Third Summer of Recovery Is Already Over

Now you’re supposed to believe the Recovery is upon us thanks to another uptick in retail sales, which increased 0.8 percent in March, according to the Commerce Department. But this mild good news is not particularly good, and it isn’t news. As you read in Reason last November, the consumer-led recovery, according to standard models, has already happened: 

Consumer spending returned to its pre-recession level in the last quarter of 2010. As Robert Higgs, the Independent Institute’s senior fellow in political economy and editor of The Independent Review, noted in a blog post this fall, Commerce Department statistics show that the rate of personal consumption expenditures was “continuing to grow” and as of the second quarter of 2011 was “even farther above its pre-recession peak.” Real government expenditure for consumption and investment had also snapped back to its pre-recession level and in the second quarter “was running more than 2 percent higher” in real terms, Higgs wrote.

So why aren’t Krugman and other Keynesian interventionists cheering? John Maynard Keynes’ general theory teaches us that now should be Miller Time. According to the standard macroeconomic model, you revive a stagnant economy by closing the gap in aggregate demand. 

The more you look into Recovery belief, the more you see that support for the belief is as vague and hunch-driven as a weather report in the Farmers' Almanac. Here’s a report about "growing optimism on U.S. recovery" that consists of nothing but bloviation from bank heads. And how’s this for the hard gemlike flame of quantitative fact:  "The quirky fate of the economy proved to be the undoing of the markets last week. After cruising along fine for some time, the U.S. economy began showing signs of slackening, sending panic waves across markets."

Meanwhile, new jobless claims have blown through expectations again and small businesses are not even bothering to seek loans anymore. And after a season of gassy elevation, the National Association of Homebuilders reports that its builder sentiment index is headed down again

That last one gave rise to the delightfully kinky ZeroHedge headline "Housing Repenetrates Alleged Bottom As NAHB Index Misses By Most In 22 Months." I’m not sure it tells us much, however. All measures of confidence, sentiment and the like should be viewed with caution. And given the vast inventory of already built homes that are festering unsold, it makes sense that new home builders are not seeing much activity. 

But this is a reminder that there will be no recovery until real estate hits the floor. Until that happens, until sweet deflation works its magic, all these measures of mindless economic activity are as filthy rags and do fade as a leaf. 

Folks of a certain age remember how Vice President Joe Biden declared the middle of 2010 the "Summer of Recovery." That unfortunate phrase didn’t even make it to the first back-to-school sale, but it came back for sarcastic abuse in 2011. Now it’s just an old saw trotted out for nostalgia, to make fun of Biden and as material for Ciceronian tirades. Biden can’t help being a fool, but you can. The Recovery is a bunch of baloney. 

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  • Brutus||

    Order up some more Monopoly money at the Fed!!

  • Restoras||

    Well done, Mr. Cavanaugh.

  • Rich||

    The Recovery is a bunch of baloney.

    Actually, it's a bunch of pink slime.

  • plu1959||

    Who wrote the caption on that graph? Yoda?

  • ||

    I figured it was someone from the Philippines.

  • ||

    They can keep touting the recovery to all the people out of work until they run out of breath, it aint gonna sell.

  • AlmightyJB||

    Why is Reason racist?

  • ||

    The fact that you point it out makes you in turn a racist.

  • pagal||

    We are all alleged bottoms now.

  • rho||

    When did graphs stop being a way to determine facts? Or have they always been meaningless?

  • R C Dean||

    Graphs are merely the representation of a selected dataset, so the GIGO rule applies.

  • rho||

    I'm trying to pinpoint when I stopped giving a shit about graphs.

    I think it started with USA Today, but that predates Lotus 1-2-3. So now I'm wondering if graphs have been perverted by injudicious use of spreadsheets, of if they have always been retarded.

  • Evil Otto||

    In his first book on the motion of bodies, Galileo had the x-axis running toward whatever direction the object in his drawing was actually moving. A couple of centuries later it was viewed as borderline heresy to not have it pointed toward the right.

    So, a long time ago.

  • ||

    What do you want from me, squirrels???

  • Pip||

    They want blind obedience, oh, and your essence.

  • ||

    Cavanaugh: Meanwhile, new jobless claims have blown through expectations again and small businesses are not even bothering to seek loans anymore.

  • ||

    "there are a number of headwinds that are still out there," including [...] possible U.S. government budget cuts early next year.

    That's a headwind for the labor market??? WTF? Somehow that idiotic, pro-government statement is reported as news. Because only government spending creates jobs.

    Nevermind; it's Bloomberg.

  • R C Dean||

    No question, in the short run.

    First, government layoffs pump up the unemployment rate.

    Second, budget cuts are a dollar-for-dollar reduction in GDP, and as the economy contracts/deleverages, unemployment will go up.

    In the short run. Once we've deleveraged our government, the economy should be very happy from its new baseline, what with not having to compete with the feds for capital anymore, or worry about dollar devaluation.

  • ||

    I forgot to laugh about the part where the federal government cuts its budget.

  • Mr. FIFY||

    Never will happen. Only spending less next year, would be an actual "cut".

    Team Blue, OTOH, sees a cut in future spending as "slashing the budget/children will die/Grandma starves/planes fall from sky", et cetera.

  • ||

    That's what Tony tells me at least.

  • Mr. FIFY||

    Yeah, he says stupid shit all the time. It's all that Team Blue brainwashing.

  • Pip||

    Is there some reason that no matter where I last was on the main H&R page that when I click back to it, that incredibly mannish tranny pic pops up momentarily? I sure as hell wouldn't want that fucker on my plane.

  • R C Dean||

    The consumer recovery will languish for the simple reason that disposable income has flatlined since Obama took office, and is suffering under high gas prices.

  • cthorm||

    Don't be too certain on this part Tim.

    And given the vast inventory of already built homes that are festering unsold, it makes sense that new home builders are not seeing much activity.

    Vacant homes are not durable in the same sense that owner occupied housing is durable. We're getting to the point now that there are a lot of foreclosed homes that are total losses at this point. Mold, rot, termites, copper thieves, squatters, & loser vandalism will make sure plenty of homes are just demolished.

    It's probably shocking around here, but there is actually a huge UNDERSUPPLY of housing in the US right now. Foreclosures are still constraining would be borrowers and otherwise complicating the situation, but the longer this goes on the less will be salvaged. People at my firm get that, but not enough people at the Banks seem to get that, otherwise they would be liquidating these foreclosed homes at auctions en masse. Mortgage mods are bandaids over gangrene. Short Sales screw the bank, while rewarding the buyer and the delinquent owner.

  • Sevo||

    "Foreclosures are still constraining would be borrowers..."
    Uh, care to explain that mechanism?

  • cthorm||

    1) Price depression/deflation

    2) Credit scores killed for a few years

    3) The 'foreclosure process' leaves many people, who may even have enough income to afford the house, living in the property for months/years before the bank approves a short sale or actually takes possession of the house. The people I bought my house from (in short sale) had plenty of income, but they were getting divorced and the husband was clever enough to stop paying the mortgage so there would be no house to split: they lived there for almost 2 years rent/mortgage free.

  • Sevo||

    cthorm|4.16.12 @ 8:31PM|#
    "1) Price depression/deflation"
    Lower prices should make it easier to borrow.

    "2) Credit scores killed for a few years"
    Uh, you mean honest scores?

    "3) The 'foreclosure process' leaves many people, who may even have enough income to afford the house, living in the property for months/years before the bank approves a short sale or actually takes possession of the house. The people I bought my house from (in short sale) had plenty of income, but they were getting divorced and the husband was clever enough to stop paying the mortgage so there would be no house to split: they lived there for almost 2 years rent/mortgage free."
    So there's some flakes gaming the process?
    Sorry, you've yet to offer more than some misdirection and anecdotes.
    Try again.

  • cthorm||

    Do you need it f-ing spoon fed to you Sevo? I'm not some god damn apologist or a hack ideologue, those are objective reasons. The market does not give a shit whether it is right or wrong.

    Regarding #1: lower prices make it easier to borrow in the LONG RUN, but deflation in the SHORT RUN discourages borrowing. Why buy a house today when you can buy it in 6 months for 1-2% less? But there is no national real estate market, it's inherently local. So there are lots of pockets where prices keep falling, and some where prices are rising (typically where job growth is highest and/or supply is constrained).

  • ||

    I don't think there is undersupply in ALL of the US, just parts of it.

    Maybe people need to recognize the fact that they might not be able to own a house right now and are going to have to rent for a while.

  • cthorm||

    Lots of people have already made that adjustment. Rents have been rising throughout the recession. There is tons of construction going on for multifamily housing now. But this is also making it relatively more expensive to rent vs own. Even more so when you consider the [bullshit] mortgage tax deduction.

  • Rasilio||

    Actually there is another problem.

    There is a huge oversupply of houses in neighborhoods with HOA's/Covenants that make renting the property out problematic and an undersupply of single family housing available to renters.

    Something that the government and pretty much everyone else seems to be missing out on is that the days of 60+% homeownwership need to end ASAP. Now that we are done with the bubble in housing and everyone with half a brain can see that a house is a not an investment vehicle and society has become far too mobile for home ownership to make sense for more than a relatively small segement of the population. Working in IT I have already decided I will never buy another house because switching jobs typically means switching cities and a mortgage would just become an albatross locking me into limited career prospects. However finding 2000 sq ft houses for my family (4 kids so we need the space) to live in is virtually impossible because there are just not that many houses that size on the market and the few which are are ridiculously overpriced.

  • Office Space Global||

    The property market is doomed until the debt ( private and public ) is dramatically reduced. There is no getting away from this. When you borrow you have to either pay it back or write it off. Either way, it is painful. We have been living with far to much debt and we simply have to tighten our belts and pay it back. If we don't, our children will be burdened with it and that is simply not fair.

  • Bonnie||

    Quite the bleak outlook on things, but really true. It's a constant problem these days and there's going to be some more down before up.

    I remember pre-market bubble burst that a lot of articles kept saying how the market would never completely fold.

    Well anyway these are painful times and lessons our country is experiencing right now.

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