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November 8, 2008
Usually a 2 1/2 month transition is fine....but I wish Obama could take office on Monday
It was a tough day yesterday economically and a tough week for the market combines with Bush's threat to veto a Democratic stimulus package. The market had another sharp decline with a modest rebound on Friday. The chart below is a three month snapshot.
CNN Money: Regulators close down Franklin Bank, a Houston bank with $ 5.1 billion in assets, and Security Pacific Bank of California, with assets of $ 561 million, raising the tally of failed banks this year to 19. Banks belly up
Time.com: The latest wave of bad news came out of Detroit Friday morning as both GM and Ford reported heavy losses for the third quarter of 2008. Ford lost $2.75 billion, pretax, from operations; GM fared even worse, losing $4.2 billion, excluding a one-time gain. Both companies are also burning through cash at an alarming rate — Ford used up $7.7 billion during the third quarter and GM burned through $6.9 billion. Concerns intensified about GM's ability to stay afloat. Automakers losses, jobs at risk
Peter Goodman wrote today in the NY Times:
In a sign that American workers may face even more difficult times for many months to come, the nation’s unemployment rate last month jumped to the highest level in 14 years as job losses mounted. Gloomy enough was word from the government on Friday that a fresh 240,000 American jobs disappeared in October, the 10th consecutive month of retrenchment. It brought the toll of lost jobs to 1.2 million for the year — more than half in the last three months alone — while the unemployment rate climbed to 6.5 percent. Worse was the sense that little could be done near term to alter this now-accelerating trajectory.
President-elect Barack Obama, speaking at his first news conference since winning Tuesday’s election, sounded resigned to inheriting a starkly troubled economy when he moves into the White House next year. “It’s not going to be quick, and it’s not going to be easy to dig ourselves out of the hole that we’re in,” Mr. Obama said, calling for swift passage of spending measures aimed at stimulating the economy, including another extension of unemployment benefits. But while experts said this could soften the damage, it was unlikely to change the fundamentals. They said the economy would probably lose several hundred thousand jobs a month well into next year, taking the unemployment rate to near 8 percent — a level last seen a quarter-century ago. “The economy is slipping deeper into a recessionary sinkhole that is getting broader,” said Stuart G. Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. “The layoffs are getting larger, and coming faster.” The health care industry, mining and public schools were the only sectors that showed more than modest growth last month. Otherwise, losses were deep and broad. Manufacturing jobs shrank by 90,000, construction by 49,000, retail by 38,000 and the financial industry by 24,000.
The outlook is troubling in part because a new atmosphere of tightness in American banking could prevail for years, say analysts, crimping economic growth. Economists tend to think in terms of a natural cycle of commerce, with businesses investing aggressively when money is abundant, pulling back when times are lean, then jumping back in when fresh opportunities emerge. This time the money may be particularly slow to return. The worst of the financial crisis seems to have been tamed, staving off the prospect of a cataclysm, but the underlying reality endures: after two decades in which economic growth has been powered by extraordinary surges of borrowed money — a time of entrepreneurial machismo — a new era of risk-avoidance appears at hand. In Washington, and in capitals on multiple continents, governments are devising new regulatory approaches for banks aimed at reining in the sorts of reckless engineering that made capital abundant before bringing the global financial system to grave peril. Whatever the rules, surviving banks seem likely to operate conservatively. “The economy’s long-term, underlying growth prospects have been reduced, not forever but maybe for five or 10 years,” said Mark M. Zandi, chief economist at Moody’s Economy.com. “We’re just not going to see the same sort of entrepreneurial spirit needed to generate those strong productivity gains. People have been so chastened, and they’re so fearful, that they are going to take too few risks for quite some time before the psyche is healed.”
The number of unemployed Americans leapt in October to 10.1 million — the largest number since 1983. More than 22 percent of all unemployed people have been out of work for six months or longer — another level not reached in a quarter-century. Only 32 percent of all unemployed people were drawing state benefit checks in October because of restrictions on eligibility. More than half of all unemployed people drew benefits in the 1950s, and about 45 percent received state checks during the last recession in 2001. “It’s a national shame,” said Andrew Stettner, deputy director of the National Employment Law Project in New York, which has been advocating an extension of unemployment benefits. “We need to be helping these families avert financial disaster, and help make up for the loss of consumer demand, and the best way we can do that is to get people unemployment checks.”
Democratic leaders in the House said this week they might seek swift adoption of $60 billion to $100 billion worth of measures that would extend unemployment benefits and food stamps, while aiding states whose tax revenue has plummeted. They would then pursue a broader package of spending measures that could reach $200 billion once Mr. Obama takes office. The Bush administration has criticized Democratic proposals for immediate aid, raising the specter of a veto. On Friday, in a written statement, President Bush said that “aggressive and decisive measures to address this situation” had already been unleashed by the government. “It will take time for these measures to have their full impact on an economy in which many Americans are struggling,” Mr. Bush said.
The jobs report reinforced how a potent assemblage of troubles — plunging housing prices, tight credit and shrinking paychecks — was combining to drag the economy down, depriving consumers of cash. All through the year, companies have hired tepidly and begun to lay off workers as their sales sagged, while cutting working hours for those on the payroll. That trend continued in October: the so-called underemployment rate — which includes those who have lost jobs, people working part time for lack of full-time positions and those who have given up looking for work — rose to 11.8 percent from 8.4 percent a year earlier. The pace of layoffs has accelerated in recent months. From January to August, the economy lost about 75,000 jobs a month. In September alone, 284,000 jobs vanished, the Labor Department now says, revising its initial estimate of 159,000. “What you see now is this cascading of unemployment moving from hours cut to hiring freezes to layoffs,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington. “There’s almost no economic activity out there that’s going to generate jobs right now. This is the front edge of the deeper trough of the recession. It’s going to get worse before it gets better.” Wages have effectively shrunk for most workers, as rising costs for food and fuel have more than absorbed meager increases in pay, further crimping Americans’ spending proclivities.
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