Smoking Green Shoots Won’t Change the Numbers

H/T Calculuated Risk who reports that Bankruptcies in May UP. http://www.calculatedriskblog.com/2009/06/consumer-bankruptcy-filings-up-sharply.html

I’ve been hesitant to dissect the recent bad news on the unemployment front too much because it’s going to get a lot worse and I’ll probably have more to say on that later. Remember, we’re just beginning to unwind the automobile industry and the affiliated small businesses and industries that it sustains. As that occurs, there will be a multiplying effect in small towns every where. Most of these small cities are sustained by car dealers and maybe one or two factories, as these businesses disappear, so will the small businesses providing services to employees. It’s going to get much worse folks. Since we’ve had stories from some of our own friends, we know that that impact strikes our near and dear.

That’s why I’ve been really confused as to why the administration seems to think by just talking up a few possible changes, which could yet be classified as random variation given there has not been enough time to actually establish a statistically significant pattern, they expect wishful change. Perhaps it’s just a continuation of the election season. If it’s repeatedly read from a teleprompter, it will happen. Just clap REALLY loud if you believe in green shoots!!! It will revive the economy!

The first crack in the plaster happened when Goolsbee let slip this little GEM on Fox News on Sunday.  Michael Bowman writes:

The White House says America’s employment picture is worse than the Obama administration had anticipated just a few months ago. The somber admission follows the latest jobless report showing the highest unemployment rate the United States has seen in more than 25 years.

U.S. unemployment jumped a half percent in May, to 9.4 percent prompting this comment by Austan Goolsbee, a member of President Barack Obama’s Council of Economic Advisors:

“The economy clearly has gotten substantially worse from the initial predictions that were being made, not just by the White House, but by all of the private sector,” said Austan Goolsbee.

Economists point out that the current jobless rate is already higher than the hypothetical rate that was used to calculate the health of banks and other financial institutions in so-called “stress tests” earlier this year. And, the upward unemployment trajectory is expected to continue in coming months, even if the overall economy begins to recover.

Austan Goolsbee spoke on Fox News Sunday:

“It is going to be a rough patch [difficult period], not just in the immediate term, but for a little bit of time [in the future],” he said. “You have to turn the economy around, and jobs and job growth tends to come after you turn the economy around.”

I really have to say that I’m flummoxed that with all that brain power, all those fancy degrees, all that access to data and models, we seem to have abandoned that most important element of any neomcrancer: your gut instinct!  Just look around!  Just talk to some one on the street or a small business person!  What are they doing?  Consumers may have relaxed a bit, but they are certainly  not lining up to take huge vacations and buy cars. Even if they wanted to, their funds and borrowing powers are depleted.  Doesn’t that tell you something?  I still remember how our President at the Atlanta Fed would prepare for the FOMC meetings.  He not only had the lead economist work up some numbers, he always had those of us in the branches out holding meetings with our local business leaders asking really relevant questions like Are you planning on hiring any more staff?  Do you think you’ll increase your inventory this year?  What do you hear from your customers?  Are the White House economists so far up the Hopium pipe that they’ve forgotten to hone their forcasts with a good strong dose of reality?

So, given that hooplah with the worst unemployment figures in 26 years and we’re not even half way through the year or probably near the trough of The Great Recession, here comes this gem from the NY Times.  This if from the pen of Jackie Calmes and is entitled President’s Economic Circle Keeps Tensions High.  It starts out with a very grim portrait of an exchange between Christine Romer and Larry Summers briefing a POTUS distracted by a fly. (Great attention span, that!)

If the Oval Office incident was meant as a lighthearted moment, it also exposed the underlying tensions that have gripped Mr. Obama’s economic advisers as they have struggled with the gravest financial crisis since the Depression, according to several dozen interviews with administration officials and others familiar with the internal debates.

By all accounts, much of the tension derives from the president’s choice of the brilliant but sometimes supercilious Mr. Summers to be the director of the National Economic Council, making him the policy impresario of the team. The widespread assumption, from Washington to Wall Street, was that the job would be Mr. Summers’s way station until the president could name him chairman of the Federal Reserve when Ben S. Bernanke’s term expires early next year.

It’s an interest piece about the Summers who attempts to herd the other cats in the economics section of the West Wing.   Given all the recent rumblings about Summers and all his fee collecting in the fall, then all the interest and money in one of his enterprises during the stress tests,  I was interested in seeing the take on the relationship between Summers and Geithner.

Mutual acquaintances say that the longtime friendship between Mr. Summers and the 47-year-old Mr. Geithner has been strained, but that their relationship would be even worse were it not for Mr. Geithner’s even temperament and his history with Mr. Summers. “I am completely comfortable pushing back at him,” Mr. Geithner said in an interview.

“Larry will come to any issue and say, well, here’s all the 16 reasons why there’s problems with that proposal. If he’s got ideas, particularly if I think they won’t work, I say to him, ‘Well, why don’t you make the case against it, Larry, because you’re pretty good at making the case against anything.’ ”

But, Mr. Geithner said, that trait makes Mr. Summers a good director of the economic council because “he is better than anybody else on the planet at framing the case for and against any particular issue and reducing something to a set of concrete options.”

Mr. Summers and Mr. Geithner have generally agreed that the government should not dictate executive pay and other management policies at companies receiving government aid.

Meanwhile, Politico reprots that POTUS will increase the stimulus spending.

Obama will make the announcement during a late-morning Cabinet meeting, when Vice President Joe Biden will present a Roadmap to Recovery, which the White House calls “an administration-wide effort to accelerate implementation of the American Recovery and Reinvestment Act in its second 100 days.”

“As a result of this accelerated pace of activity, over 600,000 jobs are expected to be created or saved by the Recovery Act in the second 100 days,” compared with roughly 150,000 in the first 100 days, the White House said.

While the administration is sensitive to criticism that stimulus spending has been too slow, a new Gallup Poll shows danger in the other direction. For the first time, a majority of respondents disapprove of Obama on the issue of “controlling federal spending” (51 percent to 45 percent), compared with the 67 percent who view him favorably overall.

Could “deficit politics” return as the economy steadies? The poll suggests that the nation’s exploding red ink could be an issue in next year’s midterm congressional races.

Maybe they read Rove’s WSJ editorial declaring it was still the economy, stupid. The unpleasant facts are that will the pace of decline appears to be slowing a bit, we’re still in decline.  No one is expecting a robust recovery when it does happen.  NY Times Op-Ed Contributors Sand B Lewis and William Cohen argue that The Economy is Still on the Brink.  I have to admit this part couldn’t have stated my feelings any better.

Mr. Obama thinks that the way to revive the economy is to restore confidence in it. If the mood is right, the capital will flow. But this belief is dangerously misguided. We are sympathetic to the extraordinary challenge the president faces, but if we’ve learned anything at all two years into the worst financial crisis of our lifetimes, it is that a capital-markets system this dependent on public confidence is a shockingly inadequate foundation upon which to rest our economy.

We have both spent large chunks of our lives working on Wall Street, absorbing its ethic and mores. We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over — and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow’s swings are a fool’s game.

I continue to mull over that one line I bolded in the quote.  “Nothing has really been fixed.”   To me that still is at the heart of my pessimism, I’ve repeatedly called for systemic changes in the banking system and its regulation.  We’ve seen none of that.  We’ve heard calls from the Fed asking for fiscal policies plans when they make the call the switch from accomodating to tighter monetary policy.  We’ve seen none of that.  We need some kind of Marshall plan to help those communities that will be hit hardest by the Chrylser/GM Bankruptcies.  Again, we’ve seen none of that.  I can’t say what you’re expectations are at this point, but I wouldn’t characterize mine as the least bit hopeful.

Green shoots or baby weeds? You decide!