With Economic News Like This, Why Would Anyone Risk Crashing The Economy?

Economic figures released today demonstrate clearly why the irresponsible talk surrounding the debt ceiling must end.

A new report from the Commerce Department indicates that the economy may have been starting to slump at the end of the 2nd Quarter:

New orders for durable goods such as airplanes and autos tumbled in June, raising worries that manufacturing is softening as companies’ concerns about the recovery intensifies.

The Commerce Department said durable goods orders dropped 2.1 percent, reversing May’s downwardly revised 1.9 percent increase. Durable goods are items ranging from toasters to aircraft that are meant to last three years or more.

Economists polled by Reuters had expected orders to rise 0.3 percent last month after May’s previously reported 2.1 percent increase

“In a word: disappointing. It should be a negative, it’s kind of a slightly volatile indicator. The situation right now is that it’ll have to take a backseat to the deficit and Washington. Believe it or not, markets can’t believe politicians are playing this game. Most people believe they’ll get it done, so they’re not concerned about durable goods,” said Jeffrey Friedman, senior market strategist at Lind-Waldock.

Washington is deadlocked over how to cut the nation’s lont-term budget deficit and clear the road for raising Uncle Sam’s $14.3 trillion borrowing authority. If lawmakers cannot settle on a deal by August 2, the U.S. may not be able to pay all its bills for long, could lose its AAA credit rating and may default on its debt.

(…)

Durable goods orders are a leading indicator of manufacturing. Though orders tend to be volatile, last month’s unexpected decline could add to fears of a slowdown in factory activity and support views that the economy will not emerge quickly from its current soft patch.

Manufacturing has been the bright spot in the economy, whose recovery has faltered since the start of the year.

Data on Friday is expected to show the economy grow at a 1.8 percent annual rate in the second quarter, according to a Reuters survey, after expanding 1.9 percent in the January-March period.

That growth number, of course, is far from where it would need to be for job growth to start getting near the pace necessary to reverse unemployment. So, in addition to a debt ceiling debate that appears to be beyond resolution at this point, we’re likely to get a disappointing GDP number on Friday, and then another disappointment employment number the following Friday.

Of course, there’s also the possibility that Friday’s GDP number will be worse than anticipated. As Ed Morrissey notes, the Durable Goods numbers for the 2nd Quarter have been -2.5%, +1.9%, and,  now, -2.1%. On top of that, job growth for the quarter was fairly bad, with the unemployment rate climbing to 9.0% in April, 9.1% in May, and 9.2% in June. Based on the June report, total job growth for the entire quarter was a disappointing 277,000 net jobs, a number that would be good if it was for one month, but is incredibly disappointing for an entire quarter. Given all of this, it seems entirely possible that the GDP number released on Friday will be below estimates,  or even that we might see a growth rate for the quarter near or even below zero. That would be a disaster.

The big problem right now, clearly, is that businesses are investors are sitting on the sidelines because they’re uncertain of what’s going to happen next, and uncertain of what Washington is going to do about the debt ceiling crisis:

Washington is deadlocked over how to cut the nation’s lont-term budget deficit and clear the road for raising Uncle Sam’s $14.3 trillion borrowing authority. If lawmakers cannot settle on a deal by August 2, the U.S. may not be able to pay all its bills for long, could lose its AAA credit rating and may default on its debt.

“Surveys heading into the year suggested that businesses were ready to deploy cash to invest in labor and capital, and the year has created a lot of uncertainty that has businesses remaining cautious in doing so,” said Brian Levitt, an economist at OppenheimerFunds in New York.

“We’re going to need some clarity over the next week and if events turnout as the market hopes it will, there is still some impetus for growth as we head out into year-end.”

So far, nobody is getting that clarity and it seems unlikely that they will at this point.  Moreover, if we end up fulfilling the wishes of the Tea Party and demur from raising the debt ceiling, the subsequent economic chaos will just make it less likely that businesses will invest at a level needed to sustain growth and increasing hiring. In fact, it would most likely guarantee negative economic growth if it continues for a sustained period of time.

Explain to me again, Tea Party, why its a good idea to send the economic into a tailspin at this moment in time?

We are past the time where the wishes of the debt kamikazes and the economic illiterates need to be listened to, never mind seriously entertained. It’s time for Washington to buckle down, make a deal to raise the debt ceiling and then, please, get the heck out of town for a momth.

FILED UNDER: Deficit and Debt, Economics and Business, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020.

Comments

  1. EddieInCA says:

    With Economic News Like This, Why Would Anyone the GOP Risk Crashing The Economy?

    Fixed.

    Explain to me again, Tea Party GOP, why its a good idea to send the economic into a tailspin at this moment in time?

    Fixed.

    The Tea Party has only 87 members in the House. The rest of the GOP House caucus could easily team up with Steny Hoyer and coalesce around a plan that helps both sides.

    But they won’t.

    Why? Because if they do, Boehner loses the speakership to Eric Cantor.

  2. hey norm says:

    Don’t have time to read the entire post right now but in answer to the question: “With Economic News Like This, Why Would Anyone Risk Crashing The Economy?” – because a bad economy benefits the so-called Republicans. I thought that had been clear for some time?

  3. Rob in CT says:

    I still don’t think “uncertainty” holds up (though it would be reasonable to be nervous about the potential default at this point). I think businesses are not hiring because they do not need the staff (either because they don’t have enough demand for their product, or they have found that they can keep up with demand by working their smaller workforce harder. Who’s gonna quit in this economy?).

    As to the why, you know why. Dogma.

  4. An Interested Party says:

    Ideological zealots are often immune to reality…this shouldn’t surprise you in the least, Doug…

  5. MBunge says:

    “The big problem right now, clearly, is that businesses are investors are sitting on the sidelines because they’re uncertain of what’s going to happen next, and uncertain of what Washington is going to do about the debt ceiling crisis”

    I have to echo Rob in CT. Uncertainty is probably a legitimate issue for business right now, but it’s been mostly bogus problem before this. The problem is…

    1. Lack of demand.
    2. Decades spent brainwashing businessmen that cutting jobs and squeezing more productivity out of workers is the only path to success.
    3. Even longer spent allowing technolgical changes and deliberate policy choices to devastate traditional job creation sectors. Where are the jobs supposed to come from? Manufacturing? No. Agriculture? No. Transportation? No. Administration? No. Perhaps it is time to consider that building a service economy of burger flippers and yoga instructors might not have been such a great idea.

    Mike

  6. Under cross from Rep. Canseco today on CSPAN, S&P Pres Parma clearly states that his analysts do not foresee default. Conseco destroys him regarding ratings agencies getting involved in a political battle.

    Video and transcript of the hearing Here

    Good stuff

  7. Ron Beasley says:

    The teabillys are insane with hate for Obama and dumb enough to think that crashing the economy will hurt Obama.

  8. An Interested Party says:

    Uncertainty is probably a legitimate issue for business right now…

    This has been the conservative talking point for awhile now…nice to see it turned around and used against the Tea Party crowd…

    Perhaps it is time to consider that building a service economy of burger flippers and yoga instructors might not have been such a great idea.

    But how do we get that genie back in the bottle? China certainly isn’t going to stop being the place where so many things are made, and neither major political party would use tariffs as a way to boost American manufacturing, transportation, etc….

    The teabillys are insane with hate for Obama and dumb enough to think that crashing the economy will hurt Obama.

    As damaging as a default would be, it would be poetic justice to see the Tea Party crowd hoisted on their own petards, just like the Newt was back in the 90s…

  9. OzarkHillbilly says:

    Hot debate. What do you think? Thumb up 9 Thumb down 1

    JJ, One more reason to hate the Like/Dislike buttons. Norm’s comment is a “hot debate” with 9 for and 1 against????

    Just sayin’….

  10. Console says:

    The deficit is a moral deal with the tea party crowd. The economics is abstract to them and the wrongness of the debt is what’s concrete. A refusal to raise the debt ceiling is a de facto balancing of the budget and that’s really as far as the thought process goes.

  11. Drew says:

    “The big problem right now, clearly, is that businesses are investors are sitting on the sidelines because they’re uncertain of what’s going to happen next,”

    A point I’ve been making for quite awhile. You should go over to Schuler’s place sometime and see how that view has made me a mindless and ideologically driven idiot in the view of some of his commenters.

    But hey, what would a business owner, investor, Board member, frequent interviewer of other business owners know compared with the cream of the crop (snicker) commenters here or at GE who have never owned or run a business in their lives. Its clear, to hell with what real live businessmen – people who put capital at risk and make hiring decisions – think. We need authors and software guys, maybe a community organizer/college professer at the helm to fix this………..oh, wait.

  12. An Interested Party says:

    It’s nice to know that Drew, the Master of the Universe who grants us the glory of his presence and infinite wisdom, agrees that the Tea Party crowd should be shut down and a deal should be made…as for the continuing bit about the community organizer/college organizer, I guess we need to return someone with an M.B.A., like the last president, to the White House to really set things right…

  13. john personna says:

    @Drew,

    I called BS on your old “fear the Obama” uncertainty, but this one is different, and real.

    Also, I remember you saying this one was overblown, that a deal would be done. That would be nice, but most seem more worried rather than less.

  14. Hey Norm says:

    @ Ozark…
    Dude…I’m at 14:1…I think it’s a personal best. What’s the problem? What I typed is true. Did you not like it?

  15. Anonne says:

    Why risk it? If you control the message through our fetid media, you can do anything and blame the Democrats for it. See, e.g., 2010 elections and general Tea Party malaise only manifesting itself under a Democratic president. “It’s OK if you’re a Republican” is the practice.

  16. Rob in CT says:

    I guess the businesspeople quoted in this article have no idea what they’re talking about:

    http://www.theglobeandmail.com/report-on-business/economy/jobs/caution-keeps-cash-rich-us-employers-from-hiring/article2090852/

    “We’re seeing growth, but it doesn’t feel good,” said David Roberts, chief executive officer of Carlisle Companies Inc., a manufacturer based in Charlotte, N.C., that makes a wide range of products, including brakes, tires and cafeteria trays.

    “Everybody is just a little concerned about what the latter part of this year holds, and as we go into next year. We’ll continue to be conservative because of that. Where maybe you could go out and hire a few people, we’ll hold off to make sure the economy is going to be okay.”

    That’s uncertainty alright – uncertainty about demand in the near-future.

    Joblessness is weighing on demand. James Kierstead, co-founder and chief financial officer of Blue Falls Manufacturing Ltd., a Thorsby, Alta.-based maker of outdoor spas and hot tubs, said the company’s factory in Washington State is making about a dozen units a day. That’s about the quarter of what the facility is capable of producing.

    “All my retail operations in the U.S. have fewer people coming through the door,” Mr. Kierstead said. “The recovery in the U.S. is a lot slower and going to take a lot longer than people think.”

    Hmm.

    At Carlisle Companies, meanwhile, profit increased to $146-million in 2010 from $145-million in 2009. Profit continues to grow this year, in large part because the company closed some factories while continuing to boost sales.

    The company’s long-term goal is to double its current sales of about $2.5-billion by doing more business overseas. That will eventually require more people. But for the next couple of years, Mr. Roberts says he can handle new orders through productivity gains.

    “We’ll be doing more with fewer people,” he said.

    Weak demand and/or uncertainty about demand holding up + hey, we can meet demand with current staff = no hiring. No hiring = high unemployment. High unemployment contributes to lack of demand…

  17. Civis Liberum says:

    Sorry kids, you’re wrong again. The Tea Party members are not the irresponsible ones here. That distinction goes to the corrupt entrenched political class that buys constituency loyalty with taxpayer dollars, thus ensuring lives of pleasure, privilege, and plunder at the expense of the long term health of our economy and country (e.g., Nancy Pelosi who went into congress 16 years ago worth $2 million and is now worth over $50 million). They have cultivated constituencies of dependency (social and corporate) which endlessly feed at the public trough. This can not be sustained as it has raised our debt-to-GDP ration to 98%.

    We either swallow a slightly bitter pill now, or we swallow a painfully bitter pill within the next decade. Regardless of what Congress does, Moody’s, S&P, et al will be downgrading our rating – and they should because we have allowed a corrupt political class and a reckless Federal Reserve to run amok.

  18. MBunge says:

    @An Interested Party: But how do we get that genie back in the bottle? China certainly isn’t going to stop being the place where so many things are made, and neither major political party would use tariffs as a way to boost American manufacturing, transportation

    We’ll never be able to put the genie back until suggesting policies that benefit American workers and American producers don’t get shouted down with cries of “Protectionist!” I don’t know if those policies would be tariffs, tax incentives at home or simply stopping policies that enable and encourage businesses to off-shore employment. The main reason I don’t know is because no one anywhere close to the mainstream is allowed to have a discussion about the subject.

    Mike

  19. Rob in CT says:

    @Civis Liberum:

    The TPers will gorge themselves too, no doubt. Give it a little time.

    As for the argument that we must swallow a bitter pill now, or a worse pill later, I disagree. We must address the debt, yes. This is not the way to do it. This way is fundamentally irresponsible.

    We do need a grand bargain to put us on a sustainable path in the future, and yeah, the debt-to-GDP ratio is too damned high. But we’re also rockin’ 9.2% unemployment and all signs continue to point to an anemic recovery. Slashing government spending by 40% right now will be counterproductive.

    The time to reduce government spending is during times of economic growth, such as much of the 1990s and 2002-2007. We did ok (I’d have preferred more) in the 90s, and the GOP played a part in that. The 2002-2007 period, however, was an unmitigated disaster in terms of fiscal irresponsibility. Then we got hit with the worst recession since the Depression. You can’t get there from here, to use an old New England phrase.

    The economy needs time to recover more before the necessary spending cuts and tax increases hit. The TP mindset is that promises of future cuts cannot be trusted. Well, then I say promises of future revenue increases (which the TP won’t promise, but even if they did) cannot be trusted. Hell, I would fully expect that if the GOP makes further gains in 2012, they will seek MORE tax cuts, because tax cuts are the answer to everything. Both sides have reason to mistrust the other. At some point we either swallow our fears and make a deal, or no deal is possible, at which point our political system is broken.

    The debt issue is real. The immediate crisis is manufactured.

  20. Liberty60 says:

    @Civis Liberum:

    We either swallow a slightly bitter pill now, or we swallow a painfully bitter pill within the next decade.

    Agreed!

    Be it resolved, therefore, that we must balance the budget through a combination of tax increases and spending cuts.

  21. Civis Liberum says:

    @Rob in CT: Rob, I agree with much of what you write. However, I have three points of contention. 1) the Democrats have offered nothing in the way of a budget for over 800 days. They’re playing chicken with the economy. This is dangerous and unethical; 2) in financially flush times when revenue is good government has never cut spending, but only used the excess cash to grow more government; 3) increasing taxes in a recession / depression is never a good idea as it only deepens the problems. (Amity Schlaes’ “The Forgotten Man” makes that point very well.)

    I don’t know all the details to the “One Cent Solution,” but it seems to hold some promise as an alternative to draconian cuts.

  22. Wayne says:

    I don’t know why the Democrats are risking crashing the economy. Not only by holding up the debt ceiling deals but also by not taking care of the overspending in Washington. Shame on them.

  23. Doubter4444 says:

    @Wayne:
    Hey, it’s that easy!
    I don’t know why it has not been thought of before.

  24. Rob in CT says:

    @Civis Liberum:

    1) It was my understanding that they were unable to pass a budget due, at least in part, to obstruction in the Senate. By the usual suspects. That said, sure, not passing a budget is a problem.

    2) Government spending increased, but increased slower than GDP growth, during the 90s. The result was a few surplusses, and generally declining spending by % of GDP. That worked in part b/c GDP growth was really excellent then, I know. Still, I think that’s a solid goal: spending should basically hold steady (accounting for inflation/pop growth) during good times. The result, over time, should be a steady decrease in spending as a % of GDP, and an improving government balance sheet.

    I agree that for the most part our government has failed to do that – in some cases egregiously so (2002-2007, for example. The 80s, for another). That’s a big problem with psuedo-Keynesians. Spend in bad times, spend in good times. It frustrates me too. But it does not make the current TP position any better.

    3) I am not suggesting tax increases now. Neither, to my knowledge, are the Democrats. That too needs to wait for recovery. Who is calling for tax increases *right now* ? 2013, maybe.
    The cuts and increases need to happen, but they need to wait for recovery. That means running huge deficits in the here and now, yes. It means more debt to deal with in the future, yes. I think that is the correct approach, despite the obvious drawbacks.

  25. Rob in CT says:

    Damn, ran out of time to edit again. An edit to my #2 above:

    Actually, no. Given the hole we’ve dug, the next period of economic growth probably needs to cut spending, not just have it go up slower than GDP growth, because we need serious surplusses. What I typed above was fine for the 90s, but we don’t get to go back there.

    As for the 1 cent solution, it’s not the worst plan I’ve seen. What happens the next time we have a recession? They come along every ~7 years or so. When a recession hits, it automatically increases spending, without any governmental action. The 1 cent plan would require that the government to make cuts, not only 1% cuts but cuts to offset the increased safety net spending (food stamps, etc). So, while I understand the desire to *force* the politicians to act more responsibly, I don’t think this actually would result in responsible policy (as I see it). It would during good times, perhaps. But not in the event of a downturn.

  26. An Interested Party says:

    …increasing taxes in a recession / depression is never a good idea as it only deepens the problems.

    Oh, but cutting spending in a recession/depression is a wonderful thing that won’t deepen any problems…as for the “One Cent Solution”…anyone advocating balancing the budget with spending cuts alone is delusional…tax increases will also have to be a part of the equation…

  27. Civis Liberum says:

    @An Interested Party: I am sorry, but you offer absolutely no evidence to back up your argument. I get a little bored with the socialist mob believing they have a right to other peoples’ money. You do not.

    Don’t forget, the rich can pick up their toys and go elsewhere, leaving the rest us behind with huge spending, huge debt, and no money.

    You are addicted to OPM: other peoples’ money. Go cold turkey.

  28. mantis says:

    I am sorry, but you offer absolutely no evidence to back up your argument.

    Basic understanding of our economy would cover it. Apparently you lack that.

    I get a little bored with the socialist mob believing they have a right to other peoples’ money.

    Move someplace where taxes don’t exist. I hear Somalia is quite nice. Why don’t you go there?

  29. An Interested Party says:

    It’s funny how raising taxes during an economic downturn is just absolutely the most horrible thing in the world but spending cuts are just fine…it’s as if some people think that tax increases will cause all the rich people to run away while spending cuts will only effect deadbeats who suck at the government teat…I get very bored with the same old tired socialist canard trotted out by anyone who thinks the budget can be balanced with spending cuts alone…it’s only common sense that with any unbalanced budget, a cut in spending and a rise in income will balance said budget…it is those who want spending cuts alone to offer up evidence of how what they want will work…

  30. Barry says:

    @Console:
    Console says:

    “The deficit is a moral deal with the tea party crowd. The economics is abstract to them and the wrongness of the debt is what’s concrete. ”

    These people only started making a large fuss (frankly, any fuss) after Bush II left the White House. And when Bush II took the Clinton surplus and squandered it, they didn’t have any noticeable problem.

  31. anjin-san says:

    Don’t forget, the rich can pick up their toys and go elsewhere

    Hmmm, wonder where they will go – according to tea party types, most of the countries where an American would have some level of cultural comfort and the benefit of the rule of law are socialist hell-holes. France for example.

  32. anjin-san says:

    (e.g., Nancy Pelosi who went into congress 16 years ago worth $2 million and is now worth over $50 million).

    Interesting how tea party types will obsess about this but there is not a peep about someone like Angelo R. Mozilo, former CEO of Countrywide Financial, who made $102 million in 2007. Either he made all that money writing loans he knew would fail – with disasterous consequences, or he was grossly incompetent and did not know/understand what was happening in his own company.

  33. john personna says:

    @anjin-san:

    Interesting how tea party types will obsess about this but there is not a peep about someone like Angelo R. Mozilo …

    That misses the general point. I read once that average (civilian) investors make like 3% per year, while congressmen somehow manage an average of 20% per year.

    Maybe those numbers are off a little bit, but we pretend that congressmen are just lucky.

  34. Rob in CT says:

    Indeed. If the numbers cited are correct ($2MM -> $50MM, over what time frame?), I have little doubt Pelosi is sleazy. But since she’s a politician, I had already assumed such. Our political system is thoroughly corrupted by money. Even if the politician doesn’t take the opportunity to personally enrich themselves, they’re still heavily reliant on $$ to win elections. So in the end, who to they serve? The people writing the checks, that’s who.

    The TP crowd in the House is actually kind of fun in one way: many of them appear to be true believers, instead of paid hacks. They believe in nutty things, to be sure. The advantage of it is that they display the upshot of their beliefs to the rest of the country. Hopefully the message sinks in, without leading to an economic crash.

  35. Anonne says:

    @Rob in CT: Nancy Pelosi owns some very lucrative property in California. I wouldn’t necessarily assume that, since 1987, she has not been allowed to make investments or buy additional property.

  36. Eric Florack says:

    Be it resolved, therefore, that we must balance the budget through a combination of tax increases and spending cuts.

    No.
    Tax rate CUTS spurr the economy, and create more revenue. Tax hikes are not the way to go.

  37. Anonne says:

    @Eric Florack: After a certain point, tax cuts are ineffective for spurring the economy. If the marginal tax rates were high, like they were in the 50s, then yes, they would be effective to create more revenue by freeing up more capital to be productive. But if all it does is encourage more hoarding of cash, then no, it won’t work.

    The tax cuts in 2001 did not spur more investment. At least, not in America, which is the fundamental problem.