Wednesday, August 3, 2011

Today's links

1--Gallup: Obama's not losing his base, Politico

Excerpt: Despite much grumbling from the left in Congress and online, President Barack Obama isn’t losing his base and has largely maintained his liberal support, a new Gallup Poll found.

Of self-described liberals, 72 percent still approve of Obama’s job performance, down seven points since the beginning of June but up two percentage points from mid-July, the poll found.

“Obama’s support among Americans who identify themselves as both liberal and Democratic was 83% last week, little changed from previous weeks and slightly higher relative to Obama’s overall approval rating than it has been historically,” Gallup said.

“Although President Obama’s job approval rating hit the low point of his administration during the past week and is down among most subgroups, there are no signs yet that he has taken a disproportionate hit among his traditional base of liberals and Democrats. On a relative basis, both of these groups remain as loyal to Obama compared with Americans overall as they have been on average since he took office in January 2009,” Gallup added.

The president’s overall approval rating is at 42 percent, down from 50 percent at the beginning of June.

2--Personal Income less Transfer Payments Revised Down Sharply, Calculated Risk

Excerpt: On Friday, the BEA released revisions for GDP that showed the recession was significantly worse than originally estimated. This morning the BEA released revisions for Personal Income and Outlays.

One of the key measures of the economy is personal income less transfer payments, in real terms. This is also one of the measures the National Bureau of Economic Research (NBER) uses in business cycle dating:
The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment....

Prior to the revisions, the BEA reported this measure was off close to 7% from the previous peak at the trough of the recession.

With the revisions, this measure was off almost 11% at the trough - a significant downward revision and shows the recession was much worse than originally thought.

Real personal income less transfer payments is still 5.1% below the previous peak.

3--Macroeconomic Folly, Paul Krugman, New York Times

Excerpt: All of a sudden, people seem to have noticed that policy is moving in exactly the wrong direction. We’re getting headlines like this: Debt Deal Puts U.S. on Austerity Path as Economy Falters.

I’ll need to write up my thoughts here at greater length, but let’s just say for now that what we’ve witnessed pretty much throughout the western world is a kind of inverse miracle of intellectual failure. Given a crisis that should have been relatively easy to solve — and, more than that, a crisis that anyone who knew macroeconomics 101 should have been well-prepared to deal with — what we actually got was an obsession with problems we didn’t have. We’ve obsessed over the deficit in the face of near-record low interest rates, obsessed over inflation in the face of stagnant wages, and counted on the confidence fairy to make job-destroying policies somehow job-creating.

It’s a disaster – and maybe not only an economic disaster.

Fears of far-right rise in crisis-hit Greece

ATHENS, Greece — They descended by the hundreds — black-shirted, bat-wielding youths chasing down dark-skinned immigrants through the streets of Athens and beating them senseless in an unprecedented show of force by Greece’s far-right extremists.

In Greece, alarm is rising that the twin crises of financial meltdown and soaring illegal immigration are creating the conditions for a right-wing rise — and the Norway massacre on Monday drove authorities to beef up security.

The move comes amid spiraling social unrest that has unleashed waves of rioting and vigilante thuggery on the streets of Athens. The U.N.’s refugee agency warns that some Athens neighborhoods have become zones where “fascist groups have established an odd lawless regime.”
Got that 30s feeling, all the way.

4--REAL income up, REAL spending, The Big Picture

Excerpt: While included in Friday’s report on Q2 GDP, the June data on income and spending points to the weak contribution consumption gave to the quarter, even more so than expected. Nominal spending fell .2% vs an expected gain of .1% but because the headline PCE deflator also fell by .2% (due to drop in energy prices), REAL spending was flat. Income rose .1%, .1% less than expected but rose in .3% in REAL terms. The savings rate rose to 5.4% from 5% and compares with the 20 yr average of 4.2% and 30 yr average of 5.5%. Bottom line, with consumer spending making up a big chunk of GDP, it’s no wonder that growth has stalled out as all the factors we all know continue to inflict the American consumer.

5--The President Surrenders, Paul Krugman, New York Times

Excerpt: A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

6--Ransom Paid, Robert Reich's blog

Excerpt: Anyone who characterizes the deal between the President, Democratic, and Republican leaders as a victory for the American people over partisanship understands neither economics nor politics.

The deal does not raise taxes on America’s wealthy and most fortunate — who are now taking home a larger share of total income and wealth, and whose tax rates are already lower than they have been, in eighty years. Yet it puts the nation’s most important safety nets and public investments on the chopping block.

It also hobbles the capacity of the government to respond to the jobs and growth crisis. Added to the cuts already underway by state and local governments, the deal’s spending cuts increase the odds of a double-dip recession. And the deal strengthens the political hand of the radical right....

By putting Medicare and Social Security on the block, they have made it more difficult for Democrats in the upcoming 2012 election cycle to blame Republicans for doing so.

By embracing deficit reduction as their apparent goal – claiming only that they’d seek to do it differently than the GOP – Democrats and the White House now seemingly agree with the GOP that the budget deficit is the biggest obstacle to the nation’s future prosperity.

The budget deficit is not the biggest obstacle to our prosperity. Lack of jobs and growth is. And the largest threat to our democracy is the emergence of a radical right capable of getting most of the ransom it demands.

7--GLOBAL ECONOMY-Europe, Asian factory growth stalls in July, Reuters

Excerpt: Factories in Asia and Europe expanded in July at the weakest rate since major industrial powers were struggling through the 2009 recession, adding to concerns over world growth.

While stock markets rose on signs of a last minute solution that would avoid a U.S. debt default, manufacturing purchasing managers indexes (PMIs) provided the latest evidence of a slowing global economy.

The euro zone manufacturing PMI, which gauges the activities of thousands of businesses, fell to 50.4 in July from 52.0 in June -- its worst showing since September 2009 and barely above the 50 mark dividing growth and contraction.

Perhaps more worryingly, China's official government PMI dropped to 50.7 from 50.9 in June, its weakest in more than two years, while the HSBC PMI fell below the 50 mark for the first time in a year -- to 49.3 in July from 51.6.

China was the main engine of growth as the developed world sank into recession after the 2008 financial crisis and signs of a slowdown there would worsen the global outlook at a time when both the U.S. and European economies are struggling with debt crises....

"At the global level, the manufacturing cycle is taking a turn for the worse," said Silvio Peruzzo, economist at RBS in London.

"It's not a euro area story, it's a broad-based story. Look at China, look at other advanced economies -- clearly the manufacturing cycle has taken a turn which was more pronounced that was probably anticipated."

8--Manufacturing Weakens From China to U.K, Bloomberg

Excerpt: Manufacturing indexes from Asia to Europe fell in July as demand weakened and the global recovery from recession lost momentum.

U.K., Russian and Australian manufacturing shrank last month, while the pace of factory growth slowed in Europe and China, according to surveys today. A report later today may show manufacturing in the U.S., the world’s largest economy, expanded at a slower rate, even after the dollar’s 7 percent drop against the euro this year.

Europe’s debt crisis, U.S. political haggling over the nation’s debt limit and monetary tightening in China have combined to restrain the global recovery. Consumer confidence is being undermined by job cuts and government austerity measures, while manufacturers may also struggle to recover as soaring commodity prices weigh on margins.

“Manufacturing is slowing and some of these readings are in recessionary territory,” said David Owen, chief European economist at Jefferies International Ltd. in London. “Coming through a banking crisis, you can’t place much weight on the consumer so you depend on manufacturers doing well.”


The dollar has declined against 15 of 16 currencies tracked by Bloomberg this year, improving U.S. export competitiveness. It has fallen about 5 percent against the yen and the pound and 16 percent against the Swiss franc.

9--Consumer confidence falls, Marketwatch

Excerpt: A gauge of consumer sentiment fell in July to the lowest level since March 2009 on worse views for current and future economic conditions, according to the gauge from Thomson Reuters/University of Michigan released Friday.

The sentiment index declined to 63.7 in July from 71.5 in June. A preliminary reading for sentiment in July had pegged the barometer at 63.8. Economists surveyed by MarketWatch had expected a final July reading of 64.3. Washington’s stalled debt negotiations and a tough employment environment have been taking a toll on consumer sentiment, analysts say.

“Consumers continued to view their finances in quite bleak terms both for the year ahead as well as over the next five years,” said Richard Curtin, chief economist for the consumer survey, in a statement. “The absence of positive near and longer term financial expectations has turned consumer resilience into consumer fragility at the first signs of renewed adversity.”

10---Michigan Consumer-Sentiment Index Fell to 63.7 in July From 71.5 in June, Bloomberg

Excerpt: Employers added 18,000 jobs in June, the fewest in nine months as the unemployment rate climbed to 9.2 percent.

Property values fell in the year ended in May by the most in 18 months, the S&P/Case-Shiller index of property values in 20 cities showed earlier this week.

Today’s confidence report follows the Bloomberg Consumer Comfort Index, which fell to minus 46.8 for the week ended July 24. The Conference Board’s monthly sentiment index climbed in July from an eight-month low.

Lagging consumer confidence and weak employment gains may curb consumer spending, said Larry Young, chief executive officer of Dr. Pepper Snapple Group Inc.

“I remain concerned about the U.S. economy, unemployment trends and the impact this is having on the overall spending patterns,” Young said on a July 27 conference call with analysts.

11--Container-Ship Plunge Signals U.S. Slowdown, Bloomberg

Excerpt: Plunging rates for chartering container vessels that carry sneakers, furniture and flat-screen TVs may signal a U.S. consumer slowdown and losses for shipping lines in what is traditionally their busiest time of the year.

Fees for hiring vessels have fallen 9.3 percent since the end of April, according to the Howe Robinson Container Index, which tracks charter rates for a range of vessels. Last year, the index surged 56 percent in the period, as lines added ships on demand from U.S. and European retailers restocking for the back-to-school and holiday shopping periods.

“The troubling part is that charter rates are falling in the peak season,” said Johnson Leung head of regional transport at Jefferies Group Inc. in Hong Kong. “Sentiment among consumers and retailers isn’t very strong.”

12--The Depressing Impact of a Spending Only Trigger, Jared Bernstein, On The Economy

Excerpt: As I and others have written from the beginning of this debacle, absent new revenues, we’ll end up with spending cuts carrying too much of the load. And that looks to be where we’re headed.

As I understand it, the first tranche of cuts—about $1 trillion in discretionary spending—occurs soon after passage.

Then, by the end of this year, a committee of 6 R’s and 6 D’s comes up with a proposal for about $2 trillion in round two cuts. If the committee fails to do so, or Congress fails to enact, then an across-the-board spending-cut-only trigger takes over.

Especially after the first round of cuts went exclusively at discretionary programs, this means round two will go hard after entitlements.

That sounds a lot like what Speaker Boehner proposed last week. Here’s what my CBPP colleague Bob Greenstein had to say about that proposal :

The first round of cuts under the Boehner plan would hit discretionary programs hard through austere discretionary caps that Congress will struggle to meet; discretionary cuts thus will largely or entirely be off the table when it comes to achieving the further $1.8 trillion in budget reductions. As Speaker Boehner’s documents make clear, virtually all of the $1.8 trillion would need to come from cuts in entitlement programs. (Cuts in entitlement spending totaling more than $1.5 trillion would produce sufficient interest savings to achieve $1.8 trillion in total savings.)

To secure $1.5 trillion in entitlement savings over the next ten years would require draconian policy changes. Policymakers would essentially have three choices: 1) cut Social Security and Medicare benefits heavily for current retirees, something that all budget plans from both parties…have ruled out; 2) repeal the Affordable Care Act’s coverage expansions while retaining its measures that cut Medicare payments and raise tax revenues, even though Republicans seek to repeal many of those measures as well; or 3) eviscerate the safety net for low-income children, parents, senior citizens, and people with disabilities. There is no other plausible way to get $1.5 trillion in entitlement cuts in the next ten years.

13--From Spending to Cuts, While the Economy Stalls, New York Times

Excerpt: The economy grew at an annual rate of only 0.8 percent during the first half of the year. Millions of homes remain empty. Twenty-five million Americans could not find full-time jobs last month. And even without the debt ceiling deal, federal spending is in rapid decline. Little remains of the federal stimulus money. Payroll tax cuts are set to expire at the end of the year.

The combination of the budget-cutting government’s plans and the grim economic news is likely to increase pressure on the Federal Reserve, which will hold a scheduled meeting on Aug. 9, to reconsider its declaration earlier this summer that it has done enough to aid the economic recovery.

After four years of extraordinary efforts to promote growth, including a continuing campaign to hold down interest rates for at least a few more months, officials at the central bank say they are reluctant to do more. But the Fed’s chairman, Ben S. Bernanke, said if the economy deteriorates and there is a growing risk of deflation or a broad decline in prices, policy makers could act.

14--Auto Sales Stall as Unemployment Puts Peak Out of Reach: Cars, Bloomberg

Excerpt: U.S. auto sales have stalled, casting doubt on a rebound this year as persistent unemployment and tighter lending deter buyers.

Light-vehicle deliveries in July, to be released tomorrow, may have run at an 11.8 million seasonally adjusted annual rate, the average estimate of 12 analysts surveyed by Bloomberg. That would trail the 12.5 million rate in the first half.

The auto industry may lose 1.5 million in projected sales in 2011, according to consultant AlixPartners LLP. The economy isn’t picking up as fast as anticipated, and the drag may continue beyond this year, AlixPartners said. That may put a return to average annual sales of 16.8 million vehicles from 2000 to 2007 out of reach. Unemployment reached the highest level this year in June.

15--Obama's corporate roots, Real News Network (video)

“This curve of unemployment looks like it’s got a lot of legs,” Mark Wakefield, an AlixPartners director in Southfield, Michigan, said in a telephone interview. “This is one of the first recent cycles where demand is not going to go back above its prior peak, because there are just so many structural things that are different this time around.”....

Employers added 18,000 jobs in June, the smallest gain in nine months, as the U.S. unemployment rate rose to 9.2 percent, the Labor Department said. The Thomson Reuters/University of Michigan index of consumer sentiment fell in July to 63.7, the weakest since March 2009, three months before the recession ended.

16---Insiders are bailing out, Marketwatch

Excerpt: Bad news, stock-market bulls: Corporate insiders are selling their companies’ shares at an abnormally fast pace.

In fact, one measure of that selling activity shows insiders of NYSE- and AMEX-listed companies recently were selling at the fastest rate since data began being collected in the early 1970s, four decades ago.

On the theory that insiders know more about their companies’ prospects than do the rest of us, this is an ominous sign.....

In the week ending last Friday, according to the latest issue of the Vickers report, this sell-to-buy ratio stood at 6.43 to 1. This is higher than 95% of other weeks’ readings over the last decade.

That’s ominous enough, but consider last week’s sell-to-buy ratio for just those issues listed on the NYSE or AMEX. That came in at 13.10 to 1, which is the highest reading for this ratio since when Vickers began collecting the data, which was October 1974.

17--A Mobilization in Washington by Wall Street, New York Times

Excerpt: After a year of clashing with Washington over new financial reforms, the country’s most powerful bankers have found common ground with regulators in the hard-fought effort to lift the debt ceiling and avoid a default....

In addition, more than a dozen chief executives from the nation’s biggest financial services firms wrote a joint letter to President Obama and members of Congress on Thursday warning of “very grave” consequences for the economy and the job market if an agreement wasn’t reached.

It’s not just chief executives who are now doing the talking, either.

Bankers have deluged Congressional staff members with research reports outlining the bleak consequences of a default, or even a downgrade of United States government debt by the major rating agencies. And in corporate America’s version of grassroots mobilization, Allstate e-mailed 45,000 employees urging them to call their local members of Congress and demand a deal.

Hedge fund managers, normally among Wall Street’s most secretive tribes, have been stepping out of the shadows, too.

18--ISM Manufacturing index declines in July, CalculatedRisk

Excerpt: PMI was at 50.9% in July, down from 55.3% in June. The employment index was at 53.5%, down from 59.9% and new orders decreased to 49.2%, down from 51.6%.

From the Institute for Supply Management: July 2011 Manufacturing ISM Report On Business®
The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 50.9 percent, a decrease of 4.4 percentage points, indicating expansion in the manufacturing sector for the 24th consecutive month, although at a slower rate of growth than in June. Production and employment also showed continued growth in July, but at slower rates than in June. The New Orders Index registered 49.2 percent, indicating contraction for the first time since June of 2009, when it registered 48.9 percent....

This was below expectations of 54.3%, but in line with the weak regional surveys.

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