Nov 5, 2009 2
The Great Recession is finally over. So says Mark Zandi in his testimony before the Joint Economic Committee: The Impact of the Recovery Act on Economic Growth.
From that report,
This downturn will go into the record books as the longest, broadest and most severe since the Great Depression (see Table 1). The recession was twice the length of the average economic contraction, and it dragged down nearly every industry and region in the country. Its final toll in terms of increased unemployment and falling real GDP will be greater than that seen during any other recession on record.
What was interesting to me is this little tidbit from the report,
Retailers and manufacturers have also worked hard to reduce bloated inventories. The plunge in inventories in the second quarter was the largest on record and came after a year of steady destocking. Inventories are now so thin that manufacturing production is picking up quickly, as otherwise stores will not have enough on their shelves and in warehouses to meet demand even at currently depressed levels.
This suggests to me the effect of outsourcing/offshoring that inventories were unnaturally high post bust and then the plunge in inventories as the pipeline and finished goods inventories were depleted. Now a few months after the bust, manufacturing production has to be ramped up based on the expectations of a recovery going forward – a classic case of the bullwhip effect, perhaps?
Also pay attention to Table 2, where in Zandi breaks out the $175.8 billion already spent (from a total $359.3 billion available). The bulk of stimulus payments (~ 100 billion) go towards “obligations” of the government meaning extending unemployment benefits, food stamps, Medicaid etc. I mean these are obligations that the government took on regardless of the economic-business cycle but is paying for by bringing forward future tax receipts. As for providing actual infrastructure building, that amounts to a paltry $14.4 billion and tax cuts $59.3 billion.
Workers who lose their jobs before the end of 2009 can temporarily receive more UI, food stamps, and help with health insurance payments. Without this extra help, laid-off workers and their families would be slashing their own spending, leading to the loss of even more jobs.
“.leading to the loss of even more jobs” – whose jobs are these? The problem with such assertions ought to be obvious: How does one verify such statements? The same logic is everywhere:
Arguments that tax cuts in the stimulus program are not supporting consumer spending are incorrect.vii Although spending has not rebounded sharply, without the stimulus, it would still be declining.
But although the exact number of additional jobs that would have been lost without the fiscal stimulus will never be known, it is clear that the number is significant.
The icing on the cake,
Although the recession is over, the economy is struggling. Job losses have slowed significantly since the beginning of the year, but payrolls are still shrinking, and unemployment is still rising. The nation’s jobless rate will top 10% in coming months-higher than the Obama administration forecast when it was trying to get the stimulus passed early in the year. That fact, however, says nothing about the program’s efficacy. If anything, it suggests the $787 billion stimulus was too small.
If you read the report, you would be hard-pressed to find any stimulus spending (unless you count the paltry $14 billion spent on infrastructure) going towards actual job creation. That’s an efficiency ratio of 14/787 = 1.7% as of now. When all the infrastructure spending is accounted for, that would stand at 11.5%. As you can very well imagine, the economists are now realizing that the stimulus was too small. Or in other words, the stimulus has not succeeded because it was too small to succeed. Or if you prefer the truth, spending 12% of the total outlay on actual job creation was a disastrous policy that will show up in the unemployment figures in the not so distant future.
Hence, the trial balloon for a new round of “targeted” stimulus: Locke Was ‘Imprecise’ in Comments on Second Stimulus
“If there is to be another stimulus — and that’s being hotly discussed and very seriously considered within the administration as well as members of Congress — it needs to be very targeted, very specific and we need to be very mindful of the deficit as well.”
That quickly went nowhere as the reactions to this trial balloon quickly popped it. But that’s where we’re heading – Stimulus #3 is coming for sure.
Also, take a gander at the risks that are outlined for the economy going forward – nothing has changed there.