The Seattle Times: Sound Economy with Jon Talton

Are we bidding the era of exuberant consumption goodbye too soon?

Tue, 24 Nov 2009 10:01:03 PST

Top of the News: Even the CEO of Wal-Mart has talked about the "new normal" including an era of more frugal shoppers (I want to wean myself off the term "consumers," a demeaning way to think of citizens). Not everybody's buying it, however.

Grant McCracken, an anthropologist who has dedicated his career to studying shopper behavior, argues that "consumerism" won't die because it has become so embedded in people's cultural behavior.

He uses as an example of his many interviews, Susan, standing in her packed garage. "What created this mountain of stuff?" he asks. "Was it irrational exuberance and cheap money? It was not. This crowded garage springs from cultural motives. These things were not purchased to express vanity or pursue status. They were purchased to help Susan build a life."

McCracken goes on: "When circumstances allow, she will return to spending enthusiastically to fashion her children, her family, and herself. The 'new normalists' missed one thing. Susan has real and substantial motives for spending."

Maybe so. But a nation of Susans and Sams are confronting a historic level of debt, the worst jobs situation since the Depression and a world of discontinuity. It may not matter what they want; I want a best-seller and movie star looks. Circumstances may force changes whether people want this or not.

No, Virginia, there's no Santa Claus to return housing to 2005

Mon, 23 Nov 2009 10:20:03 PST

Top of the News: Today's report that existing house sales rose 10.1 percent in October, while better than a similar-sized decline, is hardly a sign that happy days are here again. It is mostly an artificial jump based on a government tax credit for first-time buyers and the expectation it would end with the month.

Note that the median price fell 7.1 percent compared to the hardly healthy numbers of last October. This ripples out to affect the net worth of house sellers, many desperate to unload the biggest asset they will ever own, many owing more on it than they borrowed. The ripples extend into local economies, particularly in the hardest hit regions of Florida, the Southwest and Michigan.

Inventories shrank at a tepid rate, leaving nearly 3.6 million previously owned houses on the market. Some 30 percent of the sales were distressed, which includes foreclosures. And patient investors, including foreigners using the dollar carry trade, could take advantage of extremely low interest rates. (Meanwhile, every tax credit adds to the deficit).

Last week's report that new house construction fell to its lowest pace in six months is more reality. What's amazing is that so many experts continue to be surprised. We're not going back to the old model of massive sprawl housing built and purchased on unsustainable debt, with double-digit price increases every year, as the major American economic activity. The "new normal" has yet to be established.

State and local government deficits will be major drags on recovery

Tue, 24 Nov 2009 12:25:03 PST

Top of the News: Washington state's budget deficit has grown to $2.6 billion, showcasing yet another factor that will keep the national economy in at best a slow recovery, if not an ongoing slump.

State and local government cuts don't just take away many needed government services, they also throw potentially millions more into the ranks of the unemployed and hurt private companies as contracts are eliminated. Ethan Pollack of the Economic Policy Institute looks at the consequences, explaining that while the stimulus has helped, it hasn't gone far enough to ease this drag on the economy.

All totaled, states face a $357 billion budget gap for the two years beginning in 2010. Local governments must contend with another $80 billion. Those in the worst shape, according to the Pew Center for the States, are California, Arizona, Rhode Island, Michigan, Oregon, Nevada and Florida. California, Michigan and Nevada also have unemployment above 12 percent (the other big jobless victim is South Carolina).

Pollack estimates that each dollar of spending cuts by state and local governments causes $1.41 in lost economic activity. Meanwhile, hard times raise the demand for government services. And America continues to fall behind on investment in infrastructure, education and research, a poisonous gift that will keep on giving in the big reset.

China pulls the world economy back to growth, but no momentum to halt job losses

Fri, 20 Nov 2009 07:52:06 PST

Top of the News: The OECD has good news and bad in its latest report on the world economy. Growth has resumed thanks to China. A sobering thought that, for Americans accustomed to being the enterprise engine of the globe. But that's the good news.

The bad: The growth is not nearly enough to avoid further job losses in the U.S. and EU. "The economic recovery now spreading across OECD countries is still too timid to halt the continuing rise in unemployment," according to the report by the organization of major industrialized nations.

Sure enough, today's jobs numbers are bad. First-time jobless claims for the most recent week were 505,000. The 4-week moving average was down slightly, but still at 514,000. It's better than the same time last year, but the U.S. economy must produce 127,000 net new jobs every month just to keep up with the natural growth of the labor force. Meanwhile, foreclosures are rising and mortgage deliquencies hit a record.

The entirely predictable 'unexpected' housing drop -- and vote on the jobs mess

Wed, 18 Nov 2009 09:49:03 PST

Top of the News: The only ones caught short by the "unexpected" nosedive in new house permits are people who haven't been paying attention.

Sprawl housing construction became the major manufacturing sector in the 2000s as much of the rest of the productive economy was hollowed out. But it rested on consumers taking on unsustainable amounts of debt in tandem with the "creative" financial activities and swindles on Wall Street (and WaMu). That's all gone now.

Americans still face record debt levels and mortgage requirements have been tightened. More subprime mortgages will reset in 2010, and banks continue to be saddled with huge real-estate toxic asserts. Big house-builders are still badly wounded and holding huge inventories of unsold properties, especially in the Sun Belt. Only the government's first-time buyer credit created a mini-bubble thats now fading.

The recovery to "new normal" won't come from another housing bubble.

Join me today at noon PST at seattletimes.com for a Q&A on the state of the jobs market. You can post questions here.