State of the economy: Showing some strength

But the economy that Obama will talk about Tuesday night is struggling. Job growth is still a problem, and the housing collapse is weighing on business.

By Charley Blaine Jan 24, 2012 6:20AM
Charley BlaineWhen President Barack Obama climbs to the podium in the chamber of the House of Representatives on Tuesday evening, he will probably say that the state of the union is strong. Presidents always say it.

And he will cite data that purport to show that the nation is of sound and constant purpose. Republicans will probably disagree.

For our purposes, let's look at the state of the economy. The top line is this: It's OK -- at best. There are increasingly hopeful signs. There are also deep and troubling problems that have festered for years -- besides federal deficits.

There are troubling problems of economic competitiveness that no politician in this country, Democrat or Republican, has even begun to address. Which suggests they don't understand them.

Here is another view of the state of the union.

Is there a recovery or not?
You can say, well, economic growth, as measured by gross domestic product, is terrible. True, the recovery that set in during 2008 is no barn burner. There have been nine quarters of growth, starting with the third quarter of 2009. But growth rates have remained stubbornly below 2%.
One problem is that the stimulus package of 2009 wasn't big enough to give the economy some momentum.

One can also argue that global economic forces -- the ease with which jobs can migrate from country to country that's ripped up industrial America, the near collapse of the auto industry, higher energy prices -- have limited the upside for the domestic economy. 

Conservatives say the administration's willingness to spend first and ask questions later has saddled the economy. But the big question is: If the government hadn't been willing to spend, how much worse would the recession have been?

Joblessness remains the big problem
Here's what best describes the first decade of the new millennium: darn near disastrous. The economy shed 8.7 million jobs between December 2007 and February 2010.

But there are glimmers of something happening. The economy has added 2.6 million jobs since February 2010. About 650,000 are in health care. The rest are scattered around the economy. Manufacturing, which lost jobs for 10 straight years, gained 225,000.

Motor-vehicle employment, including employment with parts makers, lost roughly 650,000 between 2000 and 2009 and has gained 200,000 jobs since.

There were job losses in real-estate construction. Employment in single-family construction fell 55% between the top in 2007 and bottom in early 2011. That's basically unchanged. Even retailing lost jobs.

The long, slow bleed
There's a larger trend that contributed to the disaster. The United States has been losing jobs in such industries as autos, aerospace and computer manufacturing for years. Partly that's due to lack of job skills, difficult labor laws, industrial dislocations. A new plant may not be near where there's a ready supply of skilled workers. Or skilled workers have no place to work because major employers moved.

Business doesn't care much about sovereignty, and it knows that every government on the planet wants to boost jobs. What big business wants are low costs, efficient supply chains and large, trained work forces. If the workers don't meet their standards in one market, they'll move if they can.

Consider Apple (AAPL). The company no longer makes any device -- and certainly not in the United States. As The New York Times reported Sunday, everything is outsourced to manufacturers in China and elsewhere in Asia that have efficient supply chains feeding into large industrial complexes. They can mobilize large, well-trained armies of workers in a second.

That jobs are a problem is understood. The complexities of the problem -- how education; global, national and local politics; and industrial development all feed into each other -- are not.

Housing industry still struggling
This is partly due to job losses in the past decade. But it's also due to the fact that millions more houses were built than were needed between 2000 and the peak in 2005. It set off a frenzy of speculation in which a homeowner would refinance a home, buy three more and lose all to foreclosures.

The combination of overbuilding and lax lending standards resulted in many buyers with homes they couldn't begin to afford. The result has been a collapse of home values as well as destroyed life savings, dreams and lives.

It also meant the new-home industry collapsed. 2011 was the worst year for housing starts and building permits since records started being collected in the early 1960s. The Obama administration has tried to get lenders to agree to cut interest rates, trim loan balances and the like -- with little success.

RealtyTrac, with a commission from CNN Money, identified the 100 worst foreclosure problems, defined as foreclosures in ZIP codes. Eighty-two of those ZIP codes were in Western states, led by California, with 38 problem areas, and Nevada, with 28. The five worst areas were in and around Las Vegas.

To make matters worse, mortgage lenders have been struggling to get control of what has often proved to be shoddy, error-prone or just plain fraudulent paperwork.

In recent weeks, the data have suggested housing has bottomed. It may have truly bottomed in a number of markets that never caught up in the housing bubble. Other communities are struggling with thousands of foreclosures.

Prices haven't bottomed, although the rate of decline is slowing.

Banking industry has stabilized
As much as bankers may complain, the fact is their business is in much better shape than it was three years ago.

The number of failed banks has started to decline rapidly. Ninety-two banks fell in 2011, compared with 157 in 2010 and 140 in 2009 and 25 in 2008. Between 2000 and the end of 2007, only 27 banks failed.

Three banks have failed so far this year, compared with 11 in January 2011.

Why have banks stabilized? The biggest reason is that the worst performers have been closed and sold to others able to handle the responsibility.

The government's various aid programs -- started in the Bush administration and continued under Obama -- kept many banks alive, providing critical liquidity and capital.

Without that help, the recession would have been much worse.

Consumer spending is growing
In fact, consumer spending has grown in every quarter of 2010 and the first three quarters of 2011.

It's no coincidence that auto sales rose 10% in 2011, with 12.7 million vehicles sold. Ford Motor (F) thinks consumer confidence is good enough that 2012 sales could grow an additional 6% to 10%.

Yet consumer confidence has seemed split between the affluent and lower-income folks, while middle-class families have struggled. And most big retailers have been very cautious about 2012 business projections.

But consumers became very worried about the state of the economy when the stock market tumbled last summer. They were mostly cautious during the holiday shopping season. Except when it came to electronic readers, tablet computers and the like.

The big rebound in stocks
Two months into Obama's term, the stock market bottomed. The major U.S. averages were down more than 50% from their highs in 2007.

Since then, the Dow Jones industrials ($INDU) have climbed 94.1%. The Standard & Poor's 500 Index ($INX) is up 94.5%. The Nasdaq Composite Index ($COMPX) is up 119%. The Dow Jones Transportation Average ($DJT) is up 144%.

Hyper-bears say investors are being delusional. Certainly, small investors are wary about stocks. That's understandable. When a market gets hot, the floor of the New York Stock Exchange is a very popular place to visit. After a crash, things get quiet.

Inflation and other nasty things
The president  has almost no control over commodity prices. Wheat prices jumped in 2011 because of a drought in Russia.

Corn prices are higher this year because of drought in South America. Beef prices are higher because growers cut their herd sizes to save cash.

Oil prices jumped after Egyptians revolted and tossed out the regime of Hosni Mubarak. Prices jumped again recently as Iran threatened to close the Strait of Hormuz.

Electronics makers struggled with two natural disasters: the March 2011 earthquake in Japan and the flooding in Thailand. Neither affected prices much. It did constrain supplies of autos and electronics from Japan and hard drivers from Thailand.
Jan 24, 2012 11:58AM

He left out a few little tidbits of information, I'm sure it was just an oversight but:

What about shadow foreclosures?  Can you really say housing has bottomed out when Bof A is holding thousands of CountryWide mortgages that have yet not gone into default?  Commercial realestate...we here in FLA have entire streets of empty commercial property, has been since before the bust.  When is that reality going to hit? 

Consumer spending up...yes it is, but at the same time peoples saving are going down again and consumer credit is on the rise, doesn't seem very healthy to me...

Unemployment going down...well, again what about all the people that have stopped looking for work, or took a job at a fraction of their previous wages?  I know headlines help keep the stocks up, but really......

Jan 24, 2012 10:19AM
The state of the economy? - horrific when you remove the sugar coating unless you are in the wealth class in this country.  Unemployment levels are approaching Depression era numbers, go to government shadow for the real numbers. Housing prices are still falling nationwide for the last three years with no end in sight. The banking industry is still shaky at best despite the gigantic amount of taxpayer money dumped on them. Consumer spending is dismal at best,  most recent spending is with credit cards, or raiding what little is left in bank accounts. Much of the GDP is government spending, not tapped out consumers or small businesses. All that has done is increase national debt to insane levels that will actually cripple future economic growth. The stock market  is a complete joke, the only thing holding it up is the plunge protection team. So its easy to see as a whole the economy is still collapsing and it will be funny to see Obama try to spin it otherwise
Jan 24, 2012 8:10AM
The federal government should have been less involved, more allowing things to work them self out as the normally would.  Some involvement, yes, but not to the tune of $5+ trillion, and in a fashion that supported the elite, and left the average consumer uncertain and struggling.

In short, a poor plan that has the lack of results to show for it.  Money we did not have poorly spent to give the appearance of improvement.  Just too bad a clear alternative does not seem to be out there.  Where did all the quality leaders go???
Jan 24, 2012 11:29AM



You must be joking, correct?  The average Joe is just making it by...I've calculated compared to 2007 and 2011, my total income (salary) has decreased by 20%, but luckily I still have a job.  Also, I am doing 1.5 times the amount of work in 2011.  In addition, since 2007, I have to pay an average of 15% more for my wife and I to live (food, utilities, insurance, etc.).


The only people making money now are the large corporations, not the 1%.


REMEMBER:  NOVEMBER 06, 2011 - VOTE ALL POLITICAL INCUMBENTS OUT OF OFFICE.  This is the only way to see real change!!!

Jan 25, 2012 8:35AM
GOP Releases New Ad In Front Of SOTU: 1,000 Days Without A Budget

what law, what constitution; where does it say a budget by must be passed each year; 365 day's/yr! so for each year he's been in office, he hasn't passed a budget yet 15+ trillion in debt 5 trillion+ is his by the time he leaves office jan 2013 debt will be 16 trillion and bill's keep coming in for next ten years and debt will be 20+ trillion not counting added debt of new president................... NOBAMA2012............go socialists!Sarcastic

Jan 24, 2012 1:37PM
Iran is showing strength; syrian president showing strength; chavez showing strength; calderon showing some strength; Tea Party showing strength; occupy showing their stupidity,..........​......NOBAMA2012, ah oh um I I I, oh um ah you see, it's like this, i'll get back to you after my golf game................​.in hawaii!!!Nerd
Jan 24, 2012 4:11PM

The president has no control over oil prices because they are manipulated by Greedy Wall Street Speculators who are hellbent on keeping prices high no matter what the state of our economy is. If Congress revamped the way that oil futures are traded so they would have to take physical delivery of all of the oil that they now buy on paper, prices would fall because they would have to pay storage fees on that oil and they would not buy as much ahead.

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