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  • Janet Yellen on Limited Strength of Recovery

    San Francisco Fed President Janet Yellen spoke in Phoenix yesterday, and she presented a relatively reserved view of the economy. it was her first speech since the economy entered its current recovery phase, and she defended and commended government action in fighting off economic meltdown. But she also warned that this recovery is going to be very slow. And she focused on two key factors--household spending and the woeful labor market: Consumers have surprised us in the past with their free-spending ways and it’s not out of the question that they will do so again. But I wouldn’t count on them leading a strong recovery. They face high and rising unemployment, stagnant wages, and heavy debt burdens. Their nest eggs have shrunk dramatically as house and stock prices have fallen, and their access to credit has been squeezed. It may be that we are witnessing the start of a new era for consumers following the harsh financial blows they have endured. 2 We often hear the word “deleveraging” used to describe the push by financial institutions to scale back debt and build equity. Households too have now begun to pay down debt and rebuild their savings. This phenomenon can be seen not only in the United States, but in most countries that experienced similar housing booms. The United States was hardly the only country where households borrowed heavily just before a severe housing bust set in. And those countries with greater increases in debt relative to income before the crisis experienced greater declines in consumption spending once the crisis began. In the United States, the personal saving rate, which had fallen to an incredibly low 1 percent in early 2008, has averaged 4 percent so far this year and may well rise higher. In the current environment, such belt-tightening makes great sense from the standpoint of individual households. In fact, some households may have no other option because their access to credit has been crimped. Over the long run, higher saving is surely a good thing for our economy because it provides capital that can be devoted to modern infrastructure, technology, and other productive investments that enhance our standard of living. All the same, the transition to a higher saving plane could be painful if it reduces the growth rate of consumer spending for an extended period. Weakness in the labor market is another factor that may keep the recovery sluggish for quite some time. Payroll employment has been plummeting for more than a year and a half, and, even though the pace of the decline has slowed, unemployment now stands at its highest level since 1983. In addition, many workers have seen their hours cut or are experiencing involuntary furloughs. To bolster earnings in the face of weak revenue growth, employers have been aggressive in cutting labor costs and jobs, and my business contacts say they will be reluctant to hire again until they see clear evidence of a sustained recovery. Weak demand for workers is also putting a lid on paychecks. Wages are barely rising. A well-known measure of overall employment costs rose by only 1¼ percent over the past year, the smallest increase in the history of the series. High unemployment, weak job growth, and paltry wage increases are a recipe for sluggish consumer spending growth and a tepid recovery. The U.S. experienced so-called jobless recoveries following the previous two recessions in 1991 and 2001, when job creation remained weak for several years following the business cycle trough. In both cases, output growth was less robust than in the typical recovery and, unfortunately, things seem to be shaping up similarly this time around. Since she gave the speech in Phoenix, Yellen's comments about the real estate market were both interesting and relevant to the local crowd. And she also addresses the Fed's monetary policy, past and present. Read the full speech here .

  • Joseph Stiglitz on the State of the Economy, and the Progress of Recovery

    Joseph Stiglitz says the federal government needs to spend more money (on infrastructure, schools, and elsewhere). And if he were president, he would work to restructure "large parts of the economy," and bring them up-to-date with the economics of the Twenty-First Century, rather than allowing them to keep following "Nineteenth Century economic principles." Those are among the ideas he shares with The New Yorker's James Surowiecki in this interview:

  • Charlie Rose Lehman Brothers Segment

    Of all the discussions we've heard or seen or read this week of the collapse of Lehman Brothers , the Charlie Rose segment might be the best. Andrew Ross Sorkin and Jim Stewart were particularly clear in putting the event into context. The video of the program is now available, so we thought we'd share. Here's a short excerpt: Click here for the full program:

  • Bernanke: 'Recession is very likely over'

    Add Fed Chair Ben Bernanke's voice to the growing chorus that the recession appears to be over and a long slow recovery is beginning. Bernanke spoke at the Brookings Insititution yesterday about the events of the last year, and during his speech he noted that he was well aware that forecasters were announcing the end of the recession. Here is a key excerpt from the speech. But the general view of most forecasters is that that pace of growth in 2010 will be moderate, less than you might expect given the depth of the recession, because of ongoing headwinds, including still ongoing financial and credit problems, you know, deleveraging by households, the needs for adjustments in the economy, sectoral adjustments in the economy, the need for a fiscal exit at some point, many, many factors that will likely, at least based on current information, make the 2010 recovery moderate, and in particular, not much faster than sort of the underlying potential growth rate of the economy. And the arithmetic is that unless the economy grows, you know, significantly faster than its longer term growth rate, it’ll be relatively slow in creating jobs over and above those needed to employ people coming into the labor force, and therefore, the unemployment rate would tend to come down quite slowly. So that’s a risk, that’s a possibility. Of course, there is on both sides of that forecast; we could have a stronger recovery, we could have a weaker recovery, but if we do, in fact, see moderate growth, but not growth much more than the underlying potential growth rate, then, unfortunately, unemployment will be slow to come down. It will come down, but it may take some time. Obviously, that’s a very serious concern, and that’s one reason why, even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was, and so that’s a challenge for us and all policy-makers going forward. You can read a full transcript of the speech, and watch the full session by clicking here .

  • 'Finding New Shoots of Growth' at World Economic Forum's Annual Meeting of New Champions

    With the economic landscape decidedly different from a year ago, many economists and policy leaders are trying to determine where the sectors of growth will be moving forward. Jeffrey Sachs is among those who believes that sustainable technology and "green" investments are the best hope. He writes in today's Guardian that the recession and the slow recovery ahead gives us "the historic opportunity – and need – to compensate for low consumer spending with increased investment spending on sustainable technologies": The crisis can yet be an opportunity to turn from a path of financial bubbles and excessive consumption to a path of sustainable development. In fact, seizing this opportunity is the only recipe for genuine growth that we have left. At the World Economic Forum 's Annual Meeting of New Champions in Dalian, China, the search for new engines of growth became a central theme, and many of the panels--video for which is now available here --focused on business in the new economic climate. The panel titled Finding the New Shoots of Growth included Marwan M. Boodai, Chief Executive Officer, Boodai Corporation, Kuwait; Liu Jiren, Chairman and Chief Executive Officer, Neusoft Corporation, People's Republic of China; Deepak Puri, Chairman and Managing Director, Moser Baer, India; Iqbal Survé, Executive Chairman, Sekunjalo Investments, South Africa; James S. Turley, Chairman and Chief Executive Officer, Ernst & Young; and Wan Gang, Minister of Science and Technology of the People's Republic of China. Wan set the tone by discussing sustainable technologies--along with other areas like biotechnology and information technology. So the Chinese minister appears to be on the same page as Sachs. Here's the panel discussion:

  • Economists Continue Optimistic Streak in WSJ Forecasting Survey; Also Think the Government Should Not Have Let Lehman Collapse

    Most economists surveyed for the Wall Street Journal 's monthly forecast see a net job increase coming over the course of the next 12 months. The Journal's Phil Izzo points out that this is the first time in over a year that they have projected job growth. As a group, the economists still expect unemployment to top 10%--so that job growth is going to take a little while and things are going to get worse in the labor market before they get better. The survey shows relative optimism for growth in the coming months, with a prediction of 3% growth in the current quarter. Here's a look at the GDP projections over the course of the recession: Click here for interactive versions of the Journal's helpful graphics and charts associated with the forecasting survey. Given that we are at the one-year anniversary of the collapse of Lehman Brothers, one of the more interesting questions on the latest forecasting survey was whether the government should have saved the investment banking giant. Most of the economists who responded to that question thought the government made a mistake. Kelly Evans and Phil Izzo discuss that and other aspects of the survey in this video: Read the accompanying article on the survey here .

  • Joel Stein visits "Less Vegas"

    It is hard to find a city that went so spectacularly from boom to bust than Las Vegas. Just look at how the Case-Shiller Index has dropped for Vegas over the last two years: Joel Stein went to Las Vegas to see how it has changed since the crisis hit, and to take advantage of expected deals. His article about the trip is the cover story in this week's Time , and Stein says he felt "guiltless about taking advantage" of Vegas while it is down: This has been the first major recession Vegas has experienced since it became a real city. After two decades as one of the fastest-growing metropolises in the U.S., Las Vegas has seen its population growth flatten. It's got the highest foreclosure rate of any major metro area, and the unemployment rate jumped from 3.8% to 12.3% in just three years. Even if you have a job, it's not a good time to have your wage be dependent on lavish tips. The No. 1 convention city has also had a wave of cancellations from the AIG effect — companies don't want the bad publicity of being seen in Sin City. Just as Las Vegas was the epicenter of the extravagant consumption of the past 20 years, now it's the deepest crater of the recession over the last year. And while I do want to get my money back, I'm a little worried about seeing the dream sucked out of our most American city, the one with the optimism and possibility of New York City in 1900. The one I've, embarrassingly, come to love. You can read Less Vegas: The Casino Town Bets on a Comeback here . Also, take a listen to Stein's interview with Marketplace's Tess Vigeland .

  • WSJ August Forecast: Most Economists Surveyed Say the Recession Has Ended

    The Wall Street Journal 's August forecasting survey shows most of the participating economists feel the economy stabilizing: After months of uncertainty, economists are finally seeing a break in the clouds. Forecasts were revised upward for every period, with 27 economists saying the recession had ended and 11 seeing a trough this month or next. Gross domestic product in the third quarter is now expected to show 2.4% growth at a seasonally adjusted annual rate amid signs of life in the manufacturing sector, partly spurred by inventory adjustments and strong demand for the "cash for clunkers" car-rebate program. Here's what the Journal's GDP forecasting trend looks like: This month the Journal asked economists to weigh in on Ben Bernanke. The Fed Chair has 6 months left in his current term, and the economists surveyed give him a 71% chance of being reappointed. Wall Street Journal news editor Phil Izzo discusses econiomists' views on Bernanke and the survey with Kelly Evans : Click here for full coverage of the survey, and here for the Journal's always useful interactive survey charts and graphs.

  • Bernanke Town Meeting

    Federal Chair Ben Bernanke held a town meeting at the Kansas City Federal Reserve Bank on Sunday, and he explained the Fed's actions prior to the recession, and in reaction to the economic meltdown last year. Jim Lehrer moderated, and The Newshour with Jim Lehrer has now made video of the meeting available. Here's the first segment (of three) in which Bernanke defends the Fed's actions and answers questions from the audience: You can view segments two and three by clicking here .

  • Grading Bernanke

    Ben Bernanke has half a year left on his term as chair of the Federal Reserve , and at this point it is not certain whether he will be asked to serve another. Bernanke has said that he expects the economy to pick up later this year , and perhaps his future as chair depends on whether he is right or not. David Wessel , economics editor of the Wall Street Journal , assesses Bernanke's tenure in this short video, and says Bernanke "did a great job in saving us from something that could have been a catastrophe."

  • Janet Yellen: 'Risk of Inflation Being Too Low'

    Janet Yellen , president and CEO of the Federal Reserve Bank of San Francisco , says the recession has put significant "downward pressure" on wages and consumer prices. For this reason, she is not worried about inflation. Rather, she sees deflation as an ongoing concern. But, she says, a vigilant Fed can keep deflation from becoming a major problem. Here she is speaking at the Commonwealth Club : You can watch Yellen's full address, in which she discusses the economic crisis and the Fed's response, here .

  • Crocs Added to Endangered (Shoe) Species List

    Crocs in Parma by Ze Eduardo at Flick.com Listeners to the classic BBC radio series, Hitchhiker's Guide to the Galaxy , know the utility of shoes as an economic indicator. The Shoe Event Horizon theory holds, in part, that when people are depressed, they look at their shoes. Prompting them to think, "Hey. New shoes will make me feel better." They then buy new shoes. Of course shoe makers have no incentive to make quality shoes at that point--the quicker shoes wear out, the more people see that they need new shoes. That may provide one explanation for the problems the makers of Crocs are now facing: their shoes are too durable and in a recession people stick with the pair they have. As Ylan Mui writes in the Washington Post , Who needs a second pair of Crocs in a recession, particularly when the first pair is holding up just fine?" Another possible explanation: the company overextended: The company used money from its public stock offering to diversify and acquire new businesses, such as Jibbitz, which makes charms designed to fit Crocs' ventilating holes, and Fury Hockey, which used Croslite to make sports gear. It built manufacturing plants in Mexico and China, operated distribution centers in the Netherlands and Japan, and forged into the global marketplace. More than half of Crocs were sold outside the United States. Whatever the explanation, the company went from profits of $168.2 million in 2007 to losses of $185.1 million last year. So put on one of your five pairs of microbial foam shoes and read Once-Trendy Crocs Could be on their Last Legs here .

  • The Pasta Indicator

    Time Magazine has a slideshow of 10 economic indicators, from Home Sales to Movie Madness . Technically, it is a list of 9, as Jobs , takes up two spots on the list. Our least favorite indicator: The Pasta Indicator : Pasta is a cheap meal, and sales are shooting through the roof — rising 22% in 2008 after years of tepid growth, according to Nielsen Co. Much of the increase is due to commodities related price hikes. But the trend still means that pasta is claiming a larger portion of the average grocery basket. When pasta sales begin to slow you'll know times are getting better. One way to track the trend is by watching financial results at American Italian Pasta Co. (ticker: AIPC), which is North America's largest pasta producer. The stock has soared from $5 to $26 in the past 12 months while just about everything else got hammered. Revenue surged 43% to $569 million in 2008 — after declining or growing only modestly the previous three years. When this counter cyclical pasta packer hits a rough patch it could signal better times for the rest of us. We'd hate to think that one has to curb a pasta habit in order to bring about recovery. Read How to Know the Economy is Turning Up here .

  • Guy Sorman: Innovation Will Lead US out of Recession

    Noted French intellectual and free marketeer Guy Sorman is confident that the economy is headed in the right direction. He feels this way in spite of his belief that the stimulus measures and government bailouts are “political statements, which are rather neutral vis-à-vis the economy.” He says measures like saving GM don’t make “a big difference,” and that governments should respond to crises by doing nothing. But he recognizes that politics doesn’t allow inaction, so he’s not as critical of recent government action as some of his peers on the Chicago school side of the fence. And in speaking at the Carnegie Council , Sorman explained that his optimism is based on his belief that innovation will lead to recovery: My major reason for optimism right now in the United States and also in Europe is by visiting emerging companies inventing new products. I'm quite sure that we will get out of the crisis not because of stimulus, not because of regulation, but because of new techniques in biotechnology, in nanotechnology, in communication technology. Like it in the past, it is innovation which will be the real engine of the economy and the real reason why we will get out of this crisis. Here is an excerpt of Sorman’s address: Sorman's latest latest book is Economics Does Not Lie: A Defense of the Free Market in a Time of Crisis . He spoke to more issues in the book in the speech , which you can watch by clicking here .

  • US Recession and Recovery's Rapid Pace

    Slate 's Daniel Gross reports on a talk by deputy governor of the Bank of Japan Kiyohiko Nishimura titled "The Past Does Not Repeat Itself, but It Rhymes." As Gross writes, a Japanes central banker... ...is well-situated to comment on the current global crisis, given Japan's own sad history of dealing with the overhang of a credit/real estate bubble—or, more accurately, of not dealing with it. The government and private-sector's uncertain policies condemned Japan to a traumatic lost decade of slow growth. In his talk, Nishimura points to a remarkable similarity between Japan's economic fall and recovery during the 1990s and the current crisis in the US. But while the patterns look the same, the pace is completely different. For the last year, the rate in the US has been about 7 times faster than it was in Japan. Gross: According to Nishimura's schema, in less than two and a half years, the United States has experienced as much trauma and recovery as Japan did in about 12 years. All of which means that if the dog-years analogy continues, things could start looking up by early next year. But we shouldn't get too far ahead ourselves. There are other lessons to be learned from Japan's experience of starts and stops. "We should be careful not to be very optimistic," Nishimura concluded. "That's my advice to myself." Read the A Recession in Dog Years here .
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