And the Dow continues to tank, and the economy continues to worsen, and the people all keep acting like this bad news is a huge surprise of some sort.
Stocks tanked Tuesday, after a report showing a big slowdown in the services sector of the economy and cautionary comments from a Fed governor amplified fears that a recession is underway or imminent.
According to early tallies, the Dow Jones industrial average (INDU) lost about 370 points, seeing its worst single session on a point basis in over three months. The decline equaled a drop of 2.9%.
The broader Standard & Poor’s 500 (SPX) index lost 44 points, its worst single-day point loss since last August. The decline equaled a drop of 2.9%.
The Nasdaq composite (COMP) fell 73 points and saw its worst single-day point loss since mid-October. The decline equaled a drop of 2.6%.
The news is becoming universally bad. Recession is becoming less of a theory and more of a fact of life. But ever the liars, the Fed continues to act like everything’s still fine, just fiiiiiiiine.
The struggling U.S. economy is at risk of toppling into a shallow recession and may need more interest rate cuts to avoid one, a top Federal Reserve official said on Tuesday.
In an unusually sobering assessment, Richmond Federal Reserve Bank President Jeffrey Lacker said he thought the most likely outcome would be continued sluggish growth, as long as the job market did not sputter.
“I can also see the possibility of a mild recession, similar to the last two we have experienced — in other words, shallow and with a short recovery,” he told a banking group.
“If job growth is positive in the months ahead, and if wages can stay ahead of inflation, then income growth should be sufficient to support consumer spending gains and allow us to skirt the boundary of recession,” he said.
The Fed’s been 100% wrong so far on this one. Why should we believe them now? Six months and then all those problems will go away again? I’m sure the GOP would be happy to hear that.
I’m betting that six months from now the Fed funds rate is 1% and that we’ll be knee deep in $4 a gallon plus gas prices.
Here’s a thought. Next time you’re at your local Mickey D’s for that Egg McMuffin, check the prices out. McD’s has that dollar menu thing going…but you notice how everyone else has “Value menus”. Stuff on those menus? Not a dollar anymore. BK, Wendy’s, wherever. It’s not a buck. It’s a buck fifty. Large fries are $1.85 now. Milk here is $3.49 a gallon and rising, and we’re in farm country out here in Cincy.
How long will it take before that dollar menu becomes a value menu at McD’s and stuff stops being a buck?
I’m betting it happens before the end of this year.
But here’s a story that should frighten the hell out of you. The headline? “Americans Prepare to Live Within Their Means”.
Today, Ms. Merhaut, 44, manages her money the way her father did. Despite a household income reaching six figures, she uses cash for every purchase. “What we have is what we have,” Ms. Merhaut said. “We have to rely on the money that we’re bringing in.”
The shift under way feels to some analysts like a cultural inflection point, one with huge implications for an economy driven overwhelmingly by consumer spending.
While some experts question whether most Americans, particularly baby boomers, will ever give up their buy-now/pay-later way of life, the unraveling of the real estate market appears to have left millions of families with little choice, yanking fresh credit from their grasp.
“The long collapse in the United States savings rate is over,” said Ethan S. Harris, chief United States economist for Lehman Brothers. “People are going to start saving the old-fashioned way, rather than letting the stock market and rising home values do it for them.”
In 1984, Americans were still saving more than one-tenth of their income, according to the government. A decade later, the rate was down by half. Now, the savings rate is slightly negative, suggesting that on average Americans spend more than their disposable income.
That spending engine is the only thing America has going for it. It’s ending in 2008. We don’t have the manufacturing. We don’t have the exports. We have people buying the world’s stuff. Now that’s going to stop. We’re being forced to save money…and that’s going to cripple what’s left of our economy.
Jobs will vanish like water because America is now an “at-will” employer. All 50 states are at-will employers in 2008. Unless you have a specific employment contract that states otherwise, you can basically be fired for any reason. You don’t get any recourse.
The news will call it “layoffs”. What they are is mass firings with no severance pay. These are the folks working McJobs. They are about to get McFired.
Check that. They already are.
U.S. service industries unexpectedly contracted in January at the fastest pace since the 2001 recession as the housing slump deepened and consumer spending cooled.
“This is a stunning fall,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. “If accurate, it’s dire news on the economy.”
The Institute for Supply Management’s non-manufacturing index, which reflects almost 90 percent of the economy, fell to 41.9, from 54.4 the prior month, the Tempe, Arizona-based ISM said. A separate report today by Royal Bank of Scotland Group Plc showed Europe’s service industries grew in January at the slowest pace since 2003.
All those bartenders and nail techs and baristas are rapidly going to be out of work. It’ll put even more pressure on the fragile economy.
But the real problem is that people are still acting like this is a normal recession, that in a few months things will be fine again.
They won’t be. This is going to be a sea change in the American way of life. No matter what happens, it’s going to get worse. The question is “how much worse?”