Tuesday, September 25, 2012

Howdy, strangers

- by New Deal democrat

Hi. allow me to introduce myself. I used to blog here.... Well, at least it seems that way. It's been a few weeks since I posted anything substantial besides my weekly column. Anyway, there are times I have to choose between real life and blogging, and occasionally, blogging has to lose!

Since I haven't had the chance to throw up a bunch of charts and graphs, let me at least give a sense of where I think we are in view of the most recent economic releases.

First of all, on the downside, all of the recent manufacturing data has been negative. I don't think it would be inaccurate to say that we are in a manufacturing recession, at least as of August. Twenty or thirty years ago, that probably would mean that the entire US economy were entering recession. Hundreds of thousands if not more manufacturing laborers would be losing their jobs.

That isn't the case now. Between offshoring and robots, how many more production workers can seriously be laid off? In other words, a manufacturing contraction might not be enough to lead to a downturn in general employment or income.

Second, whether measured as broad sales including industry, PCE's, or real retail sales, sales have gone generally sideways this year. Broad sales and real retail sales are slightly below their recent peaks. That's not good, and it certainly lends credence to the manufacturing recession story, but at the same time with the exception of a few periods during the summer, consumers are continuing to spend on houses, on cars, and general stuff.

Which brings me back to two themes I have mentioned frequently here: real wages and gasoline prices. Real wages have gone nowhere in the last year and a half - in fact they have decreased slightly. Mortgage refinancing and laser-like focus on curtailing energy use seem to be holding up consumer spending. Whether consumers cave in or not is very much up to gasoline prices, it seems to me. The recent suprise $.50 spike certainly hasn't helped the rest of the economy. If we go back down to $3.30 a gallon this autumn, I anticipate consumer spending will pick up. If on the other hand we go back over $4 before spring, I suspect consumers will finally throw in the towel, and a generalized recession is much more likely.

At the beginning of this year, I thought that the second half would show strong growth fueled by retreating gas prices. I think we can throw that prediction in the trash can. I'm much more concerned about the direction of the economy than I have been at any point in the last 3 years. But I remain very cautiously optimistic that the worst we will see in the immediate future is a "recessionette," that is neither long enough nor deep enough to cross the crucial threshhold of a tailspin - like 2001 except ending on September 10 and without all the factory layoffs.