Yet elsewhere the nation contemplated the present state of the economy. With the blooming of spring, the freefall we have experienced since last September has slowed, but I note that whenever the hero falls off a cliff in a movie he always lands on a narrow ledge, avoiding the full plunging descent into the abyss. Is that where we are now? The market has rallied, statistics gurus are claiming unemployment is slowing, people are calling the bottom of the housing market and whispering about a recovery. I’m sorry to say I can’t agree with any of it, in spite of the delicious lunch I had in an outdoor patio in Sausalito last Saturday.
To say that things are improving when we go from 656,000 jobs lost in March to “only” 611,000 jobs lost in April is a bit of a stretch. Two of our big three auto makers are on the skids, ready to shut down some 1800 dealerships. The big teacher layoffs haven’t even hit the pink slip stage yet. Rumor has it California will lose over 50,000 teacher jobs soon as contracts expire in June. While spending may have ticked up a nudge, with Easter and Mother’s Day getting people out in the nice spring weather, the unemployment numbers continue to tell a story of more trouble ahead. People are getting behind in bills. Credit card lenders are experiencing the enormous write offs I predicted years ago, with default rates on a track to hit 20% to 25%. Advanta just issued a notice that it will close one million customer credit card accounts and cease lending June 10. This will go on until we begin to see real new job creation, and that could be years away.
In short, the narrow ledge we are standing on now may have interrupted our fall, but it is crumbling away, and the tattered vine we are holding to pull ourselves out of this mess consists of fudged statistics, unfounded assertions of “green shoots” and imminent recovery, and a strange notion that just because we aren’t falling as fast as we were before, things are getting better. They aren’t—at least not yet. There is still too much distress in the credit markets, too much unemployment, and the grueling pressure on assets as housing values continue to erode. As for care sales, the market is flat out dead. The pain in commercial real estate has yet to fully manifest, and this is a loan market segment that dwarfs the “sub-prime” segment that was thought to trigger the housing bust. Don’t look for a bottom just yet, and please ignore the stock market, long divorced from the reality of life on Main Street. The spring rally has run its course and we should see the bears back in short order. For an excellent analysis of the forces still eroding our economy, read this article by Martin Weiss.
