The Recession Lingers on Despite the 2010 Recovery Summer

Posted by PITHOCRATES - June 1st, 2011

Manufacturing Report comes in below Expectations

There’s a lot of economic news coming out now.  None of it good.  Especially the manufacturing data (see ISM Joins Disappointment Parade, Lowest Since Sept. ’09 by Mark Gongloff posted 6/1/2011 on The Wall Street Journal).

May’s ISM manufacturing report came in at 53.5, below expectations of about 57, and down from 60.4 last month.

This is the 10th-biggest drop on record (going back to 1948) for the ISM, outpoints Kelly Evans, and it’s now at the lowest level since September 2009.

The lowest level since 2009?  Funny.  Because we had the Recovery Summer in 2010.  What, are we driving the economic recovery backwards? 

A leading indicator of factory activity, the index for new orders minus the index for inventories, fell sharply to its lowest level since November.

Remember, this is a key indicator for the stock market. It joins the parade of disappointing data lately, including this morning’s ADP report, which have economists rushing to downgrade their estimates for second-quarter GDP growth and for Friday’s jobs report.

We’re also talking about what has been a pillar of the recovery shaking. This will keep that QE3 talk going.

The 10-year Treasury yield, which dipped below 3% just before the report, is now at 2.98%. Wow.

Wow indeed.  And a year following the Recovery Summer.  Everything that should be up is down.  And everything that should be down is up.  To borrow a little politicking from Al Gore

QE3?  Why?  Because QE1 and QE2 did such a fantastic job?  I’m being sarcastic, of course.  Because if quantitative easing worked we wouldn’t have needed QE2 let alone a QE3.  Which just goes to prove that monetary policy is not a magical economic elixir.  Printing money to make it dirt cheap to loan doesn’t create jobs.  And you need a job if you’re going to buy manufacturers goods.  And manufacturers need people to have jobs before they consider adding jobs themselves.  Because they’re not going to manufacture more stuff when no one has the money to buy the stuff they’re already making.

Construction Spending is Down, Too

Yes, jobs are everything.  Jobs make customers.  People who have money to buy stuff.  If they don’t have a job, they don’t have disposable cash.  To buy the things manufacturers make.  And there just isn’t any good news about jobs (see Stocks Fall on Jobs, Manufacturing Data by Steven Russolillo posted 6/1/2011 on The Wall Street Journal).

The slowdown in manufacturing activity follows a much weaker-than-expected employment report. Private-sector jobs in the U.S. rose by just 38,000 last month, according to a national employment report published by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. The figure came in well below the gain of 190,000 economists had anticipated.

Additionally, construction spending in the U.S. rose 0.4% in April, ahead of economists’ expectations. But the figure was revised sharply downward the month before, confirming that the sector remains a drag on the struggling economy.

Wednesday’s data follows a string of data that indicate the U.S. economy struggled in May. Regional factory reports were weak, jobless claims remained high and the Conference Board’s consumer-confidence index fell sharply last month.

And they’ve revised construction spending down.  That means businesses aren’t expanding.  And developers aren’t building new homes.  Why?  Because there is no market demand to do so.  So they don’t.  Again, this a year after the Recovery Summer.  Things should have been looking a lot better today.  But they don’t.  Instead, now is the winter of our discontent.  Not made glorious by the Recovery Summer. 

And it gets worse.

Jobs Down, Too

Employers plan to cut jobs.  And mortgage applications are down (see Private payrolls disappoint, add 38,000 jobs in May by Reuters posted 6/1/2011 on the Los Angeles Times).

Employers announced 37,135 planned job cuts last month, up 1.8 percent from 36,490 in April, according to a report from consultants Challenger, Gray & Christmas Inc.

The housing market, meanwhile, continued to struggle as a report from an industry group showed applications for U.S. home mortgages fell last week, pulled lower by a decline in refinancing demand.

Recovery Summer, wherefore art thou?

The Recovery Summer

So what about that Recovery Summer?  What exactly was it supposed to do?  And did it (see Obama, Biden declare ‘Recovery Summer’ by Mike Allen posted 6/17/2010 on POLITICO)?

[David] Axelrod [a senior adviser to the president] continued: “In the face of the greatest economic crisis since the Great Depression, Republicans in Congress chose to play politics with economic recovery and declared the Recovery Act a failure before it even began. They made a cynical bet that if the President fails, they win. Democrats chose to act by tackling the crisis head-on. Just over a year later, the Recovery Act is putting millions of Americans to work and helping the economy grow again. But our work is far from over:”

Kevin Smith, a spokesman for House Minority Leader John Boehner (R-Ohio), responded: “The president’s trillion-dollar ‘stimulus’ has failed to meet his most basic promises on job creation, and Axelrod knows that. We’ve lost 3 million jobs since the ‘stimulus’ was enacted. Yet another desperate sales pitch about the virtues of massive government spending and piling up more debt on our kids and grandkids isn’t going to fool anyone.”

The vice president on Thursday will present Obama with a report laying out a spike in stimulus activity this summer, and how it will contribute to a steady climb to a total of 3.5 million Recovery Act jobs by the end of the year.

Well, it’s fair to say Axelrod et al were wrong.  In a big way.  That trillion dollar stimulus did nothing.  Except add a trillion to the deficit.  And the debt.  It didn’t end the recession.  It appears to only have extended the recession.  Because truth be told, there was no Recovery Summer.  The United States is still in recession.  At least, based on the economic data.  And based on this data, it isn’t coming out of recession any time soon.

Oh, woe is we.

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