2/3rds Americans Say Recession is Likely
This morning, we are going to review an extremely negative public survey on the economy by Bloomberg/Los Angeles Times: Almost two-thirds of Americans say a recession is likely in the next year and a majority believes the economy is already faltering
Before we do that, I need to provide you with two caveats about recession forecasts:
• Economists, as a group, have never correctly predicted a recession: They tend to be overly-optimistic as a profession. Some of it can be blamed on their employers, who tend to dislike negative sentiment as bad for business; Some of it can be blamed on the tools of profession, which are not particularly well suited for determining contractions in advance.
• The public, as a group, predicts many recessions that never occur. People internalize and over-emphasize their own tensions, stresses, worries etc. and extrapolate these out toward the economy. The old joke is they predicted 9 of the past 4 recessions.
I laid out my views on forecasting years ago in a column titled "The Folly of Forecasting."
What is the value of these surveys? Sentiment and psychology, handicapping the political races, and getting an early feel for potential market impacting legislation.
What factors are worth noting?
Sentiment
-Almost 2/3es of Americans say a recession is likely in the next year;
-A majority believes the economy is already faltering
-65% (versus 29%) expect a recession;
-51% say the economy is doing poorly; 46% say it is doing well;
- This is the gloomiest view since February 2003, and a significant shift from June 2007, when 57% percent said it was doing well.Tax Policy:
-Two in three say they haven't benefited from the Bush tax cuts;
-A majority of Americans say they would tolerate higher taxes -- if it paid for universal health care;Universal Health Care
-60% said they would be willing to repeal tax cuts to help pay for a health-care program that insures all Americans;
-Most of the highest income group polled, those in households earning more than $100,000, support it.
-More than 80% of Democrats say they like the plan; most Republicans oppose it. -Independent voters also support universal health care;
-52% vs 36% favored health and education spending as a better economic stimulus than tax cuts.Taxing Investment Income
-Less than 50% say investment income should be taxed at the same rate as wages.
-16% say investment income tax rates should be raised; slightly more favor keeping rates the sameSubprime mortgage
-Some respondents want Federal authorities to help delinquent homeowners refi loans; -Others say we need new regulations;
-28% say the market should be allowed to correct itself.Federal Reserve Chairman
-38% percent approve how Ben Bernanke is handling his job;
-In March 2007, Bernanke had a 50% approval rating
Fascinating stuff; Go read the full piece . . .
Source:
Americans Turn Negative on Economy, Expect Recession, Poll Says
Matthew Benjamin
Bloomberg, Oct. 25 2007
http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=a2TWmuh3vHHI
Friday, October 26, 2007 | 11:18 AM | Permalink
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» The Big "R" from DealBreaker.com
Oil costs like a billion dollars a barrel now. And according to a Bloomberg survey 2/3 of the American public think we're headed for a recession. Of course, the "American public" is kind of dumb. As Barry Ritholtz says, they've... [Read More]
Tracked on Oct 26, 2007 11:59:38 AM
Comments
How many Americans are ready for a 180 in their standards of living? (my guess is a bit less than 2/3)
The debt junkies aren't going to go straight without a fight.
Posted by: KP | Oct 26, 2007 11:40:22 AM
According to U.S. Census: "Oct. 26 (Bloomberg) -- A record 17.9 million U.S. homes stood empty in the third quarter as lenders took possession of a growing number of properties in foreclosure.
The figure is a 7.8 percent gain from a year ago, when 16.6 million properties were vacant... About 2.07 million empty homes were for sale, compared with 1.94 million a year earlier, the report said."
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=auGPZJsHk6_s
Posted by: Strasser | Oct 26, 2007 11:58:18 AM
Countrywide helped trigger a rally with very positive comments. Do you think Angelo Mozilo wanted to sell more stock?
Posted by: GerryL | Oct 26, 2007 11:59:09 AM
"tangelo" has stopped, for now, however he was still flipping those options as of Oct. 12th.
My guess is that we see a fresh batch of selling from him. Even though he should be in the blackout period.
MS
Posted by: michael schumacher | Oct 26, 2007 12:09:31 PM
Isn't a "Wall of Worry" usually good for stock prices? Beware when everyone turns positive.
One Kirk Report stat is that SPY has never been negative the last 3 days of Oct to the 1st 3 days of November. Interesting.
"Holding the S&P 500 during the last three days of October through the first three days of November has given a positive return during every year of existence of the S&P 500 tracking fund, SPY. The 12 out of 12 winning trades returned an average of +3.3%, with an average drawdown (i.e. maximum loss) of only -0.7% compared to an average maximum gain of +3.6%. That kind of thing shouldn't be ignored." - Jason Geopfert
http://www.thekirkreport.com/2007/10/sitting-ducks.html
Posted by: grodge | Oct 26, 2007 12:24:01 PM
Barry,
So you mean to tell me that 2/3rds of Americans haven't heard of Goldilocks 2.0??
Posted by: Christopher Laudani | Oct 26, 2007 12:25:05 PM
The 2001 recession was preceding by an increasing frequency of the word "recession" in general conversation. In Aug, 2006, I ran a "recession" frequency count on Google's Trends tool and it showed no similiar pattern.
But today, fourteen months later, I re-ran that query and I'm surprised at the similarity to the frequency count just preceding the 2001 recession. Recession has entered the general mindset of the public.
Posted by: Broward Horne | Oct 26, 2007 12:38:51 PM
If the health care #s are at all accurate that's scary because it means "most" Americans are idiots! Do people really thing that rolling back the Bush tax cuts are going to remotely pay for that UHC now or in the future? I mean, it's not like we don't have fantastic exemplars on just how well the gov't controls spending on this type of thing. Where is the need for a crystal ball here? Where is there room for optimism that "it's different this time"?
I can see how 60% in a poll might favor it because they probably aren't polling Barry and his neighbors, they are polling cab drivers fry cooks who are probably in the 50% of all wage earners who pay little or not taxes in the first place. So sure, their answer is "Sure, tax Barry more. He can afford it."
I would like to know the # of "most" in "Most of the highest income group polled, those in households earning more than $100,000, support it. " My guess is that # is driven by poll population skew because the dem/R ratio in the country is so tight that would almost make it a 50/50 answer by default.
As for the % that "expect a recession". All that shows is that the people have been reading the headlines. Most of them haven't given the matter 3 minutes of independent thought in the last 3 years. These are the same people who have said for the last 3 years that "the economy is doing worse". Why? Because certain headlines have been telling them so!
Posted by: Mike G. | Oct 26, 2007 12:42:09 PM
Mike G,
great post... I still want to know what government program which is run well? so now we are going into healthcare... I pay $1100.00 /mo for my bluecross, there have been plenty of times that I could barely afford that, and I would really enjoy some deregulation or something to get that bill down, that is my second highest bill, besides my morgtage.... I have some friends that are self-employed and they do NOT have any healthcare... I ask them why, and they reply "well, cause we are self employed". Hint, there is insurance for self-employed people too... but yet they are driving brand new cars, have Ipods, etc... face it, medical insurance is a cost that most people just dont want to pay even if they can afford it.
Posted by: Brian B. | Oct 26, 2007 12:58:15 PM
We are going into an election year and the MSM is doing all they can to describe a bad economy so as to elect Democrats. With the stock market at all time highs, with the unemployment % at very low levels, with interest rates very low, with real wages climbing it takes a very a talented MSM to convince people that we are in a recession.
And if you think this outlook on the MSM is off base, think about how little we hear about how much improvement there is in Iraq. No mention of a 70% drop in civilian deaths and a big drop in our troop deaths. Whether you are for or against this war, we are not hearing good news about it.
Both the 'reporting' on the economy and on the war is driving opinion: That's the real explanation, like it or not.
Posted by: Norman | Oct 26, 2007 1:10:21 PM
It's a recession, all right. Cooking the books with regard to the CPI and unemployment
numbers won't make the problem go away.
By the way, I lost my job in early 2001 because of the H1-B visa program.
Therefore, the tax cuts didn't do me any good.
Big fat rich people lurking around their country clubs are not a good source of
wisdom regarding the real economic situation.
Can you say "Clueless Preppies?" Of course you can. . .
Posted by: Dave | Oct 26, 2007 1:25:05 PM
Things are peachy-creamy! $94 gasoline? Airfare increases, Food increases, etc, etc. Unemployment is slowly climbing, Foreclosers, credit card defaults, retail. I don't predict market direction, but I bet that it doesn't go up forever. The only people who think things are good are the perma-bulls.
Posted by: Justin | Oct 26, 2007 1:25:06 PM
We *have* a recession. It's just not reflected in the official numbers, thanks to substitution and hedonics. (I like the "CPI Cafe" link someone posted earlier.)
Most Americans think we're headed for a recession because they realize their standard of living is going down. Not because of headlines. But, because everything but the flat panel TV is going up in price, while their ATM homes are going down.
It's a big country and some will fare better than others. It's a statistical spread, completely natural. Many are inclined to discount the experiences of the others.
What we're seeing now is the consequence of idiots, liars, and religious zealots taking over the GOP: a bigger interest in socialism.
I'm not a fan of universal healthcare. But, I'll take that over more war and torture and diplomatic arrogance/incompetence. Not spilling the blood of people I don't know is more important to me than the extra bucks I'll pay for someone else's healthcare.
Good luck to Dr. Ron Paul.
Posted by: wunsacon | Oct 26, 2007 1:35:18 PM
When looking at a chart of the transportation « services » from 2000 till now the US economy is entering in recession with a deeper downwards slope than in 2002 / 2003.
When consulting the Fed model FED 3MONTHS 10 YEARS YIELDS anticipating recession
With a ten months forward looking, the US was deemed to enter in recession now with a probality close to 50 Pct.
An arsenal of tools:
Fed funds against ten years, packaging,ISM,LEI,capex, tax receipts are pointing downwards.
Posted by: Philippe | Oct 26, 2007 1:43:31 PM
You already do pay for other people's healthcare! Why does nobody understand that our health care costs are higher because we are already paying for the uninsured?
Geez, people, wake up already!
Posted by: donna | Oct 26, 2007 1:45:49 PM
Sounds like a couple of the wingers need to geet in touch with some real people (people who make less than 150k).
Things are not peachy for a good portion of the population. Most people don't read, watch, or pay attention to the news. What they do pay attention to is what they have to pay to live. Everytime my wife goes to the grocery store (with our limited $100 for a week and a half) she comes back with less. My electricity and every other utility bills continue to increase on a regular basis (year over year). In fact I've noticed that most of my utitilty bills which used to have year over year and month to month comparisions have stopped printing the year over year comparisions.
Before you find a way to personally attack me I will give you some background. I have never had a credit card with more than a $300 limit and have only used one once which I paid off within a month. Second, I went to a top tier private Texas university. I have been unable to find a job that will pay me more than 40k a year and the raises that I have received from my current employer have come no where close to keeping up with the cost of living. I was told by advisors to take loans to cover my schooling. My loan balance is somewhere around 58k because I can't afford to pay anything more than interest on my loans. I can't even begin to imagine buying a house anytime in the next 5-10 years. I can't afford to send my kid to private school nor afford to live in a nice neighborhood with good schools (so much for the american dream). I don't drive a new car. I pay an obscene amount of my income to health insurance ($360 a month which increases by 15% next year).
I have several friends that are in worse or similar positions. I also have friends that are better off than me (they usually come from a well off family so no college debt).
Blaming the media for peoples' perception of their own lives is a cop out. You guys should really talk to people instead of reciting winger talking points. It's funny how when the polls are in your favor the people support you but when they go against your beliefs people are stupid.
Also, if you want a well run health program from our government look at the VA before Bush slashed it's funding and put incompetent imbeciles in charge of it.
Posted by: kckid816 | Oct 26, 2007 1:55:56 PM
Perception is reality. Most readers here are well-aware of the wealth effect. It's largely a behavioral concern -- not one that can be quantitatively analyzed or predicted. When consumers stop feeling "wealthy," regardless of reality, their spending will slow. Home equity has the potential to be a larger impact on the wealth effect than that of the late 90's with stocks, because consumers have historially perceived home values to be stable (always appreciating).
Once, and if, they see for themselves that their net worth is falling and their greatest asset does not always appreciate in value, the financial "crisis" will become reality.
Posted by: The Financial Philosopher | Oct 26, 2007 2:07:08 PM
"who are probably in the 50% of all wage earners who pay little or not taxes in the first place."
Virtually all workers are net tax payers.
The right wing spin is that only the income tax counts, as usual it is a lie.
Posted by: jefff | Oct 26, 2007 2:12:29 PM
"who are probably in the 50% of all wage earners who pay little or not taxes in the first place."
Virtually all workers are net tax payers.
The right wing spin is that only the income tax counts, as usual it is a lie.
Posted by: jefff | Oct 26, 2007 2:14:10 PM
bears getting crushed today, bull whoooopping it up to new highs, wooo whooooooo!the world economy is hitting on all cylinders! whats not to like?
Posted by: Fred | Oct 26, 2007 2:25:24 PM
Virtually all workers are net tax payers.
The right wing spin is that only the income tax counts, as usual it is a lie.
Look, if 50% of the wage earners pay 5% of the income tax, and the top 5% of the wage earners pay 50% of all income taxes, there are a WHOLE lot of people paying very little income tax! And income taxes are > "payroll" taxes (20-35% vs 7.5%?). And most of that "payroll" tax is really the gov't borrowing your $ at the point of a gun so that it can pay you back 2-3 times that much in your retirement (well, historically that's been the case!)
I'm not saying it is easy for them. If you take home $500/month then it might just be tough to pay $20/month in income tax or whatever their bill is.
As for "talking to real people" (kckid816). If your definition of "real people" are people making < $40K then you're right, they did not see direct financial benefit to the Bush tax cuts. However, the fact that the economy has been as strong as it has been for so long as it has been is a massive indirect benefit. Considering 9/11, the recession that started just before he took office, Katrina, and now the CA wildfires, you better thank your stars that he passed his tax cuts "for the rich" because that was the main thing keeping the economy out of the dumpster. Are there people doing better than you? Absolutely. And they probably always will. You are barely eeking by, they have disposable/investible income. Anyone that's been in the stock market is having a MUCH better time in the last few years than someone looking for next month's rent in the sofa. That doesn't make it "unfair" or mean that the "fat cats" are getting one over on you.
Finally, just because you have a degree doesn't mean that it is a marketable degree! Congratulations for getting one, you are a better person for it, no doubt. But if you have a BS/BA in History, Psychology, Sociology or Art, I'm thinking that degree isn't paying off as far as the (job) market is concerned. That doesn't make the degree bad, just unprofitable.
Posted by: Mike G. | Oct 26, 2007 2:35:25 PM
Yea, this is a real fascinating poll, Shorter version:
Do you favor taking someone elses money and providing benefits to yourself?
Answer: Yes!
Fascinating!
Posted by: JBJB | Oct 26, 2007 2:43:36 PM
This survey really is fascinating. Shorter version:
Do favor taking someone elses money in order to provide a free benefit to yourself?
Answer - Yes!
Simply fascinating.
Posted by: JBJB | Oct 26, 2007 2:46:21 PM
JBJB:
Pretty much! I mean, wouldn't you think people would need actual #s to give an informed answer? How much of the UHC is it going to pay for? What about 10 years from now, 20 years from now. Are we still assuming the tax hikes are paying for it? Exactly how much is that UHC supposed to cost by that time? Factor in a +/- 400% on that # and then ask the question.
But still, you are right. If I'm making $40K and can't afford health care then why the hell should I not want to tax Barry into the Bronx if it gets me health care? (Sorry Barry, but somebody has to pay for it!) Besides, UHC has worked so well in other places like Canada, the UK, France. All of these places are health care utopias, haven't you heard? Oh, don't forget Cuba. (Hat tip - Michael Moore)
Posted by: Mike G. | Oct 26, 2007 2:54:22 PM
As to the so called "cuts" in VA spending:
http://www.factcheck.org/print_funding_for_veterans_up_27_but_democrats.html
Posted by: Mike G. | Oct 26, 2007 3:00:23 PM
