Friday, May 09, 2008

It seems like depression to me

“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.” Wiki

Depression is now reserved for an extended period of recession, or avoided entirely, such negative terms for market driven economies. But the definitions are starting to look precious given realities around the world.

I’ve noted, over the past few days, almost a sense of relief that the Myanmar regime is making aid donations following the Burma disaster next to impossible. Not that people are any less concerned, but it is getting harder to forgo the few pleasures left and still give away precious resources.

Nearly everyone I personally know, regardless of income status, is in the process of serious belt trimming or giving up any non-essential expenditure; often the latter involuntarily, through payment defaults. The great communications/entertainment revolution looks like the first brick to fall.

More seriously across the globe there is concern over growing food shortages, rising fuel costs and a strange sort of credit squeeze. Insanely, credit still seems to be most available to those who can least afford it. That, perhaps, is the sign that the greedy, destructive markets are simply not willing to forgo their dreams.

George W might be denying that we are in recession, just as other leaders are simply ignoring the reality and commentators cringe from putting the question. Given the mindset of many people I am speaking to, I would call this a straight out depression, as that is its major presenting symptom.

11 comments:

lindsaylobe said...

Depressions are now defined as a recession which extends well past just two successive minus GDP net growth which is really very technical and doesn’t distinguish between the various communities experiencing great hardship. Capitalism does have an ugly side to it when supply and demand creates the excesses, wherever there be scarcity then prices will rise. I think it’s the food inflation which is causing much of the current hardship as it ripple effects continue to be felt in everyday purchases. Yet the food shortage has been known for the past 5 years as world supplies has not meant demands with growing shortages in grain stocks, particularly prevalent with climatic changes and as our soils loose nitrogen.

Modern day agriculture is mostly highly dependant upon oil derivatives in fertilizers and energy whilst peak oil and its resultant massive inevitable price increases have been building up for a much longer period of time. I would not be surprised to see oil eventually reach $200 a barrel. Yet many governments, particularly in relation to their agricultural sectors continue to subsidize heavily its input cost to users and thereby further exasperate demand. Growing corn for ethanol is madness.
The fact is if China and India replicate western standards of usage when an estimated 1 billion in population will move from subsistence agriculture to the cities over the next 20/30 years will be in need of another 3 universes.
The USA economy was almost totally dependant upon credit for its life blood but there is growing evidence to suggest those providing credit are having second thoughts about just how profitable ( or rather how unprofitable ) it is to be involved in risky consumer debt markets. I think there is likely to be prolonged period of rationing of what was previously readily available in consumer and housing credit. The pain and misery unfortunately will be felt for some time at the retail level until the economy adjusts to a more sustainable basis and credit becomes viable, albeit it will be made in a less reckless fashion until such time as memory dims and we repeat the cycle. It not such a terrible outcome, although at the retail level some will be badly disadvantaged, since the previous economic prosperity (if you can call it that) was based upon the continued escalation of unsustainable credit and resources. Best wishes

Cart said...

Lindsay, I remain indebted to your deeper understanding on these issues. I watch from the coalface and pick up what deeper vision I can along the way. The hard fact is that people are hurting. As you suggest, that will get worse. Perhaps, given the old Asian saying that governments fall when there is a rice shortage we might be looking at a major restructure here?

abi said...

"People are hurting" - that's it in a nutshell, Cart, no matter what word we associate with it.

I've heard some positive words from a few experts recently that things have bottomed out. I hope they're right, but it doesn't look that way from where I sit.

D.K. Raed said...

People are hurting and it is no where near over. As a society, we've never made savings or planning for a rainy day any priority. In fact, easy credit/cheap money has fostered just the opposite mentality.

To know when this cycle has bottomed, I don't follow the retail numbers. I look at homes. Housing is dead in the water here. Heaven help you if you are trying to sell a house now. It's a buyer's market, but no one wants to buy because of economic unsurety (who knows if they will even have a job next month?). So the unsold home inventory is exploding. Unsold existing homes causes builders to stop building. First, they lay off employees, eventually they just go out of business, which causes ripples up & down the line. The construction industry is one of few industries left where lack of a college education does not limit your earnings. It also provides good jobs for unskilled laborers to enter the industry.

I will consider this particular recession/depression over when I see housing starts pick up, because that will mean people are secure enough to buy homes & because that will mean construction jobs are back which will lift our economy up.

The last housing bust cycle we had in California lasted 5-yrs. I don't know how to project that to the nation as a whole, much less the whole world.

I realize this is only one industry's viewpoint. Lindsay makes excellent point about food inflation & oil dependency. It's all interconnected. I grew up listening to my parents & grandparents talk about The Great Depression & how everything was rationed & the future seemed bleak. There are many ways a social-mined govt could help. FDR knew this & that's why he was the only US president to be elected to four terms. I wonder if such a man could even be elected today?

lindsaylobe said...

Today in Australia statistics just released indicate the total value of housing finance approvals (excluding refinancing)fell for the second consecutive month in March - down 5.8% to $15.59bn, representing the lowest level in 18 months, whilst owner occupier approvals fell by 6.1% in the month.
Approvals for refinancing fell by 6.0% in the month, to indicate an unwinding of the late 2007 surge when customers moved loans from the relatively more expensive non-bank sector back to the big banks.
In the established market the number of Owner occupier approvals for established dwellings without re financing also dropped 6.0%, to be 10.8% lower over the year. Average loan size up slightly to $251,900.
In the construction cycle approvals (which tend to lead building approvals by two months) fell by 4.6%foe the month, Approvals for new houses fell for the ninth consecutive month, down 11.5%.

Incidentally I read the other day in the USA unskilled labourers are still earning about $35 an hour inclusive of benefits ?

There is no mistaking the underlying weakening trend. Regardless of the supply of credit or demand, a slowdown in credit growth of this magnitude (and the associated reduction in housing market turnover) suggests that domestic growth momentum has now moved significantly below trend, away from the unprecedented boom times caused by the resources price hikes and very favorable terms of trade.
The data remains consistent with the Reserve Bank of Australia’s published view that growth is slowing sufficiently to avert the need for further tightening with interest rate increases. However the intensity of inflationary pressures continues and the economy (unlike the USA) is not sufficiently weak to be contemplating monetary easing by year end. Expect the first rate cut from current high rates in the first quarter of 2009.
My tip for Tuesday budget -expect a surplus of $18 billion with about $4 billion in savings and several large scale new spending initiatives on climate change.

Best wishes

Cart said...

Given I own this particular tractor (or hand mower?) I have taken the option of responding in my latest post.
Thank you all for your valuable points.

D.K. Raed said...

Lindsay, teamster union wages for unskilled labor is currently $14/hr, semiskilled is $16/hr. In Las Vegas, where unions are very strong, these catagories of labor do not have fringe benefits. At the skilled labor level of $18/hr, you get benefits listed at $2/hr. These are "prevailing wages". An employer will pay more for workers in the journeyman catagory, etc.

What you are calling benefits is what I think we call the labor burden. That is the amount an employer ACTUALLY pays for an employee. It includes the employee's wages, the employer's portion of payroll taxes, state & federal unemployment taxes, state disability funds, workers compensation insurance, pension benefits (if any) and health ins benefits (if any). The last two items are not required by law. The total Labor Burden is generally 150% of the employee's wage.

Maybe the $35/hr you read about were unskilled laborers in a higher paying industry.

lindsaylobe said...

Hi DK & Cart
Should it be of interest here are more details from Blogger PT. I have included my question to him and his response so you will have the complete thread.

Hi PT
Reference-your stats

Where I'm at, a laborer makes $24.30/hr + $11.15/hr in benefits.
In St Louis county, a laborer makes $26.98 in the pocket and $9.73 in benefits.
I noted theses stats in a response on Cart's blog~ blogger D.K. Raed said in reply ...

Lindsay, teamster union wages for unskilled labor is currently $14/hr, semiskilled is $16/hr. In Las Vegas, where unions are very strong, these catagories of labor do not have fringe benefits. At the skilled labor level of $18/hr, you get benefits listed at $2/hr. These are "prevailing wages". An employer will pay more for workers in the journeyman catagory, etc.

Presumably you are in area where there is unusually strong demand

Reply from PT

Hello, Lindsay.
I looked at the current postings for prevailing wage in Las Vegas. Link
The pay for a flagger there is at $21.56/hr w/ $16.33/hr in benefits.

Further down, there is a general laborer listed, and those were the people I referred to above. Their pay is listed at $16.49/hr with no benefits.

The listing for teamsters specifies a flatbed truck, which pays $25.69/hr + $15.79 in benefits.

Above that are listings for a dump truck driver and a water truck driver.
The driver of the water truck gets $17.11/hr and $2.16 in benefits, while the dump truck driver gets $16.57 with no benefits.

Back to the laborers and teamsters in a minute.

Look at the operators' pay there. On the sites where I work, they usually run either a crane or a fork truck. The same union also covers some maintenance functions.
Usually, there is a pay differential for overhead crane or stationary crane. But there is no listing for crane operators.
There is one for forklift operators, which is $36.42/hr w/ $15.77 in benefits.

I looked at the scale for my own trade, and the pay is 27 cents more in Las Vegas, but the benefits are 59 cents less.
So the wages are comparable.

There is a listing there for the crane operators.
It's $31.66 for an overhead crane of 150 feet of boom or less, and $33.01for a stationary crane or overhead crane with between 150 and 225 feet of boom.
Both get $12.35 in benefits.
And there are a couple other classifications for larger cranes.
$30.85 for the fork truck driver.

It tells me that the Teamsters are a weak union. I knew that anyway, though I wasn't aware their wages were so low.

A few years ago, two of the largest carriers merged, Yellow and Roadway. I know that Roadway carried a lot of government contracts; not so sure about Yellow.
Anyway, a lot of teamsters lost their jobs in this merger as warehouses were closed and such.

Now, the Teamsters were one of those seven unions that left the AFL-CIO a few years ago to form Change to Win. The big disagreement there was whether to maintain a focus on the election of favorable candidates (the AFL-CIO) or to focus on organizing new shops and more workers (Change to Win).
Both sides win in this.
For years, the AFL-CIO has consistently supported Democratic candidates throughout their campaigns, only to be forgotten once the person is elected.
So now, union money is going into Republican candidates which are considered favorable as well.
It makes the Democrats look as if they have to come through with a bit more for all the campaign contributions. It increases the per-dollar purchasing power of both factions.
Now, I was speaking to a man yesterday in my own field. He is non-union with 10 yrs experience.
He was telling me what the non-union shops pay these days, and it runs from 42 to 45 percent of the union scale.
The benefits are different though. The non-union worker pays for half of the insurance premium, and the pension contributions are taken as a percentage of pay, both of which are then given matching employer contributions.
With the union, the benefits cover the entire amount.
The non-union worker typically has a paid vacation, which is limited to a set amount. The union worker has as much vacation as he desires, though it is not paid.
A percentage of my wages are held in a vacation fund. These used to be known as a strike fund, but they changed the name. In some places, I can get the money any time I want it; in other places, I can only get it out twice a year. The percentage changes with each local, but is never more than 10%.

Best wishes

D.K. Raed said...

I want to thank Lindsay and his blogger frind PT for confirming what I've long suspected ... that the teamsters in vegas are a weak union. I do note that many of much higher paying jobs are well above the unskilled or semiskilled labor category. Teamsters in Vegas have made the news lately because of their highly suspect practice of providing a certain number of non-union workers out of their hall. Well, that's how it started out, anyway. But what's made the news lately is that practice has morphed into union members getting little or NO work and non-union "members?" getting all the work. It makes no sense to me, but there you have it. My current state of UT is not too union-friendly. We "enjoy" some of the lowest wages in the country, very high poverty levels, and great numbers of uninsured.

I hope you don't think I was questioning your labor rate statistics. I was only stating a few labor rates I know from my brother & brother-in-law, teamsters in vegas. I should tell them to move to St Louis!

Cart said...

DK, for someone who claims ignorance of economics you don't do so bad :) At least I'm learning from this discussion.

D.K. Raed said...

LOL, when has lack of familiarity with any subject prevented me from having an opinion?