Thread: Obama and Congress giving up on the economy?

Originally Posted by Daved

Not exactly, although I'm curious why you think that's humorous. Did you look at the posted graph? It sure doesn't look like unemployment rises until the recessions start.

My actual point was that the current unemployment rate is not a very good indication as to whether the economy is recovering.

Humorous because I was/am agreeing with you*. Of course unemployment doesn't rise until the recession starts -- it is a consequence of the shrinking economy.

* So you think 2+2=4?

Originally Posted by abachler

A starving man has no morals. You need a strong economy to support such enlightened social standards. I don't disagree with those ideals, but they are far down on the list of priorities below things like food water shelter (strong economy) and safety (strong military). Only when the lower level needs are met can thehigher level needs be addressed.

Well, we definitely agree on that.

Originally Posted by MK27

So you think 2+2=4?

But so is 3+1. Consider this...

Imagine that news coverage warns of a potential recession in the near future when analysts make predictions based on the current housing economy recession. Imagine that the news coverage keeps insisting on this subject and the news become increasingly dominant on every household. Impending Recession! There's no arguing (is there?) that this particular recession was an odd recession; An announced recession.

In this scenario doesn't it make sense for companies to think activating their defense protocols? Layoffs, firing, reduce production? And wouldn't this reaction further the idea that "a recession is coming"?

It almost certainly was coming. That's hard to deny. But it's probably no mere accident that initial predictions in late 2007 thought of the recession as happening in 3 or 4 years time, while the reality showed it started right the next year and caught every government in the world by surprise. I just happen to wonder how much of that wasn't caused by the steep reduction in consumer confidence caused by the decline of employment rates as companies started a snowball effect.

So,

- Can unemployment cause a recession? It certainly is one of the recognized indicators to predict a recession.

- Can it lead a country out of a recession? I don't see how consumer confidence can rise and economic activity increase back to previous levels without employment rates going up.

I agree.

Originally Posted by Wikipedia

from - Index of Leading Indicators
The ten components of the Leading Economic Index include:

Average weekly hours worked by manufacturing workers
Average number of initial applications for unemployment insurance
Amount of manufacturers' new orders for consumer goods and materials
Amount of manufacterers' new orders for capital goods unrelated to defense
Speed of delivery of new merchandise to vendors from suppliers
Amount of new building permits for residential buildings
The S&P 500 stock index
Inflation-adjusted money supply (M2)
Spread between long and short interest rates (i.e. the yield curve)
Consumer expectations

text in bold red was original source text highlighted by me.

Originally Posted by Mario F.

In this scenario doesn't it make sense for companies to think activating their defense protocols? Layoffs, firing, reduce production? And wouldn't this reaction further the idea that "a recession is coming"?

For the most part actually, no. You were a small business owner, I think. My parents have been in manufacturing all my life, thru several recessions. The "rule" with the staff is a pretty simple one: they are employed to handle the orders. If the orders dwindle, then it may be necessary to cut back hours or lay people off to manage costs.

But it would be completely stupid to start laying people off before the orders dwindle. That would be pretty literally shooting yourself in the foot, since you will now have to backlog the non-dwindling orders.

It makes sense to me that most business works that way. Of course, if you have a bunch of people that you didn't need in the first place, there's a different story. But that is probably unusual. Employers are not in the habit of hiring people unless there is something for them to do. The other scenario would be where a manufacturer is in the habit of stockpiling -- making products before they sell, such as in the automotive industry. But that is unusual too, AFAIK, and not really very smart (including in the automotive industry).

The upshot of this is that the reason unemployment could be used as a leading indicator is that it reflects the activity of small private companies which DO NOT report publicly -- in other words, their real productivity cannot be directly measured. I believe that is actually most of the economy.

So it is only a useful indicator in so far as it parallels the diminished productivity which IS reported quarterly by corporations.

@abachler: "Average number of initial applications for unemployment insurance" is not remotely the same thing as the unemployment rate, BTW

Originally Posted by Daved

I don't understand your position, abachler. On the one hand, you post that because the unemployment rate is still high, the economy still requires more legislation to be fixed (implying that it is not getting better and on its way to recovery), but at the same time you also viewed and agreed with the graph that I posted which clearly indicates that unemployment only starts dropping when the recession ends. Which is it?

He's obfuscating; like I said, "Average number of initial applications for unemployment insurance" IS NOT the unemployment rate. As a matter of fact, right now, that first one is DOWN, while the second one is up (the number of people becoming unemployed is not increasing, but the total number is).

It makes sense to me that most business works that way.

But large businesses do not work this way. Large businesses may decide to close down some of their riskier entities, or cut back on research and development if they feel a recession is coming.

Thanks bithub. I wouldn't probably be able to put it into so few words.

But more importantly, the example serves only to provide an hypothetical scenario. It's besides the point, MK27, to discuss it in detail. It's, if you must, an analogy into something much more important.

Consumer Confidence is the leading catalyst to economic activity. Being that Consumer Confidence is mostly affected by the employment rate, now do the math. edit: The math is that while not necessarily always, a recession can indeed by provoked by a employment rates. And one possible reason being a snowball effect in layoffs as companies tend to follow other companies practices in their effort to remain afloat and competitive.

Originally Posted by bithub

But large businesses do not work this way. Large businesses may decide to close down some of their riskier entities, or cut back on research and development if they feel a recession is coming.

Maybe so and maybe not* -- in any case, most business is in fact, not large business.

*quite often the later anyway, methinks; eg the aerospace industry is order based. Boeing will not make cutbacks unless they have a real reason to do so. The ones that work the way you are saying are speculative to start with, and they will be the exception, ie, you are wrong...

Originally Posted by Mario F.

Consumer Confidence is the leading catalyst to economic activity. Being that Consumer Confidence is mostly affected by the employment rate, now do the math.

Well now here's the real rub: consumer confidence is mostly affected by media representations of the economy. If some naive bunch of doom and gloomers start screaming that the unemployment rate is what to watch, then you will just create a self-fulfilling prophecy. Esp. if they are prone toward erroneous and misleading generalizations a la abachler.

See? It wasn't so hard to agree with me

EDIT:
Wait! You didn't agree with me! Definitely need to read slower. Anyways. I'm starving. That's my excuse.
Consumer Confidence is mostly affected by employment, MK27. Check your sources. Besides consumers are not nearly as sensitive to the economic blurb of media news.

Originally Posted by MK27

Maybe so and maybe not* -- in any case, most business is in fact, not large business.

*quite often the later anyway, methinks; eg the aerospace industry is order based. Boeing will not make cutbacks unless they have a real reason to do so. The ones that work the way you are saying are speculative to start with, and they will be the exception, ie, you are wrong...

lol, I had forgotten how utterly pointless it is to have a discussion with you.