May 17, 2012 at 8:29 am
1) Gas has been getting cheaper. The figure shows that oil is down about $10/barrel in recent weeks and the average for a gallon of gas is down around 20 cents. That’s big and if it sticks, it puts more disposable income in people’s pockets (one cent off at the pump aggregates up to about $1 billion less spending on gas) and boosts GDP growth by around 0.25%, based on rule of thumb.
On a political note, my phone didn’t stop ringing during the gas price run-up with people anxious to blame the President, who has about nothing to do with setting global oil prices. Now, radio silence…J’accuse the gotcha media of asymmetry!
2) Though all home sale prices are still falling year-over-year, non-distressed home sales have been breaking zero now for a few months in what looks to me like a positive trend. The key variable then becomes the movement in the share of sales from the distressed (short-sales, foreclosures) side of the ledger. It’s going down, but very slowly, so it will still be months before overall sales start increasing. But the housing market does appear to be climbing out the hole.
3) The price of a cliff dive is steep. The figure, from Goldman Sachs researchers, shows the various paths you’d expect from real GDP under different treatments of all the expiring tax and spending provisions at the end of this year. One of them kind of sticks out, no?
But note that under all scenarios, fiscal drag is in play. We’re actively applying leeches. Whether we can avoid the mother of all fiscal leeches is yet to be seen. See here (first answer) for my predicted scenario.
Source: Goldman Sachs Research
4) Finally, we have European and US bond yields on 10-yr gov’t bonds. I walk around thinking that European economic woes are shaving 25-50 bps (basis points, hundredths of a percentage point) off of 2012 GDP growth. With Greece exiting the zone an increasing possibility, that guesstimate has to include significant downside risk (i.e., it could be worse). But consider this: when I read scenarios about the horrific Greek tragedy of a eurozone exit, I don’t think the writers are considering the counterfactual. The current trajectory is terribly damaging and unsustainable. Ripping the band-aid off may become the only viable option. But it is scary, largely because no one can say with any confidence what happens next.
We live in interesting times. It would be nice if they were less interesting for awhile.
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