While inventories grew at a $115.9 billion annual rate in the third quarter — the highest increase since the first quarter of 1998 — the latest Bureau of Economic Analysis report suggests a picture of an economy that may be skirting zero growth in the next two quarters. Final demand growth, which excludes fluctuations in inventories, was just 0.6 percent in the third quarter. It has averaged just 1.0 percent in the five quarters since the recession officially ended in the second quarter of 2009. It's unlikely the rate of inventory accumulation will accelerate even more in future quarters.
A major contributor to growth in the third quarter was consumption, which grew at a 2.6 percent annual rate and added 1.79 percentage points to GDP growth. Housing and utilities added 0.42 percentage points to growth, almost one-fourth of the contribution from consumption. This is likely due to utilities, since an unusually hot summer resulted in a larger household demand for energy.
House prices have resumed their decline following the end of the first-time homebuyers tax credit, dropping 0.2 percent in August, according to Case-Shiller 20-City Index. The drop was led by a decline in the prices of homes in the bottom tier of the Case-Shiller index, and prices for homes in the bottom third of the housing market fell for all cities listed in the index. For several cities, the drop was quite sharp. In Tampa, prices in the bottom tier fell 3.1 percent, and in Washington — which has a relatively strong market overall — they fell 2.2 percent.
This is exactly what should have been expected given the end of the first-time buyers tax credit. The credit had a disproportionate effect on homes at the bottom end of the market, both because first-time buyers were more likely to be buying relatively low-cost homes and also because the credit is a larger share of the sale price of lower-cost homes.
In the midst of a particularly busy and nail-biting election season, 30 congressional Democrats have taken time to focus on an issue that isn’t on anyone’s campaign agenda: the appalling state of democracy and human rights in Honduras. In a letter sent to Secretary of State Hillary Clinton on Oct. 19, California representative Sam Farr and 29 of his House colleagues urged the Obama Administration to reverse its current policy towards Honduran president Porfirio Lobo, elected late last year in a controversial vote held five months after a military coup d’Etat that shook the entire region.
The letter describes a few of the recent killings of opposition activists and journalists –largely unreported in the U.S. media – that are part of the latest wave of politically motivated attacks that have taken place since last year’s coup. Citing a “distinct pattern of political violence” in Honduras, the letter calls for the suspension of U.S. aid to Honduras, particularly police and military aid, until the Lobo government “distances itself from individuals involved in the June 28, 2009, military coup and adequately addresses the ongoing human and political rights violations.”
In addition, the 30 representatives – who include notable human rights advocate Jim McGovern, Black Caucus chair Barbara Lee, and Progressive Caucus Co-Chairs Raul Grijalva and Lynn Woolsey – ask the administration to “refrain from supporting the immediate re-entry of Honduras in the Organization of American States.”
For Wall Street’s big banks and the people who run them, the economic crisis is over. While Main Street struggles and the unemployment rate remains close to 10 percent, bank profits are back to pre-crisis levels, and the salaries and bonuses of executives at the nation’s top domestic banks are again at near-record highs. This week, with the agreement of top U.S. bank regulators, JPMorgan Chase and Citigroup announced plans to let shareholders in on the party. The banks are set to increase dividends or buy back shares of their own stock to boost share prices.
The banks argue that they’ve repaid their debt to Uncle Sam and should be allowed to get back to business as usual – which, as usual, means enriching themselves. But they forget that the financial crisis cost Americans far more in lost jobs and income than the price of the taxpayer bailout. The country still faces $730 billion in lost output in 2010 as a result of the economic crisis. It’s time to get serious about reining in the big banks and other large financial institutions. Raising their taxes would be a start.
Congress and President Obama should be pushing for regulators to impose a foreclosure moratorium until they can be sure that a system is in place that ensures that rules are being obeyed and the law is being followed. Clearly such a system does not exist today.
This is not a radical step. Bank of America, JP Morgan, and Ally Financial all announced moratoriums because they recognized that their internal systems were not working. There is no reason to believe that other servicers are doing any better.
Government regulators must take an active role in supervising this process. The idea that we should "trust the banks" at this point is too silly to be taken seriously.
We need to know that banks are following the proper procedures. That if they move to foreclose that they in fact have the right house, that the mortgage debt is actually owed, that no penalties or fees have been illegally tacked on, and that all the paper work has been done properly.
We have had enough liar liens. The banks should have to follow the rules like everyone else. A moratorium on drilling to make sure that it was being done safely was the right move after the BP oil spill. We need a similar moratorium to ensure that foreclosures are also being done safely and by the law.
This article originally appeared on POLITICO's blog, The Arena.
An estimated 3.5 million homes will be lost by the end of 2012, on top of 6.2 million already lost... Attorneys general in all 50 states have pledged a coordinated investigation into chaotic foreclosure practices by some of the nation’s largest banks. The Department of Justice is also looking into what happened, while some lawmakers are now calling for a nationwide moratorium on all foreclosures until the legal questions are settled. The Obama administration is insisting such a broad delay would hurt the economy.
Several of the largest lenders, including Bank of America and JP Morgan, thought they had to slam on the brakes to make sure the foreclosure process is being dealt with correctly. If they are concerned, the rest of us should be, too...
It is hard to find a good argument against a moratorium. The claim that it would be a disaster for the housing market is utter nonsense. Real-estate experts have been talking for the last two years about the huge "shadow inventory" of foreclosed homes that banks have held off the market. If the pipeline of newly foreclosed homes were temporarily stopped, they would just sell out of this shadow inventory.
Although the potential for chaos in the housing market and on bank balance sheets is rightly feared, there's an opportunity here, too... Here are four ideas kicking around the community of experts who follow the housing market...
Right-to-rent: Under a right-to-rent program, foreclosed homeowners would have the option of renting their home at fair-market value for five years. This means less disruption for them and fewer vacant properties blighting communities. Fannie Mae has been attempting a variant of this, but on a very small scale.
We should expand the program, particularly in areas where the housing market is extremely depressed. "It's got to be better than just throwing people out onto the street," says Dean Baker, the director of the Center for Economic and Policy Research. "The bank would be getting rent. They could sell the property, though it might have a tenant for five years. But given the situation these people are in, it's a bare minimum the government could do."
Even as the Consumer Price Index rose 0.1 percent in September, the price of used cars actually fell 0.7 percent — the first time it has experienced such a fall since leading up to the beginning of the cash-for-clunkers program last summer. While it's only a single month of data, the drop might signal the end of the tight supply of used cars resulting from the program, which removed nearly 700,000 used vehicles from service. The acceleration and deceleration in prices resulting from cash for clunkers can be seen in this Graphic Economics post. Even with the rapid rise in prices over the last 17 months (19.2 percent), the price of used cars remains 9.5 percent below the 2001 peak.
Over the last three months, overall prices have grown at a 2.7 percent annualized rate. The core CPI remained unchanged over the month and has now grown at a 0.7 percent annualized rate since June. Major price categories have seen decelerating prices over the last three months, including housing and transportation, but inflation in recreation, education and communication, and other goods have also fallen in recent months.
There is so much that is troubling and wrong with Harvard economist Greg Mankiw’s op-ed in Sunday’s New York Times that it is hard to know where to start. His piece warns that if the Bush tax cuts for those who earn more than $250,000 a year –as he does– are allowed to expire later this year, then he will work less.
To make his point, Mankiw compares what will happen if he earns an extra $1,000 (for writing an article such as his New York Times column) and invests the proceeds at an 8 percent real rate of return for 30 years, under two different circumstances. In the first case, he lives in a world where no one pays any taxes on anything. In the second case, we have the tax structure that will be in place after the Bush income tax cuts on top earners sunset and health-care reform related tax increases kick in.
Aaron Carroll at The Incidental Economist has posted this very scary graph: Health care spending as a share of GDP in the OECD
Click for Larger Image, Source: The Incidental Economist analysis of OECD data.
Back in the late 1970s, US health-care costs as a share of GDP looked a lot like those of the rest of the world’s rich democracies. At about 8 percent of GDP, US health-care expenditures were at the high-end, but still very much in the pack. Since then, health-care costs have crept up everywhere, but the United States has broken away away from the rest. We now spend about 16 percent of (a much larger) GDP.
In and of itself, spending more on health care is not a bad thing. But, we spend a lot more money and still manage to leave about 15 percent of our population with no health insurance and another important chunk with inadequate insurance (annual limits, life-time limits, treatment exclusions, poor coverage for preventive care) or conditional coverage (lose your job –say, because you’re sick– and you lose your coverage). All of the other rich countries on the list (Chile, Mexico, and Turkey are the exceptions, but not so rich) provide universal coverage. And it isn’t like we have dramatically better health outcomes –either compared to 30 years ago or to the other rich countries in the graph.
Interestingly, we are the only rich country that finances a majority of health-care in the private sector. The rest finance health care expenditures through universal government programs. In some countries, such as the United Kingdom, the government also directly provides care; but, in most, the government finances the care, which is then delivered primarily by the private sector, much like the US Medicare system. (Interestingly, since 1970, Medicare costs have increased one-third less than those of private insurers.)
The unemployment rate held at 9.6 percent in September, despite a loss of 95,000 jobs — 77,000 of which were temporary Census positions. Including downward revisions in payroll employment for July and August, there are 110,000 fewer jobs than reported one month ago. While the overall unemployment rate did not change, the employment-to-population ratio (EPOP) of different populations were not similarly affected. White adults saw relatively little change in their EPOPs (-0.1 percentage points for men, 0.1 percentage points for women), but the EPOP for black men age 20 and older fell 0.5 percentage points and 2.6 percentage points for black teens.
The change in EPOP for black teens is particularly striking since only 16.2 percent were employed as recently as May. Ten years ago, 29.5 percent of black teens were employed compared with 11.7 percent in September. The overal EPOP in September was unchanged at 58.5 percent.
Neil Irwin posted a great set of graphs yesterday on the US “output gap” (the difference between the amount of goods and services the economy is actually producing and what the economy could be producing if it were operating at full capacity). He uses a nice interface to build a fairly complicated final image, starting from a simple line graph of the estimated “potential output” at full capacity:
Source: Neil Irwin. (click for larger image)
then adding the actual level of output:
Source: Neil Irwin. (click for larger image)
and, eventually, the actual and potential output through 2020, under different growth scenarios:
Source: Neil Irwin. (click for larger image)
One thing I like about the graphs is that they are high-tech, output-focused analogs of the series of employment-focused graphs that Tessa Conroy and I produced in the summer (earlier blog post here, full paper in pdf format here). Tessa and I also used a series of increasingly complicated graphs to build up to our punchline (which was, like Irwin, that anything short of very robust and sustained growth, starting soon, spells long-term trouble for the labor market). Irwin also makes excellent use of short text descriptions of key features in each graph, something that we didn’t do in our paper.
It was striking at the DC conference on America's Fiscal Choices that liberal economist Paul Krugman and conservative economist Martin Feldstein agreed the country urgently needs a really big stimulus – three times the size of the 2009 stimulus – to fill a $1 trillion dollar GDP gap.
Paul Krugman said he expects rising unemployment over the next few months, and not much improvement in 2011. Asked when the economy would return to full employment, he responded that – absent some very big event – the “maximum likelihood estimate” for a return to full employment was “never.” To improve the jobs situation, Krugman wants policy makers to “do everything you can,” including a big monetary and fiscal stimulus to get private investment going.
That is what the young George Washington would have told his father if he had been an economist. If anyone ever doubted that the economics profession is chock full of a bunch of shameless incompetents, the current situation proves them wrong.
We are sitting in the middle of the worst economic disaster in 70 years entirely because the economists in positions of responsibility (e.g. Alan Greenspan, Ben Bernanke, the Bush Administration economists, the Congressional Budget Office economists, and the vast majority of professional prognosticators cited in the media) could not see an $8 trillion housing bubble.
This is worth repeating a few hundred thousand times. Tens of millions of people are facing the loss of their jobs and/or their homes because bozos with Ph.Ds in economics could not do their job. And none of the bozos got fired for their incompetence. Most are still making 6 or 7 figure salaries.
CEPR senior economist John Schmitt testified on Thursday in front of the Congressional Out of Poverty Caucus on "An Emergency Response to the Crisis of Poverty in America: Understanding the Crisis and Refocusing the Fight." In his testimony, (see his full statement here) John pointed out that:
[E]ven before the Great Recession, the poverty rate was high by historical standards... at the peak of the last business cycle in 2007, one in eight people in this country had an income that we would have considered to be poor a half a century ago. Over the last thirty years, even as the economy grew by almost 70 percent per person, the share of the population that we judge to be poor has actually increased....
But even if we could restore – overnight – the economy to where it was in 2007, poverty would still be unacceptably high. Fortunately, we already know how to lower poverty dramatically. In the 1960s, in less than a decade, we cut poverty by almost half. The keys were economic institutions that linked workers wages and benefits to overall economic growth, and the expansion of the social safety net...
Economic analysts from the White House, to the non-partisan Congressional Budget Office, to former John McCain adviser Mark Zandi all tell us that the February 2009 stimulus package has created millions of jobs. Without those measures, poverty would have increased even more than it did in 2009. But, we now know that the stimulus program put forth in early 2009 was just not big enough. The single most important step we could take to combat poverty in 2011 is to implement a large -scale stimulus and jobs program today.
This is the question that millions are asking. And, we have the answer for you. The chart below projects out the payable real Social Security benefit for an average worker retiring at age 65. These numbers are derived from the intermediate projections in the 2010 Social Security Trustees report. Note that the benefit is in 2009 dollars, meaning that it is adjusted for inflation.
The numbers for the Washington Post show the actual decline in circulation from 2002 to 2010 taken from ABC Reader Profile Studies and ABC-Audience Fax E-Trends Tool. For later years it projects out the 3.7 percent average annual rate of decline over this period.
Note that, even if nothing is ever done, Social Security will always be able to pay out a higher real benefit than is received by retirees today. After 2037 it would no longer be able to pay full scheduled benefits, but the payable benefit in 2038 would still be 12.1 percent higher than what the average retiree gets this year. The payable benefit in 2085, the last year in the planning period, would be nearly twice the average benefit in 2010.
The prospects for the Washington Post don't looks quite so good. Its average daily circulation in 2010, at 580,000, is already 25.9 below its 2002 level. By 2038, when Social Security is first projected to face a shortfall, on its current path, the Post circulation would have dropped by 68.1 percent to 185,000. By the end of the Social Security's planning period in 2085, the current trend would put the Post's average daily circulation at 27,000.
Despite an uptick in the sales rate for August, home sales remain weak. The sales rate for existing homes bounced back slightly after taking a hit in July, but it remains well below the pace set by the homebuyers tax credit earlier this year. Existing homes sold at a 4,130,000 annual rate in August — 7.6 percent above the rate in July, but more than 20 percent below the average for the first half of the year. The purchase mortgage applications index remains depressed, running close to 30 months behind levels for the same months in 2009. This suggests sales in September and October are unlikely to pick up from their current rates.
All of this is consistent with the view that the main impact of the tax credits was to pull purchases forward. People who might have bought in the second half of 2010 or even 2011 instead bought their home before the tax credit expired. While the credits sustained an annual sales rate of well over 5 million for the period it was in effect, the sales pace is likely to remain close to 4 million for the rest of 2010 and 2011. The moving forward of purchases helped to support sales prices during this period, but did nothing to affect the underlying glut of housing.
Michael Norton (of Harvard Business School) and Dan Ariely (of Duke) have released results (pdf) from a series of experiments they did in 2005 on the subject of wealth inequality. They asked individuals in a nationally representative online panel to (1) estimate the current US distribution of wealth and (2) “build a better America” by describing what they thought would be the “ideal” wealth distribution.
The key findings:
First, respondents dramatically underestimated the current level of wealth inequality. Second, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution. Most important from a policy perspective, we observed a surprising level of consensus: All demographic groups – even those not usually associated with wealth redistribution such as Republicans and the wealthy – desired a more equal distribution of wealth than the status quo.
This figure from the paper shows the actual distribution of wealth, respondents’ average estimate of the actual distribution, and their “ideal” distribution:
Source: Norton and Ariely.
Even those respondents who voted for George W. Bush look like they’re far to the left of “actually existing capitalism.” In the actual distribution, the top fifth holds over 80 percent of all wealth in the United States. On average, Bush voters estimated that the true share was close to, but not quite 60 percent. Ideally, however, Bush voters believed the top 20 percent should have about 35 percent of all wealth (for Kerry voters, it was about 30 percent).
Imagine you’re one of the 6.8 million Americans who have been unemployed for more than six months. (Imagine, that is, if you don’t already have the misfortune of being one of them). You receive a job offer that you quickly accept. But it comes with an increasingly common catch: your potential employer wants to check your credit first.
This catch, which they had assured you was only a formality, turns out to be a catch-22. When the HR person doesn’t like what they see, they take back the offer. It turns out you can only get the job you need to pay your bills and repair your credit history if you don’t have a credit history in need of repair.
If you haven’t applied for a job recently, or read press accounts of the increasing use of credit checks by employers, you might be astonished to know that employers can decide to hire or fire you because you were late paying a bill. But the use of credit reports by employers is now widespread. A recent survey by the Society of Human Resources Management found that 60 percent of employers conduct credit background checks for some or all job candidates.