economic growth

Moody’s lowers economic expectations (haven’t we all?)

Not unlike what the Federal Reserve did last week, Moody’s Analytics has lowered the United States’ short-term economic prospects:

Moody’s Analytics, a sister company to credit-ratings company Moody’s Investors Service, now expects real gross domestic product to increase at an annualized rate of about 2% in the second half of this year and just over 3% next year, compared with its estimate a month ago for growth of 3.5% for the second half of this year and through 2012.

The firm attributes most of the expected decline to a loss of business, investor and consumer confidence, noting the economy’s improving fundamentals such as the strengthening of business’s balance sheets and consumers’ strides in cutting household debt.

The credit-rating company also said it thinks the odds of a renewed recession over the next 12 months — now at 1 in 3 — will increase if stock prices continue to fall. Moody’s maintains that the odds of a renewed recession rise with each 100-point drop in the Dow Jones Industrial Average. While Moody’s expects the economic recovery will continue, prospects for economic growth and job creation have “diminished substantially.”

Though the U.S. economic recovery looked healthy at the beginning of the year, a series of events have hurt business, consumer and investor confidence, Moody’s said. These include surging prices for food and gasoline, natural disasters in Japan, Europe’s debt crisis and, most recently, the U.S. debt woes.

So this is recovery?

I’ve written before that I don’t believe there is really an economic recovery.  I’ve been questioned on that before, and I honestly just don’t believe it.  While there have been jobs created, they’re a paltry amount compared to the number needed on a monthly basis to truly be what I would feel is a recovery.  Apparently, The Atlantic has a report that seems to, at least somewhat, agree with me:

This is a remarkable sequence of pictures from Calculated Risk showing that no major economic indicator has returned to its pre-crisis level. In other words, after two years of recovery, not a single key broad measure of the economy has actually recovered.

The ingenious thing about these graphs, which I’ve never before seen, is that they compare key recession indicators as a share of their pre-recession peaks. The outcome reveals each recession in the last 50 years as a kind of hanging icicle. Ours is by far the longest, and we don’t yet know when we’ll trace our way back to the 2007. Here’s why I don’t expect the path up to get much smoother in the near future.

I’m not going to put up the graphs, because it’s their bandwidth and I’m not going to steal it.

Now, these graphs do show a move towards a recovery.  We’ve hit the peak and are moving in a more positive direction.  However, recovery indicates a lot more to me than just a trend back.  It needs to actually be close to where we started.  Only one of the four graphs even remotely comes close to that, and that’s gross GDP.  Unemployment, which isn’t really a shock if you follow the numbers coming out each month, shows even less of a move towards recovery.

Stimulus cost $185,000 per job

Pushing back against a claim by Speaker John Boehner, who recently cited numbers from the Weekly Standard noting that the so-called stimulus cost $278,000 per job, economic advisors from the Obama Administration want to set the record straight:

The Council of Economic Advisers report, issued last Friday, states that in the first quarter of 2011, the stimulus bill “has raised employment relative to what it otherwise would have been by between 2.4 and 3.6 million.”

The White House has long disputed the math of dividing the cost of the stimulus by the number of jobs created – we asked a similar question back in October 2009, when that computation resulted in the comparable bargain of $72,408 per stimulus job, as you can read at this blog post.

Economic freedom brings quality of life put out a video yesterday explaining why societies with free or mostly free economies succeed and their people have a better quality of life. Conversely, countries that rely on statist policies ultimately struggle and their citizens often live under corruption and they are deprived of many civil liberties take for granted.

The video also shows how the United States is slowly falling down the ladder in terms of economic freedom because our government is growing and pro-growth policies are being ignored, and as a result our quality of life is at risk:

Pawlenty unveils economic plan

With voters increasingly blaming President Barack Obama for the nation’s economic woes, Tim Pawlenty, former Governor of Minnesota and a Republican presidential hopeful, hoped to capitalize by laying out his economic plan; making it clear that the policies of the man he hopes to replace are hurting the nation:

Offering a “Better Deal,” a construction in the economic messaging tradition of Democrats beginning with Franklin Roosevelt’s New Deal, Pawlenty will promise a target of 5 percent yearly economic growth, which hasn’t been seen in the United States since the economy expanded at a 7.2 percent clip in 1984. To his benefit and likely no accident, his prescription of how to equal that achievement is similar to the policies of then-President Reagan.

Pawlenty offers a breathtaking series of tax cuts, beginning with a reduction in the corporate tax rate to 15 percent, and an income tax policy that closely mirrors Ryan’s fiscal 2012 budget framework, offering only two rates, 10 percent and 25 percent, for households that make up to and more than $100,000, with a generous minimum exemption for cuts of nearly one-third to individual tax bills. The plan also eliminates taxes on capital gains, dividends, and estates, representing a dramatic reduction in overall revenue.

Fed predicts steady economic growth

Yesterday, I posted an article by Art Laffer about the chances of a double-dip recession due to the expiration of the Bush tax cuts in 2011. Before I go any further, it’s worth noting that Laffer, a Keynesian, tends to be more political in his work. He toes the party line at almost all costs.

My friend, Jorge Gonzalez, notes that not all free-market economists are predicting this, citing information posted over at Carpe Diem by Mark J. Perry.

Perry is referring to the recent model released by the Federal Reserve Bank of New York, which paints a rosy picture of the economy:

The Fed’s model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then in almost every month. For May 2010, the recession probability is only 0.17% (about 1/6 of 1%) and by a year from now in May of next year the recession probability is even lower, at only 0.12%.

According to the NY Fed Treasury Spread model, the recession ended sometime in middle of 2009, and the chances of a double-dip recession through May of 2011 are essentially zero.

Fair enough. Federal Reserve Chairman Ben Bernanke says the economy is recovering, just slowly. He was also blindsided by the recession that hit us in 2008.

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