The US economy contracting rapidly

[sabang]

Grim reading-

Behind the reassuring statements from Paulson and others that the "worst is over", the reality of the credit collapse since August 2007 is a deepening economic contraction which I have said several times in this space will surpass the Great Depression of the 1929-1938 period.

A good friend who is an unemployed homebuilder in a prosperous part of Arizona just sent me the following list of US department retail store closures. It is worth noting that over 70% of the US gross domestic product is consumer spending and that the entire Federal Reserve strategy of then chairman Alan Greenspan after the March 2000 collapse of the stock market bubble was to bring US interest rates to their lowest levels since the 1930s to stimulate consumer spending on credit (that is, debt) to avoid "recession". Note the scale of the following store closures across America in recent weeks:


Ann Taylor - 117 stores nationwide.
Eddie Bauer to close more stores after closing 27 stores in the first quarter.
Cache, a women's retailer - 20 to 23 stores this year.
Lane Bryant, Fashion Bug, Catherines -150 stores.
Talbots, J Jill - Talbots will close all 78 of its kids and men's stores plus 22 that are a mix of Talbots women's and J Jill.
Gap Inc - 85 stores.
Foot Locker - 140 stores.
Wickes Furniture is closing all of its stores after filing for bankruptcy protection.
Levitz, a furniture retailer - 76 in December.
Zales, Piercing Pagoda - 82 stores by July 31 followed by another 23.
Disney Store owner has the right to close 98 stores.
Home Depot - 15 outlets, affecting 1,300 employees. It is the first time the world's largest home improvement store chain has closed a flagship store.
CompUSA - company closed.
Macy's - 9.
Movie Gallery, a video rental company - to close 400 of 3,500 Movie Gallery and Hollywood Video stores in addition to 520 closed last autumn.
Pacific Sunwear - 153 Demo stores closing.
Pep Boys, an auto parts supplier - 33.
Sprint Nextel - 125, with 4,000 employees affected, following 5,000 layoffs last year.
J C Penney, Lowe's and Office Depot - scaling back.
Ethan Allen Interiors - 12 of 300 stores.
Wilsons the Leather Experts - 158.
Bombay Company - all 384 of its US-based stores.
KB Toys - 356 stores as part of its bankruptcy reorganization.
Dillard's - another six stores this year.

For anyone familiar with American shopping malls and retailing, this represents a staggering part of the daily economic life of the nation, from furniture stores to clothing to video rentals to leather. The process has only begun and neither major party presidential candidate has dared to mention this on-the-ground economic reality because they evidently have no solutions to offer that would not jeopardize their campaign finances.....

Banks across the country have severely cut back on loans, fearful of bad debts. That has aggravated the consumer collapse documented above. Hundreds of thousands of real estate brokers, small and large bankers, furniture workers and salespeople, and construction workers are unable to find work. Jobs are being cut wholesale and those working are often on reduced hours. Car sales in June plunged by 28% for Ford, 18% for General Motors and even 21% for Toyota, which will mean more layoffs in coming weeks. This will be the next wave of unemployment.

The economic reality is not reflected in official US Commerce Department or Labor Department statistics. There the data is constantly being "revised" to hide the grim reality in an election year.

Economist John Williams of California has meticulously tracked such "data revisions" for more than 25 years and found the manipulation of reality so alarming that he founded an independent subscriber service titled Shadow Government Statistics, where he makes best estimate calculations of the reality, not the official mythology.

By Williams' calculations, the US economy first entered recession, defined as two consecutive quarters of negative GDP growth, at the end of 2006. Ever since, the recession has deepened, dramatically so in the past 12 months. Little known is the fact that the Labor Department also publishes six different unemployment statistics from U1, U2 through to U6, this last being the most comprehensive. The reported "official unemployment" is the very narrowly defined U3, which stands at 5.5%. However, as Williams notes, U6 is the real measure and that officially shows 9.7% unemployed. His calculations put the figure at 13.7% actually unemployed and seeking work.

Full article- Asia Times Online :: Asian news and current affairs


Could the US be in for a full blown Depression? If so, the Rest of the World will likely have to contend with severe Recession. It certainly is far from over.

[Mid]

begs the ? , why is dollar he gaining rapidly ??

big boys pushing it before they dump ??

[Norton]

Could the US be in for a full blown Depression?

There are certainly many factors that will further erode the economy in the US. Doubt the downturn is over yet but I don't believe the country will end in a major depression with folks lined up at soup kitchens as they did in the thirties.

The closure of so many retail outlets is the result of a wildly optimistic expansion of these outlets based on consumer spending which was unsustainable over time. These companies are simply adjusting their costs to reflect the market. Very much the same as the real estate market experienced. The bubble always pops when speculation and get rich quick mentality takes hold.

Historically, government statistics have been manipulated. What is included in inflation costs and who is included in unemployment statistics are often chosen to produce numbers that paint the economy in a better condition than it is. Must have something to do with producing statistics that reflect negativity but not so much that folks panic. As with all things "perception" is an important factor in how people react.

I doubt there will be a major depression but as you say, if there is the rest of the world will be effected as well.

[britmaveric]

Over expansion is the reason!

[raycarey]

Could the US be in for a full blown Depression?

from what i've read, it seems the US is more likely to go through what japan did in the late eighties than the US did in the thirties.

[Texpat]

In 1989 the Nikkei was pushing 39,000.
Nearly 20 years later it's scraping along at 13,000.

They've not yet recovered. Their entire economy was based on artificial real estate prices. IMO, the US, and several other countries, have realized a similar phenomenon, but not quite to the same extent.

[raycarey]

i'm only mentioning what i've read...which is that deflationary pressures begain appearing in the late eighties.

[melvbot]

I think the UK can be included in the inflated housing price bracket. A starter home 2 rooms downstairs and 2 rooms upstairs was roughly £100,000 or $180-200,000 depending on exchange rates. Probably the same price now but you would struggle to get a mortgage without a significant deposit.

[bkkandrew]

Could the US be in for a full blown Depression?

from what i've read, it seems the US is more likely to go through what japan did in the late eighties than the US did in the thirties.

Correct.

Note the following M3 data for July:

The US money supply has experienced the sharpest contraction in modern history, heightening the risk of a Wall Street crunch and a severe economic slowdown in coming months.

Data compiled by Lombard Street Research shows that the M3 ''broad money" aggregates fell by almost $50bn (£26.8bn) in July, the biggest one-month fall since modern records began in 1959.

"Monthly data for July show that the broad money growth has almost collapsed," said Gabriel Stein, the group's leading monetary economist.

advertisementOn a three-month basis, the M3 growth rate has fallen from almost 19pc earlier this year to just 2.1pc (annualised) for the period from May to July. This is below the rate of inflation, implying a shrinkage in real terms.

The growth in bank loans has turned negative to a halt since March.

Continued here:

Sharp US money supply contraction points to Wall Street crunch ahead - Telegraph

[bkkandrew]

In 1989 the Nikkei was pushing 39,000.
Nearly 20 years later it's scraping along at 13,000.

They've not yet recovered. Their entire economy was based on artificial real estate prices. IMO, the US, and several other countries, have realized a similar phenomenon, but not quite to the same extent.

Correct. The extent is worse.

[Texpat]

Yes, of course it is ...

[Texpat]

CNN
Aug 28, 2008


NEW YORK (CNNMoney.com) -- A revised reading on gross domestic product announced Thursday showed much better U.S. economic growth than previously reported for the second quarter.

GDP, the broadest measure of the nation's economic activity, stood at an annual rate of 3.3% in the quarter, adjusted for inflation, the Commerce Department said.

Economic growth between 2.5% and 3.5% is typically viewed as the norm for a healthy economy.

The revised result surpassed last month's initial estimate of 1.9%. It also surprised economists surveyed by Briefing.com who expected a revision to 2.7%.

Stimulus works: The $90 billion in economic stimulus payments that reached taxpayers during the quarter helped boost GDP up from just 0.9% growth in the previous quarter.


Personal spending helped add 1.2% to the second-quarter preliminary GDP reading released Thursday, up from the advanced reading of 1% for the quarter and just 0.6% in the first quarter.

But many economists say the boost in consumer spending is a temporary factor attributed to the tax rebate checks, making the jump in the second quarter an anomaly.

"We got a decent boost from the stimulus, which hit the economy at a time when we really needed it," said Wachovia senior economist Mark Vitner. "It will have less of an impact going forward, though and we may even have a payback in the fourth quarter."

Trade helps too: The increase from the initial estimate was also partially due to June's U.S. trade gap reading, which was not available until after the advanced GDP numbers were reported. Much improved demand for U.S. exports added 3.1% to GDP, compared to just 0.8% in the advanced reading.

"We would have had growth even without the stimulus, as much of the rise in GDP had to do with the trade deficit," Vitner added.

A pickup in government spending, particularly a 0.4% rise in defense spending by the federal government, also boosted GDP.

But imports declined over the period, meaning lower inventory levels for retailers, which account for more than half of all GDP. Changes in non-farm inventories subtracted nearly 1.3% from overall growth.

Inflation: The government report also showed mixed readings for inflation in the previous quarter.

The GDP price index, the so-called "price deflator," which measures prices overall, rose at a 4.2% annual rate.

But the core PCE deflator - a more closely watched inflation reading that measures prices that individuals pay excluding volatile food and energy prices - rose 2.1%, the same as was reported in the first GDP report.

Inflation is still just barely above the perceived comfort zone of central bankers. The Federal Reserve is generally believed to want to see the 12-month change in core inflation readings remain between 1% and 2%.

"Without a price spiral, the Fed won't have to squeeze the life out the economy, which should help sustain modest economic growth," Vitner said.

GDP gets economic stimulus boost - Aug. 28, 2008

***

Where's the Depression? I've just planted my garden, sold my truck and mended the big holes in my socks with burlap and yarn.

[raycarey]

i guess the gov should send out nearly $100 billion in checks every quarter.

you boys really have no idea what it means to be a 'fiscal conservative', do you? and from your posts, none of you qualify as social conservatives.....so how in god's name can you call yourselves conservatives.
oh yeah, that's right. you're 'independents'.

anyway, i guess you missed this bit from the article you posted....

But many economists say the boost in consumer spending is a temporary factor attributed to the tax rebate checks, making the jump in the second quarter an anomaly. "We got a decent boost from the stimulus, which hit the economy at a time when we really needed it," said Wachovia senior economist Mark Vitner. "It will have less of an impact going forward, though and we may even have a payback in the fourth quarter."

[good2bhappy]

As usual there are conflicting stories on this one.
Long may it continue.
It is time for some good finacial news.

[britmaveric]

The yank economy rolls on - which is good for the yanks and better for the rest of the world.

[barbaro]

The recent quarterly report on economic GDP growth is mostly due to exports from what I read (no link available).

[Jesus Jones]

The Greenback Blues: Something's gotta give

The Greenback Blues: Something's gotta give

(Mike Whitney) -- In a matter of weeks, the euro has been pounded into pulp while the dollar has regained much of its former glory. The mighty greenback has surged 6% in the last month alone. Wow. Apparently, the early reports of the dollar's demise have been greatly exaggerated. The euro, on the other hand, has been caught in the same recessionary-downdraft that is buffeting a number of other currencies, all of which are unwinding at the same time although unevenly.

[sabang]

I hate to say this, but I think the economic figures are being doctored.
That means lied about.

The US economy is in a recession- look at the stuff above.
There is a major bank failure about to happen to, according to a very senior ex-IMF figure.
There is pain on the ground- go see for yourself.

But no official recession????

This stinks- there is little left to believe in.

[bkkandrew]

The yank economy rolls on - which is good for the yanks and better for the rest of the world.

If you believe that you will believe anything. The only place the US economy is rolling - is off a cliff!

[barbaro]

I hate to say this, but I think the economic figures are being doctored.
That means lied about.

Yes, the numbers are fudged.

GDP is calculated to be higher than it is.
US is calculated lower than it is.
CPI is calculated lower than it is, mainly because of Social Security COLA payments.

[lom]

Economic growth between 2.5% and 3.5% is typically viewed as the norm for a healthy economy.

There is something basically wrong with a system that needs to grow in order to survive.
Similar to cancer..

[Butterfly]

Nominal GDP is also based on Export, so it's not abnormal to see higher higher GDP because of net increase in export despite a decrease in customer spending, and a "local" recession

[Texpat]

If domestic spending is down and exports increase as a result of a weakened dollar, I'd say that's a sign of a well-balanced economy. The US trade deficit is hardly healthy though.

There is something basically wrong with a system that needs to grow in order to survive.

If it doesn't grow to at least keep pace with inflation, it's shrinking. That's worse, unless you're willing to just fade away.

[bkkandrew]

I hate to say this, but I think the economic figures are being doctored.
That means lied about.

Yes, the numbers are fudged.

GDP is calculated to be higher than it is.
US is calculated lower than it is.
CPI is calculated lower than it is, mainly because of Social Security COLA payments.

When the post-debacle analysis is in full swing, a little known economic term will be on everybodies lips with regard to the falsifying of it for some time.

The term is GDP Deflator.

This is the calculation that is used to subtract inflation from the nominal GDP figure to give the actual GDP figure. For the past two years you may as well have used a figure derived from calculating the percentage indians in a neighbourhood, devided by your systolic blood pressure.

[Accidental Ajarn]

"If you believe that you will believe anything. The only place the US economy is rolling - is off a cliff!"

Of course you are the same guy who claimed World War III was starting.

The US economy has been too strong for too long, there are some structural problems and I expect the next 5 to 10 years will not be like it is the 90s, but a half a point drop in GDP Growth will hardly result in the US economy crashing and burning.

Of course, BBKa has never seen a negative story about America he didn't believe (even if it is from a propoganda site like Asia online) and want to post here.