2009 February 27 Friday
Economic News Turns Even Bleaker

California unemployment jumped from 8.7% in December 2008 to 10.1% in January 2009.

California's unemployment rate jumped to 10.1 percent in January, the state's first double-digit jobless reading in a quarter-century.

The national unemployment rate is 2.5% lower. But it looks set to get worse and double digit national unemployment is a possibility. The US GDP declined 6.2% in 4Q 2008 according to revised figures.

America’s gross domestic product, the nation’s output of goods and services, plunged at an annual rate of 6.2 percent in the final quarter of 2008, according to revised figures released by the Commerce Department Friday. That’s the sharpest drop in GDP since the first quarter of 1982.

Economists at the investment firm Goldman Sachs estimate that the decline, coupled with another slide in the current quarter, may end up as the US economy’s worst back-to-back quarters in half a century.

The decline in 1Q 2009 might be nearly as large.

Economists are predicting a further annual equivalent drop of as much as 5 per cent is US GDP in the present quarter, which would inflict the sharpest back-to-back decline in output over consecutive quarters since 1958.

Will 2Q 2009 be as bad? When is the bottom?

The "D" word is coming up more often now as the news keeps getting worse.

Economists are not making comparisons with the Great Depression of the 1930s, when the unemployment rate reached 25 percent. Current conditions are not even as poor as during the twin recessions of the 1980s, when unemployment exceeded 10 percent, though many experts assert this downturn is on track to be significantly worse.

Rather, economists are using the word depression — a subjective term with no academic definition — to describe a condition of broad and extreme economic distress that remains stubbornly in place for much longer than a typical downturn.

Will we develop a full-blown depression? The odds have gone up.

Allen Sinai, chief global economist at the research firm Decision Economics, sees a 20 percent chance of “a depressionlike possibility,” up from 15 percent a week ago.

“In the housing market, the financial system and the stock market, we’re already there,” Mr. Sinai said. “It is a depression.”

Capital spending and exports are declining at depression-like double digit rates.

The sources of economic weakness in the fourth quarter were across the board. Consumer spending dropped at a 4.3% pace, its worst performance since 1980. Nonresidential private fixed investment — a.k.a. capital spending — fell at a 21.1% rate, the worst since 1975. Exports fell at a 23.6% annual pace, the worst since 1971. And residential investment was down at a 22.2% pace, but that's the worst only since the first quarter of 2008.

Japan's economy is in much worse shape than America's.

n the circumstances, comments by analysts that the data was "not good" and "seriously bad" were somewhat otiose. The Office for National Statistics confirmed today that the UK economy shrank by 1.5% in the final three months of 2008 and is on course for an annual decline in GDP this year of between 2.5% and 3%. But in Japan, things are much, much worse. Maya Bhandar at Lombard Street Research, says that the economy is contracting at an annualised rate of 14-15% in the current quarter.

Russia is cratering too.

Russia’s economy shrank 8.8 percent in January, compared with a year earlier, with the nation’s energy-reliant economy hit hard by a drop in oil prices. And Japan’s industrial production plunged at a record pace in January, as collapsing trade forced manufacturers to cut jobs.

Downturns after asset bubbles are much worse than downturns after inflation. Asset bubbles built on debt (as compared to stock market manias like the dot com era) are worse still because the eventual downturn makes much of that debt go bad and then banks become too crippled to lend. Downturns after asset bubbles are more deflationary due to excesses in productive capacity and in other assets with long lifetimes. The working off of excessive amounts of factories, office space, and housing is a slow and deflationary process. Hence the threat of a depression.

Share |      By Randall Parker at 2009 February 27 11:50 PM  Economics Business Cycle


Comments
Some wordy bastard said at February 28, 2009 9:02 AM:

Even http://layoffblog.com/2009/02/27/latham-watkins-cuts-190-lawyers/ lawyers are taking it in the ass.

Oh the joy.

Mark said at February 28, 2009 12:04 PM:

The real crisis is that the world has relied for too long on the USA as its driving economic force, expecting the American taxpayer and consumer to saddle himself with more and more debt in order to keep everyone from Lahore to Shanghai to Warsaw employed. That's why countries with large trade surpluses, like Japan and China, are getting hit harder than the US. It just can't go on forever.

The *upside* is that we'll still have fairly large unemployment, a large federal budget deficit, and growing dependence on the welfare state for the next 2 elections. This is good because it will finish off what support remains for socialism in this country, at least amongst Asian- and European-Americans. Obama's a one-termer, and immigration sanity is right around the corner.

Randall Parker said at February 28, 2009 12:40 PM:

Mark,

FDR was reelected 3 times.

Hopeful said at February 28, 2009 2:22 PM:

"The *upside* is that we'll still have fairly large unemployment, a large federal budget deficit, and growing dependence on the welfare state for the next 2 elections. This is good because it will finish off what support remains for socialism in this country, at least amongst Asian- and European-Americans. Obama's a one-termer, and immigration sanity is right around the corner."

I hope you're right.

The Undiscovered Jew said at February 28, 2009 2:51 PM:

Mark,

FDR was reelected 3 times.

FDR was popular because he created a welfare state to support blue collar WHITE men. Furthermore, he only looks good in the history books because of Hitler and Tojo and because the legendary populist Huey Long got shot - sans WWII, FDR would have gone down in history as a failed president.

Odinga on the other hand is aiming to strangle the white working class, the white middle class, the white upper middle class and the Wall Street class to establish an uber expanded welfare state empire for NAMs that will go beyond even the wildest dreams of Lyndon Johnson.

James Bowery said at March 1, 2009 7:24 AM:

Asset bubbles occur because property rights are subsidized by the taxation of economic activity. The collapse of asset bubbles occurs because the debt-load on economic actors gets to the point that there is no market demand, and those with ownership of the assets are so distanced from them that they have little idea what to do with them to make them productive even if there were market demand.

The solution: Stop taxing economic activity and pay out a citizen's dividend funded by charging owners of artificial property rights (property rights other than homestead rights) for the service of upholding those artificial rights. That will create the market pull (partially compensating for the bogus debt with which economic actors have been saddled) while lighting a fire under the asset owners to do something productive with them.

Anonymous said at March 5, 2009 2:22 PM:

"Obama's a one-termer, and immigration sanity is right around the corner".

You think so ? The guy can dance on a stage. That's all that the female electorate cares about. Fems + minorities pretty much guarantees a 2nd term. That, plus the fact that any 'Pubbie candidate stipulates much of the Dem agenda. So why bother voting pubbie.


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