“What we’ve seen since mid to late September is that business activity has shut down, along with the consumer,” Stephen Gallagher, chief economist at Societe Generale in New York, said in an interview with Bloomberg Television. “There is no reason for an immediate turnaround; financial markets have not stabilized; consumers have not stabilized.”
U.S. Economy: Service Companies Shrink at Record Pace [Bloomberg]

20 thoughts on “JustQuotes: And Housing? Uhh…No.”
  1. Wow, what a surprise. Who could have foreseen this? I mean, the Fed is so much smarter than they were in the 1930s, and they know so much more about economics…..
    On a more serious note, once the bailout drug money is cut off/withdrawn (which it will be – guaranteed), the patient will truly go into convulsions. There are going to be extraordinary opportunities for smart investors in 2-4 years (and it very well could be sooner – these guys running the show are monumentally incompetent).
    Mish had a worthwhile piece on coming unemployment today:
    http://globaleconomicanalysis.blogspot.com/2008/12/prepare-for-depression-level.html
    The Great Depression was not so bad for the vast majority of people who had a job, but was pretty grim for the other 25% from what I’ve heard and read. Huge government payrolls today (as compared with then) should cushion the blow, at a huge cost to real economic growth (since most government expenditure is tremendously wasteful – how couldn’t it be?).

  2. According to something I read on the internet, the federal govt directly employs 2% of the workforce. That doesn’t seem high to me, given that 1% of our population is in prison 🙁
    Of course, that’s (probably) a fudged number, and doesn’t include state numbers, and indirect employment is higher, etc…

  3. This is starting to show up in flatlined leasing in service econ centers like manhattan, san fran, etc.
    The decrease in values for commercial office space could be larger and happen at a faster rate of decline that residential.
    Office demand is more elastic.

  4. Mish is right that real unemployment is higher than the official government number. However, a depression is defined as a 10% reduction in output, not 10% unemployment.
    http://www.economist.com/research/Economics/searchActionTerms.cfm?query=depression
    And with all the stimulus packages, the government also hopes to obscure the real output decline. But LMRiM is right: eventually the bailout money will be withdrawn: not because the government will voluntarily turn off the spicket, but more likely the public will soon realize that the geniuses in Washington can never out-plan or out-smart market forces.
    All this intervention will likely result in a longer, deeper pullback than if the government had only involved itself in true instances of market failure (like helping firms that were temporarily illiquid but still solvent).
    If you’re going to cut off a cat’s tail, you do it all at once, not inch by inch. Meaning one swift and severe correction is ultimately less painful than going bit by bit with stimulus after stimulus and bailout after bailout.

  5. what the heck is going on with phase 2 of the infinity–wasn’t this going to be released in teh fall? I don’t think there have been any sales in p1 (or very limited) for months.
    how can they let that huge p2 building just sit there?

  6. About government employment, I bet that 2% of California’s workforce is employed as public school K-12 teachers alone! (monumental waste in education – probably 3% if you count administrators!)
    I’m travelling and can’t really track it down right now, but I bet at least 25% of the US workforce is directly employed by government agencies (Federal, state, county, city, etc.) and maybe as high as 40% if indirect (defense contractors, foundations that grift off the tax distortions, etc.) employees are counted. I’ll try to track it down later.
    Also, any comparison of living standards between the Great Depression and the coming depression would also have to acknowledge the massive welfare complex (from direct payments to social security recipients to reimbursement of doctors under medicare) that today siphons off another 10% of GDP and misallocates it (at least a substantial percentage of the spending is misallocated). This safety net didn’t exist anywhere near this extent in the 1930s.
    I think that’s why Mish is sort of looking at 10% as depression level unemployment. U-6 unemployment would likely be upwards of 15% with that sort of 10% print, and after you account for the permanent jobs of the vast bureacracy and services, you’re really looking at employment in productive activity easily looking more anemic than in the 1930s.
    Unfortunately, that private productive sector employment is the only part that counts when you are talking about digging out from under a debt deflation caused by too much debt relative to real savings and productive income.

  7. @ dub dub
    Interesting idea to look at number of workers employed by government. Here are some more numbers for us SSers to chew on. In 2007, the total US population was appx 300 million.
    Per US census, of those, 2.7 million were employed by the federal gov, 3.8 million by state, and 10.9 million locally (think: police, teachers, restaurant health inspectors). These numbers do not include active military, another 1.4 million.
    http://www.census.gov/govs/www//apes.html
    If you assume that 50% of the 300 million are actually employed or seek employment, about 13% of our workforce is employed by the government, paid for by taxpayers. (Notice how all this info doesn’t seem to be in one place and the government makes us hunt to piece it all together…?)
    The number is higher if you factor in contractors and consultants. Higher still if you count in all the once private companies that have been bailed out and are now partially- or wholly-owned by the government (IndyMac, AIG, Fannie, Freddie, Citi, soon Big 3 auto companies, etc). Higher still if you count the folks in orange jump suits who stamp out license plates for autos (prisoners). Higher still once Obama starts to create “green” jobs and infrastructure projects. Higher still when you include ever escalating unemployment benefits.
    Higher and higher until finally the expense breaks the back of the American taxpayers. As Thatcher said:
    “The problem with socialism is eventually you run out of other peoples money.”

  8. From the WSJ:
    http://online.wsj.com/article/SB122833771718976731.html
    WASHINGTON — The Treasury Department is considering a plan to revitalize the U.S. housing market by reducing mortgage rates for new home loans, according to people familiar with the matter.
    Henry Paulson
    The plan, which is in the development stages, would use mortgage giants Fannie Mae and Freddie Mac to bring loan rates down as low as 4.5%, a full percentage point lower than the prevailing rates for 30-year fixed mortgages.

  9. Wow. 4.5% mortgages for purchases… sounds suspiciously like what got us in this mess. Why doesn’t Paulson just promise us all granite counters and an oceanview. Ugh.

  10. “WASHINGTON — The Treasury Department is considering a plan to revitalize the U.S. housing market by reducing mortgage rates for new home loans, according to people familiar with the matter.”
    Whaaaaat?! Do I get to refinance at 4.5% as well?! I better dammit!
    Regarding gov. employment, I do know that SF employes about 28,000 or so and that total SF employment is about 560,000 so that’s about 5% employed just by the City alone. Throw in the state and feds and I bet that number is around 10% of total.

  11. Who cares? Not to sound cynical, but when this fails, Geithner aka Paulson II will suggest 40 or 50 year mortgages at 3%. And when that fails, they’ll start writing off principal.
    Eventually home prices will fall to the point where buying makes sense again compared to renting, and the market will stabilize. At which point the Treasury will declare victory and say that their latest efforts were a resounding triumph! Woo-hoo! Unfortunately, in the meantime they’ll waste billions on stupid schemes like this.
    A 1% rate reduction on a $600K mortgage saves somebody $360 a month. It doesn’t magically make a $150K down payment appear. It doesn’t erase credit card debt. It doesn’t double their income so they can afford near-bubble prices. And it doesn’t find them a new job when they get laid off.
    See rebuttal here:
    http://online.wsj.com/article/SB122770741433659553.html

  12. “Eventually home prices will fall to the point where buying makes sense again compared to renting”
    Unless people start buying homes to rent them out, at which point rents keep falling, and then prices resume their spiral down.
    And because of the money required to subsidize the loans is taken out of the economy, it never recovers, which is what happened and is still happening in Japan.

  13. You can hear the huffing and puffing in DC where they’re busy trying to reflate this bubble. Let it pop now: we’ll recover much faster.

  14. I’m betting this goes nowhere once they think it through (too much thinking out loud at the Fed and Treasury — makes them sound like even bigger bumblers than they are — although I suppose this might be the whole point, to show “they care about the little guy” without actually doing anything). But even if it flies it’s doing little to nothing for SF, except perhaps to support the lowest end to a very, very small degree. This would not extend beyond conforming mortgages and so would have no impact on anything over about $800,000. And as Dude notes, any impact even below that price level will be miniscule at best.

  15. Satchel- I am starting to think you are correct on the government intervention issue. I started to feel that way after citibank.
    Specifically, i have doubts if there is any end to this bottomless pit of bank balance sheets. I also think that the regulators in Treasury and the Fed are too close to these bankers and are not giving due consideration to what I believe is an option we should at least consider which is let more -or even all the major banks go into liquiditon.

  16. @ LMRiM — if you have better numbers on gov employment figures as percent of total workforce, please post them (I’ll check back here).
    Mine were taken from several sources, which is always problematic. Many thanks.

  17. Trip – when you say “This would not extend beyond conforming mortgages and so would have no impact on anything over about $800,000” although I understand this is speculation… in your opin do you think it would include the 2008 round of increased conforming up to 729,750? I wonder what they will do with these atypical loan amounts? Anyone else have any thoughts on this? I hope if they do this, it includes refi’s – just did one but would be happy to do it again.

  18. I read in the WSJ this morning that the proposed 4.5% interest rate is for new buyers only and does not include refi’s.

  19. waiting2nest – I did as well. Thing is I also ready on other news sites that it will. This will be interesting.

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