U.S. economy is spectator sport in election year

Commentary: Latest European Band-Aid won't heal the wounds

This week brought a lot of new economic information. Raw data is always spun by analysis, sometimes for reasons of advantage in driving clients to buy or sell things, sometimes to further theories, and often for politics.

But this time is exceptional, cubed. Global economies have never been in situations like these, and thus neither have central bankers, economists and analysts.

Reporters cannot tell when sources are spinning, straight or bent. I vacillate between the anger of a citizen done wrong by political leadership, exasperation with dumbed-down media, and rage at the amorality of colleagues in markets, utterly dependent on market health but undermining them for the slightest advantage.

Today … compassion, even for those unfortunate branches of humanity.

The biggest news: the net addition of 227,000 jobs in February, and a 61,000 positive revision to the December-through-January sum. That’s good news, and crowing by the party in power is justified. However, all is relative.

The positive jobs numbers in the last three months are likely to have been boosted by good weather. The February numbers include a negligible gain in wages — 0.1 percent, equal to 3 cents per hour — and no acceleration in hours worked.

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Unemployment remained at 8.3 percent, and inclusive of "involuntary part-time" workers, improved slightly to 14.9 percent — both understated by discouraged workers leaving the workforce: "You ain’t unemployed if you ain’t lookin’."

Nothing matters more than jobs, because we must have tax revenue before we embark on austerity, and austerity is coming, ready or not.

The ISM reported sustained growth in the service sector, to 57.3 in February from 56 (a 50 level is breakeven, 60 is showing some life). "Econo-political" discourse is now polluted by advocacy for manufacturing jobs. Do I hope my 17-year-old son will stand in a production line, competing head-to-head with Asian sweatshops and highly specialized German "mini-production" operations?

Or a career in what Peter Drucker described 50 years ago as "knowledge work," perhaps at Google, or programming manufacturing robots, or any number of ventures in which his brain might be paid better than his hands?

My friend, who writes the CalculatedRiskBlog, says, "Housing has made its bottom turn." No it has not — not with prices still falling and distressed inventory unchanged.

Loud "hosannas" greeted the Federal Reserve’s report of an 8.6 percent surge in consumer credit: banks are easing, consumers in action! No. Just … not. Credit card debt actually contracted at a 4.4 percent pace, knocking balances back to November levels.

Nonrevolving credit roared ahead at a 14.7 percent pace. Partly good: auto loans — credit is easier (cars are easier to repossess than houses), and the damned things do wear out, and high-mileage new beats the old gas-blazer.

Partly awful: The fastest growth in credit is student loans, now nearly equal to the nation’s total outstanding second mortgages and home equity lines of credit (HELOCs), loaded onto the backs of kids to pay the higher-education racketeers. In this whole Great Recession, the only sectors of the economy to raise prices at a multiple of inflation: the health care "Corleone" family, and higher education. A shameful and destructive reversal of GI Bill wisdom.

Overseas: Officials say the new Greek deal marks the end of the European crisis. Uh-huh. New Greek bond yields already predict certain default. Banks propped, the European story is now all about the actual economies. In Spain, unemployment is at 22 percent and rising, and 45 percent among youth, with its budget out of balance by 8.3 percent of total gross domestic product. German-forced austerity is the plan. For now.

Back here, there’s bizarre bad-good-bad-good news. In an apparent panic, the Obama administration and silent, bipartisan co-dependents in Congress have jacked Federal Housing Administration fees to fill a loss hole that will require bailout after the election.

The jack is so high, driving new applicants away, that FHA net revenue may fall instead. The good news: Nouveau private mortgage insurers can fill most of the credit gap. The bad news: The highest-quality applicants will bolt FHA, leaving it with net-increased risk and losses.

It’s an election year. There is nothing to do (or that will be done) but watch the data stream by. The best view: unfiltered, original sources. Take gin straight in a martini. Don’t monkey with it.

 

Two different price sources from www.calculatedriskblog.com (the lower chart is from www.lpsvcs.com): different methodologies, same picture.

 

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@pmglending.com.

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