Market Talk

Double dip. The infamous Seinfeld phrase has taken on a whole new meaning when discussing the economy’s latest prospects.

The latest stock-market swoon has folks concerned that the recovering economy may now be “double-dipping” back into recession. It’s still too early to tell whether this is the case, but recent economic data point to the economy expanding at a much slower rate than previously anticipated.

Of course, a “double dip” may not be possible, considering the Great Recession still hasn’t officially come to an end, at least according to the National Bureau of Economic Research. Robert Hall, chairman of NBER’s economic dating cycle committee, sheds some light on declaring double dips, in an interview with the AP.

In Hall’s view, a double dip is akin to a continuous recession that’s punctuated by a period of growth, then followed by a further decline in the economy.

The NBER doesn’t define a double dip any more specifically than that, says Hall, an economics professor at Stanford University.

In econo-speak, Hall explains: “The idea — hypothetical because it has yet to happen — is that activity might rise for a period, but not far enough to complete a cycle, then fall again, and finally rise above its original level, only then completing the cycle.”

But that hasn’t stopped bloggers and economists from weighing in on the double-dip debate.

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I'm tellin ya, economy's recovering...slowly recovering.

It should come as no secret that we here at Market Talk are skeptical, to say the least, of this purported economic recovery.

Seems like nothing can prevent the stock market from continuing its gradual rise these days, even as the unemployment rate is perched at 9.7%, consumer spending remains tepid, at best, and foreclosures are on the rise.

But, as UC San Diego economics professor James Hamilton points out, it’s hard to ignore the fact that some real signs of recovery are starting to manifest. Between improving monthly auto sales data, impressive manufacturing figures and the March employment report, “finally we’re starting to see some convincing indications of economic recovery,” he says.

Today’s housing data also vastly exceeded expectations. NAR’s index for pending home sales in February soared 8.2% to 97.6, well ahead of the 0.5% decline economists were expecting.

Additionally, the Conference Board said its March employment trends index increased 0.7% to 94.4. And ISM’s index of non-manufacturing activity moved to 55.4 in March, from 53 a month earlier. The index had been expected at 53.5.

As for last week’s jobs data, it’s safe to say the report was a step in the right direction. While it wasn’t a “good” report by any stretch of the imagination — long-term unemployment remains a huge drag on the labor market — the fact that 162,000 jobs were created last month is a welcome change amid all the months of declines throughout the recession.

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You're not the only one worrying, buddy.

So much for all the uncertainty surrounding Ben Bernanke’s re-confirmation.

The White House went on an all-out blitz over the weekend, endorsing the Fed chairman for a second term and pushing for the necessary 60 votes needed in the Senate.

Confirmation, of course, isn’t a certainty. But a recent Dow Jones Newswires survey shows 31 senators were publicly committed to Bernanke whereas 17 were opposed. WSJ has the details:

“He’s going to have bipartisan support in the Senate and I would anticipate he’d be confirmed,” Sen. Mitch McConnell of Kentucky, the Republican leader, said Sunday on NBC’s “Meet the Press.” But he wouldn’t say which way he would vote. The No. 2 Senate Democrat, Dick Durbin of Illinois, also predicted that Mr. Bernanke would prevail.

The debate over a second term for the 56-year-old Mr. Bernanke is eclipsing party affiliations in the Senate, drawing liberals and conservatives into unusual alliances. It has also reinforced the Fed’s weakened standing with the public and Congress, and the threat to its long-cherished posture as independent from elected politicians.

Even though Bernanke likely has enough support for another term, a fresh debate’s brewing in the blogosphere over whether he’s the best man for the job. “I’m agonizing – which isn’t a place I ever expected to be,” Princeton economist Paul Krugman writes at Conscience of a Liberal.

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What recovery? I'm still outta work.

Here’s an unemployment factoid that’s been making the rounds, but bears repeating once again: 40% of folks who are unemployed have been out of work longer than six months.

It’s a scary datapoint that proves employers are simply not hiring at a pace that’s needed to turn this recovery from fragile to sustainable. Yes, the labor market isn’t nearly as bad as it was about a year ago (85,000 jobs lost is certainly better than 700,000 monthly job losses.)

But just because firing has diminished doesn’t mean hiring’s on the rise. And the fact that long-term unemployment continues to rise proves this point.

Miller Tabak equity strategist Peter Boockvar’s been beating this drum at least since September, if not earlier than that, proving there’s little evidence that companies have ramped up hiring, or have any incentive to bolster staff in the near future.

Certainly not a good sign, and shows why so many people are leaving the work force. Since Friday, many have observed that 661,000 Americans dropped out of the labor force last month. If they had stayed and continued searching for work, the unemployment rate would’ve hit 10.4%, instead of holding steady at 10.0%.

“There’s no way to make this up for years,” says Robert Reich, former labor secretary under President Clinton. Chances are good that President Obama enters the 2012 presidential election with unemployment still higher than when he took office.

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Recovery's around the corner. Don't get stuck in the mud.

Is it just me, or is anyone else’s head spinning trying to figure out where the economy stands on this long and winding road to recovery?

Let’s recap this week’s data:

Conference Board reported Tuesday that consumer confidence fell for a second straight month, signaling folks are still worried as unemployment creeps closer to 10%. But Case-Shiller said housing prices rose for the third straight month, signaling some flickers of hope in the depressed housing market.

Of course don’t get too excited about housing. New-home sales unexpectedly fell in September following five consecutive increases. And orders for durable goods rose for fourth time in the last six months, but still remain down 24% year-to-date.

Then came yesterday’s all-mighty GDP report, which posted a better-than-expected 3.5% rise in 3Q, and prompted some folks to say the recession’s over. Consumer spending, believe it or not, fueled growth, as spending jumped 3.4% for the quarter on the heels of government stimulus.

“Housing is finally making a positive rather than a negative contribution, and nonresidential fixed investment was a smaller drag than I had been expecting,” UC San Diego economics professor James Hamilton writes at Econbrowser.

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Rays of optimism starting to shine.

The Fed reported two favorable economic indicators on Friday that hint the recession’s end is nearing. But just because the downturn may be over doesn’t mean a return to prosperity is on the horizon.

Industrial production rose 0.7% in September from a month earlier and rose at a 5.2% annual rate during the third quarter. The rate which industries used their capacity also rose to 70.5% from 69.9% last month, and is now up for three straight months off its record low set in June. Prior to the turnaround, capacity utilization had decreased 17 out of the last 18 months.

Still, “that kind of growth is inconsistent with a jobless recovery,” says UC San Diego economics professor James Hamilton.

He cautions that “there are two separate feedback mechanisms operating.” Rapidly rising output should eventually cause companies to start hiring again. But high unemployment rates could lead to more foreclosures, resulting in spending and output to sputter, he notes.

“Which is it going to be? Nonfarm payroll employment is the key indicator to watch from here,” Hamilton says.

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Put these on; they're rose colored.

Treasury Secretary Tim Geithner offers another rosy economic outlook, saying signs of recovery are “stronger” and are appearing “sooner” than expected.

Interesting words, especially on the heels of an awful jobs report and terrible monthly auto sales. Both aren’t showing any indication the consumer has the ability to lift the economy back to prosperity. Actually, both reports show government spending is the only thing currently holding the economy afloat.

The economy shed 263,000 jobs in September, with the unemployment rate ticking up to 9.8%. US auto sales also fell 23% last month, with GM and Chrysler suffering the biggest declines.

Last week’s data suggest what many bears have been saying for a while, that the purported economic recovery remains “tepid and potentially fragile,” says UC San Diego economics professor James Hamilton.

Looks like cash-for-clunkers simply caused people who would’ve bought cars in September or October to buy in July and August, though GM says low inventories caused the industry to lose 300,000 potential sales last month.

“Inventory rebuilding should give a cyclical boost at some point, but at the moment this is not looking at all like the sharp recovery some had been hoping for,” Hamilton says.

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This guy's itching to get out.

The Dow’s six-month run-up off the March lows has carved its place in the history books.

WSJ crunches the numbers and finds the index’s 46% rally in only six months is the sixth largest gain in that time frame over the last 100 years. While impressive on the surface, the future doesn’t look so bright. From the Journal:

All previous rallies of this magnitude took place in the 1930s and the 1970s, according to Ned Davis Research. Those were periods of turbulence for both the economy and the markets, and none of the gains was sustained.

Many analysts believe that stocks are again in such a turbulent period, and that this rally could lead to another slump.

The Dow’s down about 46 points at 9774 as investors await the two-day FOMC meeting taking place Tuesday and Wednesday.  Even with Monday’s losses, Dow 10000 seems like a given in the near future, as much of the market’s momentum seems to be working in the bulls’ favor, Barron’s O’Brien says.

But technical obstacles still linger and ultimately could hurt the sustainability of this run-up over the long-term. Stocks have gained in nine of the last 11 trading sessions and the market’s currently trading at extremely overbought levels, he cautions.

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Fed’s plan to regulate banking sector compensation is a much-needed response to the financial crisis, even if it has its flaws.

“Capitalism functions well when individuals are rewarded for making socially productive decisions,” UC San Diego economics professor James Hamilton writes at Econbrowser. “It is a disaster when individuals are rewarded for making socially destructive decisions,” which is exactly what happened during subprime crisis.

Still, more regulation puts pressure on those being regulated to “try to take over the regulatory process,” which is something the Fed must be careful about, Hamilton notes.

“I see this is as an important step to take. But it’s also very important for the Fed to realize they’re walking into a minefield,” he says.

(Photo credit: ZDNet)

Yeah, this kind of feels like the bottom.

Better-than-expected news on the housing front continues this week.

On the heals of yesterday’s surprising increase in the Case-Shiller indexes, new-home sales in July rose more than anticipated, marking their fourth straight month of gains.

Single-family home sales increased 9.6% to a seasonally adjusted annual rate of 433,000, which exceed expectations of a 1.6% gain to 390,000 and marked the highest number sold since September 2008.

Several market observers are suggesting housing prices have bottomed, but look for further home-price declines in “mid-to-high priced bubble areas,” as well as increasing foreclosures into next year, Calculated Risk says.

“Historically prices bottom about the same time as foreclosure activity peaks,” blog says. “Maybe it will be different this time – maybe the modification programs will significantly reduce foreclosures – maybe prices will bottom before foreclosures peak…but I’ll go with the normal pattern.”

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