these people staying at home, while it has "helped" the unemployment rate go down, has helped nothing in the real world.
Quite the opposite.
The Banksters Robbed us of trillions. The federal Reserve has given them , at .004%, about 16 trillion more, plus 10T$ to foreign banksters. That becomes 260T$ with fractional reserve, that more than the value of the world businesses. Arrest the Banksters for the Fraud: SWAPS and CDO's. Federal reserve system.
The Ratio of Finance and insurance versus private industry went from 5%/40% in 1980, to 44%/5% today.
We cannot survive that.
Watch "the Money Masters"
http://www.themoneymasters.com/
http://webskeptic.wikidot.com/money-masters-transcripts-part-24
Bankster now literally own us.
http://en.wikipedia.org/wiki/File:Estimated_ownership_of_treasury_securities_by_year.gif
Phase out fractional reserve while issuing greenbacks. That creates a debt free monetary system
“The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.” Abraham Lincoln
Kucinich http://www.monetary.org/wp-content/uploads/2011/10/HR-2990.pdf Greenbacks
Many very long term unemployed people are simply not getting any money at all.
Many more work at part times jobs and may be pulling in $5,000 or $8,000 a year instead of $25,000, $35,000 or $50,000.
They are suffering with little government help.
If more people earned a living wage, there would be more taxpayers. Something to think about.
We'd have more people employed if business costs didn't continue to rise under this administration. Something to think about.
Well, by definition, those on unemployment were formerly employed, and paid those taxes, too.
It's a pity when working people turn against their own and throw in with the ruling class. And get self-righteous about it, too.
There is a solution to the jobs problem and it could quickly put hundreds of thousands of people back to work. It is not pro left or right. It is not from any corporation, it's outside the government control, it's totally voluntary, works in about one week, and helps all with little sacrifice from anyone.
National Hiring Day - This is a day that corporations are encouraged to hire new employees. Corporations are called on to put patriotism first and help their country in
hard times. Those corporations that cannot hire, are asked to stop firing for that month.
Republicans should love this because it's outside the government and voluntary. Democrats should love this because it helps those needing jobs. Independents should love it because it helps all with little sacrifice from any one corporation, group, or person. Corporations should love this because with just a hire or two they become part of a collective country wide jump start of the economy.
Let's say you run a business, by hiring one person, you are a part of this. Many others hire one or more. Then because you (and others) hired one or more, thousands have gotten jobs, lost insecurity and worry, and are ready to buy from you and others.
The result would be vaster participation, a spike in payroll tax revenues and a jolt to the labor force in encouraging individuals to not give up on looking for work. You know that a certain number of those temporary hires would result in permanent placement. This will then lead to a real decline in the unemployment figures.
The result of not doing it is worse for these dinosaur businesses. Corporations are learning that they can't grow if their customers don't grow too - look at the problems self serving corporations have caused themselves
1. massive sales before Christmas because people too poor to pay full.
2. strengthening unions
3. massive protests worldwide - OWS
4. consumer protests at excess fees, etc. etc. etc.
Business people better learn about business for they greed themselves out of it.
They are sitting back, looking for ways to get rid of people and looking for currently hired people to fill job openings.
Employees are being looked on as a necessary burden. The long term unemployed struggle to even get an interview. The people who've been unemployed for more than two years are overlooked as if they, their track record, their jobs skills -- their very existence -- doesn't matter.
Oh, they do matter when it comes to helping them -- the answer is NO. They are somehow supposed to get back on their feet by themselves and receive no income or free training in the meantime.
So again, great idea. But companies should have been voluntarily doing this in 2010 or 2011, when things were getting better.
Corporations have gotten so greedy that they've financially destroyed their customers, who now can no longer buy their products. So in turn they have to have massive Christmas sales to sell anything. They've also strengthened the unions they oppose, and through their actions caused the OWS, an ongoing worldwide protest movement. Now there are consumer protests at excess fees etc. Time for corporations to play their part in the recovery. National Hiring Day would help.