Friday, May 6, 2011

The economy really sucks this spring

The signs of an economic slowdown were on prominent display my whole trip.  Attendance and spending was way down at the NAMES show.  Tony's brother claimed the food business in Chicago was a disaster as suppliers tried to raise prices to cover their increasing costs only to meet savage price resistance from consumers who will now only buy if something is on sale.  Municipalities trying to close budgetary shortfalls had dispatched every available patrolman to catch the almost non-existent speeders---cops were just everywhere.

The main driver of the economic problems--high petroleum prices--had signs perched on seemingly every available pole reminding everyone how bad the pain would be.  I saw unleaded regular going for $4.79 a gallon at one Chicago station.  While that probably sounds like an incredible bargain to a Dutchman paying over $7.00 a gallon, it is a disaster in someplace like Chicago with vast urban sprawl and virtually no transportation alternatives to the private automobile.

Don't Mean To Be Rude, But The Economy Sucks
Henry Blodget | Apr. 28, 2011, 11:11 AM 
In the past couple of months, a disconnect has developed between the perception of the US economy and the reality.
The perception is that everything's just fine: The continuation of a solid if unspectacular recovery that began in the summer of 2009. Stocks continue to rise. Corporate profits continue to boom. The unemployment rate continues to tick down. Wall Street continues to coin money.
But the reality is that the recovery has never been strong and that many key metrics have recently turned south--despite the fact that the government still has its foot stomped on the stimulus gas.
What metrics have turned south?
Well, first and foremost, GDP growth.
We learned this morning that the economy grew at a pathetic 1.8% in Q1. That's way below the 3%-4% rate that most economists consider normal. And it's miles below the 5%-7% growth that normally follows a recession as sharp and severe as the one we just had.
Meanwhile, the Fed still has interest rates parked at zero, and is still conducting emergency stimulus measures like QE2. And the government's huge stimulus package from 2009 is still driving spending. And we're still spending an absolutely mind-boggling ~$1.5 trillion per year more than we take in (federal deficit)--and piling up humongous debts in the process. And, needless to say, none of this spending--"stimulus" or just normal spending we can't afford--has produced the desired private-sector growth.
1.8% GDP growth in the face of massive stimulus is the equivalent of your car sputtering down the highway at 45 miles per hour while you have the gas pedal floored. You might be glad that the car hasn't broken down completely, but you certainly won't conclude that all is well. And you also might conclude--wisely--that if 45 is the best you can do with the gas pedal floored, things may be about to get a whole lot worse. more

When Oil Prices Double, Look Out For Another Recession
James Cooper, The Fiscal Times | Apr. 25, 2011, 10:30 PM 
There are plenty of risks in the economic outlook right now, including global supply disruptions following the multiple disasters in Japan, sovereign debt problems in Europe, budget gridlock in the U.S., and China’s inflation and rate hikes.
What economists are most worried about, though, is oil.
West Texas Intermediate crude ended above $112 per barrel in New York trading Thursday before the Easter break. Brent crude, the European benchmark, was just over $124. The average price for U.S. gasoline, at $3.85 per gallon on Friday, continues its march toward the $4.11 peak hit in 2008.
Already, rapid growth in emerging markets in Asia and South America is pressuring tight global oil supplies. That’s what pushed oil prices to $147 in 2008, adding to the problems in the U.S. economy. The Paris-based International Energy Agency in its April report estimated that effective spare production capacity within OPEC, which supplies about 40 percent of the world’s oil, stands at 3.91 million barrels per day. Based on OPEC’s March production of 29.2 million barrels a day, that means OPEC is producing at just over 88 percent of capacity – leaving a thin margin close to the level that helped drive oil prices up in the previous decade. The turmoil in Libya has already taken most of the country’s 1.7 million barrels per day off the market, and any further supply losses would be acutely felt. more
Of course, eventually the economy slows down so far that even oil prices are under pressure.  This may have begun to happen.
Party Like It's 1929
Economy Hanging by a Thread
By MIKE WHITNEY   May 5, 2011
A bleak jobs report sent stocks and commodities tumbling on Wednesday, while new signs of distress gripped the service industries index. An updated report from the ADP showed that private sector hiring slowed more than expected from March to April as companies struggled to meet rising raw material costs and flagging consumer demand. The service industry index (ISM) --which "ranges from utilities and retailing to health care, finance and transportation"--slumped to its lowest level since August signaling widespread deceleration and a progressive deterioration in the fundamentals. The turnaround has forced economists to rethink their projections for 2nd Quarter GDP and to watch more vigilantly for signs of contraction. This is from the New York Times:
"The economy lost steam in the first quarter. Growth in personal consumption — the single largest component of the economy — slowed markedly. Business-related construction cratered and residential construction fell. Exports stumbled. The only unambiguous plus was continued business investment in equipment and software, which is necessary but not sufficient for overall growth.
In all, economic growth slowed from an annual rate of 3.1 percent in the fourth quarter of 2010 to 1.8 percent in the first quarter of 2011.... more

Oil drops below $100 on worry of weaker US demand
By CHRIS KAHN, AP Energy Writer – Thu May 5, 5:48 pm ET
NEW YORK – Oil plunged nearly 9 percent to settle below $100 per barrel. Investors who had ridden a months-long rally fled the market Thursday because of concerns about weakening demand for fuel in the U.S.
The decline of $9.44 per barrel, or 8.6 percent, brings the week's loss for oil to $14.13, or 12.4 percent. Other commodities like silver and cotton have plunged as well.
Oil rose 35 percent from mid-February through the end of April. As it climbed above $100, economists warned that high fuel prices were taking a toll on the U.S. economy. Gasoline demand starting falling in March as motorists paid more at the pump; that trend was reinforced by industry and government studies released this week. On Thursday, worries about the job market ahead of Friday's key employment report added to concerns about fuel demand.
"More and more people were saying that oil was just too high," said Michael Lynch, president of Strategic Energy & Economic Research. "That got a lot of investors ready to run for the door. That's what they're doing now."
A higher dollar also contributed to Thursday's sell-off. Benchmark West Texas Intermediate crude for June settled at $99.80 per barrel on the New York Mercantile Exchange. That's the lowest settlement since March 16. Oil last had a one-day percentage decline this big on April 20, 2009. Back then a barrel of oil cost less than half as much as it does now.
Analysts also said the lack of any terrorist retaliation of the killing of Osama bin Laden eased concerns about the safety of the world's oil fields.
Oil and other commodities have been on a roll since around Labor Day, when the Federal Reserve indicated it would take more steps to boost the U.S. economy. The Fed's announced a plan to buy back $600 billion in Treasury bonds. The move effectively lowered interest rates but also weakened the dollar and unleashed inflation fears. Investors poured that extra money into oil, precious and base metals and grains.
This year, uprisings in Libya and the Middle East gave a further lift to energy markets.
This week investors have reversed those bets on commodities and locked in profits.
The plunge in oil may be enough to keep pump prices from reaching a national average of $4 per gallon. Retail gasoline has surged 30 percent this year. It's risen for 44 consecutive days to $3.985 per gallon. more

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