Tuesday, September 04, 2007
Funniest And Saddest Article
``While there is no basis for predicting a recession right now, the risks have surely gone up,'' says former Treasury Secretary Lawrence Summers, now a professor at Harvard University in Cambridge, Massachusetts. ``The combination of softness in the housing sector, contractions in credit, increased uncertainty and volatility, and losses in wealth make the chances significantly greater now.''Schizophrenic economic articles are probably the best indicator of recession. The strangest thing in the article is the emphasis placed on consumer confidence. This passage:
``We're taking the pulse of the economy a little more frequently,'' says Jonathan Basile, an economist at Credit Suisse Holdings in New York. ``If the spillover from the credit crunch gets into autos, it would be the second major sector to fall and would solidify a lot of the fear in the markets.''
The pace of car and truck sales in the U.S. has dropped for seven consecutive months, the biggest string of declines in at least 31 years, according to data compiled by Bloomberg.
A sudden drop in consumer confidence at the end of 2000, coupled with a contraction in manufacturing and a two-year-low in motor-vehicle sales, helped set the stage for the last recession, which began in March 2001.The 2001 recession wasn't caused by consumer retraction, but by a business retraction. This belief that the American consumer is a gentle woodlands creature, easily frightened back into the woods and away from the malls by negative economic news, is entirely unfounded. People stop spending based on what is happening in their lives, rather than on the basis of forecasts and prognostications by economists. They either don't have the money to spend or are afraid of losing their jobs, as they were in 2000.
If you have the time and are of the mind, could you elaborate a little on the distinction between ‘consumer retraction’ and ‘business retraction’? I should think they go hand and hand, so to speak.
You seem to imply that the consumers were in the market looking to buy (i.e. not retracted), yet business was not producing to meet the market (i.e. retracted).
The leading edge for the 2001 was unusual in that it was in business.
If consumers pull back spending significantly, that cuts into business profits, which produces a business contraction, which then causes consumers to lose jobs and buying power.
Real wages seem to have peaked in 1999 and have not yet recovered, btw.