I’ve been swamped all week and thus unable to sit down and plot the economic data of the moment. I might get to that later, but until then, here’s a quick, informal assessment of current conditions.
–The bottom line is that we’re slogging along at trend–about 2% of GDP–and probably will be for the near future. At trend, the unemployment rate pretty much stays where it is. Ergo, the slog.
–Headwinds will push against that but there are tailwinds too.
–The former include mostly Europe, weak employment and earnings, and potential self-inflicted fiscal wounds. Europe is probably already shaving 25-50 basis points off of current GDP growth and that’s unlikely to get any better any time soon. It could get worse, of course–that’s the conventional wisdom. But I doubt Europe does much more short-term damage to our GDP growth this year. If things unravel there, upgrade that 25-50 bps to at least 1% in 2013.
–Real wages are flat–real weekly earnings were up 0% over the past year. Consumer spending is thus weak and that’s showing up in flat retail sales.
–But there are two notable tailwinds: gas prices and housing. The average price at the pump is down about 20 cents over the past few months. That’s big, and if it sticks, it will continue to help to offset the euro-drag.
–Housing looks to me and other analysts who track the market like we’ve finally carved out a bottom. I can’t say we’re doing much more than bumping along that bottom right now, but that’s actually a potentially very good sign. Home prices must stabilize before they start reliably rising. There’s more home equity as folks deleverage (pay down debt, including mortgage debt) and refi into very low rates. And even prices of distressed sales are looking stable.
–This last point re housing is the newest and most important thing going on right now. But there’s no guarantee. If everything breaks bad and we start growing below trend, there could be another leg down in home prices. That would be a horrible squandering of some actual economic progress and should be assiduously avoided.
–Which means Congress really shouldn’t screw around with the fiscal cliff and the debt ceiling and throwing the economy under the bus in coming months for political gain.
Do you think that last sentence is just too damn obvious to even write down? Would it were so.
That last sentenced really sums it up. It seems that politics used to be the means to reach the ends of achieving one’s preferred governance solutions. I wonder more and more whether governance hasn’t turned into the means to reach the end of political dominance for its own sake. The subordination of the actual running of the country, and dominance of political goals is hurting our economy and our country, imho.
Take for example the ACA, AKA Obamacare. It couldn’t be more clear that most Republicans had no genuine governance/ideological reason to oppose it — it was composed mostly of their own ideas, after all. They shot holes in it and badmouthed it (death panels!) for purely political reasons, mangling what a vast majority of politicians knew was pretty good governance for the sake of politics. Tossing solid agreed-upon governing ideas overboard for the sake of pure politics is a luxury we cannot afford. I fear we are about to see it happen again with the fiscal cliff.
Regarding housing–specifically underwater homeowners–is there anything at all President Obama can do, other than cajole, to ‘cut red tape and help responsible homeowners refinance their mortgages at today’s lower rates’–which is what he is asking Congress to do.
Refinancing at lower rates would, of course, provide our economy a much need jolt–so Republicans in Congress will block it at all costs.
It’s always instructive to hear your take on MSNBC.
The residential property system in the USA hass been trashed, with millions of titles in question. Entire neighborhoods have been thrown to the tender mercies of the banking system. No-one sensible will take out a mortgage until the banking system is cleaned up, and I see no signs of that in less than five years.
People will, of course, go into the housing market anyway. I can’t imagine what the market is going to look like after more years of banking abuses. It is possible that, by 2015, the vast majority of the public will be unwilling to take on even safe mortgages.
Yeah, it’s worse than it looks, even now.
Donna, Obama could start by ordering Treasury to reign in the OCC, which has been complicit in mortgage abuses, and also pressing the banks to undertake principal modifications. The first is something that could be done in a day: Treasury is part of the executive and under Obama’s direct authority. The second is probably something that could be done quickly under HAMP.
BTW, the sharper commentators on the left are seeing a post-election deal that embraces some version of Bowles-Simpson. We may hope that this gets lost in partisan conflict. If not, economy meet bus.