In recent months, the economic data has been pretty good. The surprises -- and there have been quite a few of them -- have almost all been on the upside. Job growth has been pleasantly swift. Real incomes have risen. Consumers have been spending. The U.S. economy has become a global bright spot. And yet, most economic forecasters have remained relatively gloomy.
But there's more to it than that. In a recent research note, Goldman Sachs made the case for continued pessimism on the pace of the recovery. First, they said, GDP numbers have remained relatively weak, even as other economic indicators have strengthened. Second, unusually warm weather has pulled some activity forward. Third, there's clear evidence that businesses have been rebuilding their inventories, but it's not obvious that they're going to keep doing so. Fourth, gas prices are starting to cut into real income.
Are they right? Who knows? New data out yesterday showed that the manufacturing sector had a very good March. Data out Friday will tell us how the job market did last month. And, as usual, there are "the animal spirits" to think about: We can disaggregate the economic data all we want, but at some point, if people are really convinced we're recovering, that begins to exert a force all its own.
Stevenson and Wolfers argue that this is forecasting at its best. We need this splash of cold water to force us to think about what we should do if our rosier scenarios fail to materialize. "Like a meteorologist who warns you to pack an umbrella because there’s some chance of rain, economists can assess the risks that lie ahead in a way that helps policy makers prepare for the future," they write. Sadly, with the possible exception of the Federal Reserve, there's little chance that policymakers will do anything even if it begins to pour. So rather than recognizing that the forecasters could be right, and we need to prepare, we're left hoping they will be wrong, and we won't return to a situation where the recovery requires swift action from Washington.
1) PRIMARY DAY! Romney is likely to score a majority of delegates in today's contests. "Politically, Maryland has long behaved like a Northeastern state, and that means it is likely to vote for Mitt Romney on Tuesday...Even if Mr. Romney were to lose both of those districts, however, he would still carry Maryland’s delegates by a 31-to-6 margin. Perhaps more likely is that Mr. Romney will win one of the swing districts but not the other, which would give him a 34-to-3 edge. Coupled with Mr. Romney’s almost-certain victory in the District of Columbia -- which awards its 16 pledged delegates on a winner-take-all basis and where Mr. Santorum is not on the ballot -- Mr. Romney could gain about 50 delegates on Tuesday night before even factoring in the tally in Wisconsin. Even if Mr. Romney were to lose Wisconsin narrowly -- he is also ahead in polls there but Mr. Santorum has much more plausible upset chances -- that would be enough for Mr. Romney to emerge with a clear majority of delegates from the voting on Tuesday." Nate Silver in The New York Times.
And he's shifting to general election mode. "To watch Mitt Romney campaign across Wisconsin the past few days has been to wonder whether the Republican primary is still going on. Romney shifted subtly into general election mode. He overhauled his rhetoric about President Obama and offered a new slogan: 'Obama’s Government-Centered Society.' He auditioned a potential running mate, Rep. Paul Ryan (R-Wis.), who has developed chemistry with Romney over four straight days together on the campaign trail. And Romney hinted at how he hopes to smooth over his positions on issues such as birth control and immigration to win over voters this fall...Romney is trying to seize the mantle of the presumptive nominee, framing the general election contest in appearances across Wisconsin as a battle between 'very different visions' to restore America’s promise. And not only with regard to the sluggish economy, but also to the nation’s standing in the world." Phillip Rucker in The Washington Post.
2) GOOD NEWS WATCH: Manufacturing had another good month. "Manufacturing bolstered the nation’s economic recovery in March, according to data released Monday, with companies reporting strong gains in production and employment. The upbeat report fueled hopes that car sales would continue to climb when automakers reveal their monthly results on Tuesday. A strong manufacturing sector also supports economists’ predictions that the number of jobs created in March would remain above the critical 200,000 mark. Those numbers are slated to be released Friday...The Institute for Supply Management compiles a monthly index that polls companies to measure activity across a broad swath of the manufacturing sector. The index registered 53.4 in March, an improvement from the previous month. March also marked the 32nd straight month that the reading has been above 50, indicating that the sector is expanding." Ylan Mui in The Washington Post.
@grossdm: Per @ashrfalaidi U.S. is only one of G-10 whose manufacturing PMI is in positive territory. Clearly, America in terminal decline
3) The Senate has been on a bipartisan streak. "The strangest thing has been happening in the hopelessly partisan Senate. They’re passing stuff on big bipartisan votes. You’ve heard the gripes about senatorial ineptitude, endlessly repeated as to be accepted fact. Moderates are fleeing for the exits. Deal making is dead. Institutional paralysis has set in. But the Senate over the past few months has defied that hand-wringing and passed legislation -- plenty of it, and by overwhelming margins -- in an election year, no less. Nothing that will move markets or right the economy, but progress still. Naturally, senators can’t agree why it’s happening. A closer look points to a combination of things: legislative necessity, public shame and plain frustration with all the political dysfunction in Washington...It would be premature to declare the era of partisan bickering over. The parties’ horns are still locked over the gravest national issues -- towering long-term debt, taxes and spending, immigration." Scott Wong in Politico.
4) Officials are looking to expand the foreclosure settlement. "State and federal officials who recently completed a $25 billion settlement with five of the nation’s largest banks over shoddy foreclosure practices have begun discussing how to apply some of the terms of that deal to a wider array of financial firms. The landmark agreement finalized in February in part forces the five major banks to overhaul flawed and fraudulent foreclosure practices that had become common in recent years. Those changes include forbidding so-called 'robosigning' of documents and providing a single point of contact to homeowners, who in the past often faced foreclosure from the banks even as they were negotiating ways to remain in their homes. Officials have repeatedly said they hope to see similar reforms at other banks and financial firms, where many of the same questionable practices have persisted." Brady Dennis in The Washington Post.
1) KLEIN: Paul Ryan's budget doesn't match his views on inequality. "On Thursday, the House of Representatives passed Rep. Paul Ryan’s 2013 budget proposal...My thoughts kept returning to something Ryan said five months ago. The occasion was an October speech at the conservative Heritage Foundation. Again, Ryan really leaned into the historic moment. His remarks were titled 'Saving the American Idea: Rejecting Fear, Envy and the Politics of Division,' and they were Ryan’s bid to make a different sort of history: To be the first national Republican to lay out a coherent theory on income inequality and what needs to be done about it...He was more convincing because he seemed to admit a hard truth that Republicans often deny: That government programs for the poor are a crucial way of ensuring income mobility, and as they get squeezed, so, too, do the life chances of those born at the base of the income ladder. But it is difficult to believe that Ryan’s budget was written by the same guy who wrote this paper." Ezra Klein in The Washington Post.
2) REINHART AND ROGOFF: This is no normal recovery. "With the U.S. economy yielding firmer data, some researchers are beginning to argue that recoveries from financial crises might not be as different from the aftermath of conventional recessions as our analysis suggests. Their case is unconvincing. The point that all recoveries are the same -- whether preceded by a financial crisis or not -- is argued in a recent Federal Reserve working paper...It is mystifying that they can make this claim almost five years after the subprime mortgage crisis erupted in the summer of 2007 and against a backdrop of an 8.3 percent unemployment rate (compared with 4.4 percent at the outset of the financial crisis). Our research makes the point that the aftermaths of severe financial crises are characterized by long, deep recessions in which crucial indicators such as unemployment and housing prices take far longer to hit bottom than they would after a normal recession. And the bottom is much deeper." Carmen Reinhart and Kenneth Rogoff in Bloomberg.
3) LAZEAR: We are in the worst recovery in history. "How many times have we heard that this was the worst recession since the Great Depression? That may be true--although the double-dip recession of the early 1980s was about comparable. Less publicized is that our current recovery pales in comparison with most other recoveries, including the one following the Great Depression. The Great Depression started with major economic contractions in 1930, '31, '32 and '33. In the three following years, the economy rebounded strongly with growth rates of 11%, 9% and 13%, respectively. The current recovery began in the second half of 2009, but economic growth has been weak. Growth in 2010 was 3% and in 2011 it was 1.7%. Who knows what 2012 will bring, but the current growth rate looks to be about 2%, according to the consensus of economists recently polled by Blue Chip Economic Indicators. Sadly, we have never really recovered from the recession." Edward Lazear in The Wall Street Journal.
4) MILBANK: Budget cuts are de facto deregulation. "Think the Obama administration has been strangling businesses with red tape? Well, that’s a load of chicken droppings...The Office of Management and Budget argues that the cost of new regulations in the Obama administration’s first three years was lower than the previous three years, under the George W. Bush administration. Agencies issued 886 final rules in the Obama administration’s first three years, compared with 931 in the final three Bush years...In truth, business doesn’t have to worry much about its place in the pecking order. Even if the Obama administration were inclined to bring down capitalism with an orgy of over-regulation, there isn’t enough money in the budget to enforce the rules on the books. That’s what the chicken fight is about: Spending cuts, such as those Congress and President Obama agreed to last summer, are a form of de facto deregulation." Dana Milbank in The Washington Post.
5) AARON: Health care isn't broccoli. "During the oral arguments on the Affordable Care Act, Justice Scalia challenged the Solicitor General, Donald Verrilli: 'everybody has to buy food sooner or later, so you define the market as food, therefore, everybody is in the market; therefore, you can make people buy broccoli.' Chief Justice Roberts commented that if the Court approves the insurance mandate: 'All bets are off,' meaning that there would be no limit to what Congress could do in regulating interstate commerce. Justice Scalia said he wanted a 'limiting principle,' so that the federal government, whose powers are constitutionally limited, would not be given unlimited sway over individual behavior. Justice Alito echoed that request. Solicitor General, Donald Verrilli, representing the government, failed to come up with one. But there is a simple answer to Justice Roberts', Scalia's, and Alito's question. When someone consumes broccoli, one is not normally imposing costs on other consumers that make broccoli more costly or unaffordable." Henry Aaron in The Huffington Post.
@mattyglesias: Compromise proposal: You may buy either broccoli, broccolini, OR broccoli rabe. Otherwise it's a fine. #liberty
British pop interlude: Florence + The Machine play "Cosmic Love" live on MTV Unplugged.
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Still to come: More bad news for Europe's economy; Medicaid pushes for fewer early births; a big immigration crackdown; the mining industry tries to end on-the-job fatalities; and a cat and a bearded dragon snuggle.
The recovery is lagging in areas that had high debt levels. "A growing body of research suggests that the recent recession may show an enduring shift in the geography of American growth. Places like Gwinnett County near Atlanta, Lake County, north of Orlando, and San Joaquin County in California’s central valley, where housing booms were fueled by borrowed money, may now become long-term laggards under the weight of those debts. Various kinds of economic activity, including auto sales, fell more sharply and are rebounding more slowly in areas that had the highest debt burdens at the peak of the boom in 2006, according to a series of recent studies. Jobs that depend on local spending, in restaurants and retail stores, were eliminated in larger numbers in high-debt areas. And the latest available data suggests that those jobs are returning more slowly, too." Binyamin Appelbaum in The New York Times.
Europe got more rough economic data. "Dire figures on unemployment and manufacturing activity in the euro zone's weakest members on Monday highlighted the scale of the currency bloc's economic problems, days after finance ministers boosted their bailout fund in a bid to fend off the debt crisis. The data suggest policy makers' hopes of a brief, shallow downturn may be wide off the mark, making it harder for governments to cut their debts as tax revenues fall and welfare payments increase. Eurostat, the European Union's statistics agency, said the number of people without jobs in the 17 countries that use the euro rose 162,000, to 17.134 million in February, the highest total since the data were first compiled in January 1995. That pushed the unemployment rate to 10.8% of the work force, the highest rate since June 1997 and an increase from 10.7% in January...Survey data Monday were similarly downbeat, showing manufacturing activity falling at its steepest pace in three months." Paul Hannon and Alex Brittain in The Wall Street Journal.
Investors are planning large scale purchases of homes to turn into rentals. "With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants. Nobody has ever tried this on such a large scale, and critics worry these new investors could face big challenges managing large portfolios of dispersed rental houses. Typically, landlords tend to be individuals or small firms that own just a handful of homes. But the new investors believe the rental income can deliver returns well above those offered by Treasury securities or stock dividends. At the same time, economists say, they could help areas hardest hit by the housing crash reach a bottom of the market...In February, the Federal Housing Finance Agency, which oversees the government-backed mortgage companies Fannie Mae and Freddie Mac, announced that it would sell about 2,500 homes in a pilot program." Motoko Rich in The New York Times.
A decline in storefront lending is making credit tighter for those with weak credit histories. "A shakeout in the storefront-loan business may make credit even tighter for millions of borrowers with less-than-stellar credit histories...Already, the shutdown of the subprime-mortgage market has forced multiple companies to close hundreds of storefront-lending locations and cut loan origination by hundreds of billions of dollars. As a result, individuals with weaker credit have had a hard time securing new mortgages. And even though they still have access to nonreal-estate loans and bank credit cards, volumes of those consumer-finance loans, while stable in recent years, are down sharply from 2007 levels...To be sure, economists say the explosion in subprime lending played a role in the financial crisis and that some attrition in the industry is healthy. In addition, financial advisers say easy access to credit, particularly when the terms are expensive, is dangerous for some borrowers." Serena Ng, Ryan Dezember, and Mike Spector in The Wall Street Journal.
Small banks are reorganizing to avoid federal regulators. "An increasing number of the nation’s more than 600 savings and loan associations are fleeing the comptroller’s office as they navigate a shifting regulatory landscape. The Dodd-Frank financial reform law closed their longtime regulator, the Office of Thrift Supervision, and moved them to the comptroller. A few of these institutions are trying to become credit unions, and many others are choosing state oversight. Nationally, 35 have applied to switch from national to state charters since July 2011. While the banks say that they are looking for a regulatory agency that understands them, some former industry experts have expressed concern that the financial institutions are regulator shopping...Community bankers vociferously deny that they are hunting for lax regulators. What they want, they say, is a regulator more in touch with the issues faced by the nation’s smaller banks, which are different from the ones faced by their larger national counterparts." Jessica Silver-Greenberg in The New York Times.
The SEC is probing Groupon. "The Securities and Exchange Commission is examining Groupon Inc.'s revision of its first set of financial results as a public company, according to a person familiar with the situation. The regulator's probe into the popular online-coupon company is at a preliminary stage and the SEC hasn't yet decided whether to launch a formal investigation into the matter, the person said. The SEC decision to examine the circumstances surrounding Groupon's surprise revision is the start-up's latest run-in with the regulator. Groupon twice revised its finances before its November IPO...Groupon said Friday it was revising its results for the fourth quarter after discovering executives had failed to set aside enough money for customer refunds. The company had reported a loss of $37 million for its fourth quarter. The accounting changes reduced the company's revenue for the quarter by $14.3 million and widened its loss by $22.6 million." Shayndi Raice and Jean Eaglesham in The Wall Street Journal.
@grossdm: Shocked that groupon, buzzy web business with hypergrowth, gazillions of competitors, quirky management takes faceplant. That never happens.
Movie trailer interlude: Rupert Sanders' "Snow White and The Huntsman."
Medicaid wants fewer early births. "Everyone who looks at the high cost of health care worries about the expense at the end of life. But what about at the beginning? Turns out there’s one deceptively simple change in obstetric care that can save millions of dollars and lead to healthier babies and healthier moms: stopping women and their obstetricians from inducing births before 39 weeks without a pressing medical reason...About one in 10 births in the United States is intentionally early, and some estimates are higher. It’s a matter of choice and convenience, and sometimes efficiency, for both women and their doctors. A baby born at 38 weeks -- a common time for early induction -- isn’t premature. It sounds safe. But mounting evidence shows that planned early births put babies at risk: more infants staying in neonatal intensive care units, more complications, more permanent damage and a higher death rate. Respiratory and digestive problems occur, and scientists are learning how early delivery can disrupt brain development." Joanne Kenen in Politico.
The White House and the F.D.A. have often clashed. "Nancy-Ann DeParle, the whip-smart and sometimes caustic White House deputy chief of staff, picked up The Wall Street Journal one summer day in 2010 and got an unwelcome shock. The Food and Drug Administration was proposing as part of the new health care law to require that movie theaters post calorie counts for popcorn...Dr. Margaret A. Hamburg, the F.D.A. commissioner appointed by Mr. Obama, soon heard about the White House’s displeasure and called Ms. DeParle at home one evening...The women had a decidedly chilly conversation. Within days, the F.D.A., an agency charged with protecting public health, backed down and dropped the notion of calorie counts for foods served in movie theaters and on airplanes. Similar tussles have erupted between top administration officials and the F.D.A. over issues from the regulation of sunscreens and asthma inhalers to the enforcement of an agency decision on a drug to prevent premature births." Gardiner Harris in The New York Times.
@sam_baker: Strange that single-payer is still so unrealistic when everything that ever happens is apparently the road to single-payer.
Immigration officials completed their largest ever wave of arrests. "U.S. Immigration and Customs Enforcement officials said Monday that they had arrested more than 3,100 criminals and others living in the country illegally, the largest such effort in the agency’s history, adding fuel to the national debate over the Obama administration’s stepped-up deportation policies. The six-day operation -- dubbed 'Cross Check' -- nabbed 3,168 offenders across the nation, including in all 50 states, three territories and the District of Columbia. Of those, 1,477 taken into custody had felony convictions such as murder, manslaughter, attempted murder, kidnapping, child abuse, assault and other offenses...The Obama administration has faced criticism from across the political spectrum for tightening its controls on illegal immigration. The administration has deported about 1 million people in the past three years, some 400,000 yearly, a record-setting pace." Annie Gowen and Jerry Markon in The Washington Post.
Lawmakers are struggling to revamp the nation's ports. "Washington is abuzz over the transportation bill and a long-term funding crunch -- but there are billions of dollars raised for water transportation that have been largely ignored. Members of Congress are eyeing the Realizing America’s Maritime Promise Act as a first step in revitalizing the nation’s 150 deep-draft cargo ports. They want to spend the much-needed funds ahead of the world-changing expansion of the Panama Canal in 2014. The RAMP Act is a simple bill. It ensures the Harbor Maintenance Trust Fund spends as much on port improvements as it takes in through the Harbor Maintenance Tax -- an ad valorem fee of $1.25on each $1,000 worth of cargo that brings in about $1.4 billion annually. Kurt Nagle, CEO of the American Association of Port Authorities, has estimated the country’s dredging needs at $1.3 billion to $1.6 billion each year -- but annual expenditures have averaged less than $800 million the past five years." Burgess Everett and Adam Snider in Politico.
The Export-Import Bank has run into unexpected troubles. "In a bid to reopen talks, 26 Senate Republicans -- many of them the same bank supporters who turned on Reid -- signed a letter last Thursday urging the Nevada Democrat to relent and bring the Senate bill back to the floor. That measure would extend Ex-Im’s authorization through September 2015 and gradually raise its lending or exposure cap to $140 billion, a 40 percent increase. The Senate Banking Committee leadership is strongly supportive, together with the White House. But Reid is reluctant to promise, having been burned once, and still uncertain where the bill would go next in the House...As is so often the case this session, the real challenge is not to get a majority of the House -- the bank likely has that already -- but a majority of the House GOP Conference. And Cantor must find that sweet spot where his Republicans can come on board without alienating the Democrats he needs for passage." David Rogers in Politico.
Interspecies friendship interlude: A cat and its best friend the bearded dragon.
The mining industry wants to end on the job fatalities. "A voluntary safety initiative announced Monday by the mining industry aims to bring the number of on-the-job fatalities to zero, an ambitious program laid out just days before the two-year anniversary of a West Virginia disaster that claimed the lives of 29 coal miners. Mining industry officials say the program's development started well before the April 2010 explosion at Massey Energy Co.'s Upper Big Branch mine in Montcoal, W.Va., the worst U.S. coal-mining accident in four decades. But officials said the accident confirmed the need to raise safety standards. So far, 29 mining companies with more than 100,000 U.S. employees have said they plan to follow the program, called CORESafety. The industry has about 350,000 workers, according to the federal Mine Safety and Health Administration...The 20-step program, which focuses on improving management systems, was developed by a group of mining CEOs and safety experts over the past three years." Kris Maher in The Wall Street Journal.
@pegobry: This talk of strategic petroleum reserves clearly indicates that people don't know what "strategic" means.
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