Saturday, June 13, 2009

Chief Executives: "No Recovery Soon"

Differing markedly from the view of most economists, the people who run the nation's biggest companies say the recession is likely to linger for many more months, with a recovery not likely until next year.

"There's no sign of recovery -- none at all," declared Henry B. Schacht, chairman of the Cummins Engine Company, a leading producer of such cyclical bellwethers as diesel engines. "The people who buy industrial equipment are not buying it."

One after another, individual corporate chiefs among about 100 members of the Business Council expressed skepticism in interviews and discussions over the past two days about the recession's ending this summer, thus staying within the average length of the eight previous post-war recessions.

"Chief Executives See Recession Lingering to 1992," from the NY Times on May 12, 1991, two months after the July 1990-March 1991 recession ended.

MP: Except continuing and ongoing gloom and doom following the end of the current recession. Consider it to be a lagging economic indicator.

17 Comments:

At 6/13/2009 3:03 PM, Anonymous Benny "Boom, No Doom" Cole said...

On the other hand, the 100 members of Business Council might be weighted to older line industries, or non-defense industries. They will probably see the recovery last.
I think if we see only another 10 percent to 20 percent reduction in housing prices, then we see boom-zoom-boom.
Tell the Fed to keep interest rates low.

 
At 6/13/2009 4:13 PM, Blogger 1 said...

I'm guessing that if this recession is abating somewhat then we won't be seeing more of these kinds of stories: Average American Lost $4,239 in First Quarter of 2009, right?

What will socialist stunts like this do to the abating recession situation?

House Health-Care Proposal Adds $600 Billion in Taxes

 
At 6/13/2009 5:12 PM, Blogger Paul said...

Any CEO or CFO worth their salt will forecast a recession to last until they can no longer deny it with any credibility. They can ride the lowered expectations to beat the consensus sales and earnings of analysts for at least a quarter, maybe a half year. This is a sort of "free ride" that makes up for having the crap beat our of their stock prices at the start of a recession. Perspective and balance.

 
At 6/13/2009 5:30 PM, Anonymous Benny "Boom, No Doom" Cole said...

No 1. I assume your moniker is not bathroom humor.

But you do have a sense of humor-your first link is a doozy.

 
At 6/13/2009 5:53 PM, Anonymous Anonymous said...

No segment of American industry did more than high tech to elect Barack Obama as President of the United States. The 2008 Obama campaign will go down in history as having made better use of digital technology than any before it. From a hugely powerful website to the reproduction of the “Hope” poster on thousands of Facebook pages to the President’s own ‘tweet’ on election night, Silicon Valley played a crucial role in the success of President Obama . . .and Silicon Valley naturally assumed that the new President would do the same in return.

It hasn’t quite turned out that way...

...almost every move the new Administration has made regarding entrepreneurship seems to be targeting at destroying it in this country. It has left Sarbanes-Oxley intact, added ever-greater burdens on small business owners, called for increasing capital gains taxes, and is now preparing to pile on cap-and-trade, double taxation on offshore earnings, and a host of other new costs. Even Obamacare seems likely to land unfairly on small companies.

Entrepreneurship has been the single most important contributor to the economic health of this country for at least a century now - and if you were going to systematically destroy that vitality, you couldn’t come up with a better strategy than the one Washington has put in place over the last six months.

The Obama Surprise

 
At 6/13/2009 6:02 PM, Anonymous Anonymous said...

For the first time since another Democrat occupied the White House, investors from Beijing to Zurich are challenging a president’s attempts to revive the economy with record deficit spending. Fifteen years after forcing Bill Clinton to abandon his own stimulus plans, the so-called bond vigilantes are punishing Barack Obama for quadrupling the budget shortfall to $1.85 trillion. By driving up yields on U.S. debt, they are also threatening to derail Federal Reserve Chairman Ben S. Bernanke’s efforts to cut borrowing costs for businesses and consumers.

[...]

“The bond-market vigilantes are up in arms over the outlook for the federal deficit,” said Edward Yardeni, who coined the term in 1984 to describe investors who protest monetary or fiscal policies they consider inflationary by selling bonds. He now heads Yardeni Research Inc. in Great Neck, New York. “Ten trillion dollars over the next 10 years is just an indication that Washington is really out of control and that there is no fiscal discipline whatsoever.”

[...]

Bonds usually rally when the economy is in recession and inflation is subdued. Gross domestic product dropped at a 5.7 percent annual pace in the first quarter, after contracting at a 6.3 percent rate in the last three months of 2008, according to the Commerce Department.

This time it’s different because the Congressional Budget Office projects Obama’s spending plan will expand the deficit this year to about four times the previous record, and cause a $1.38 trillion shortfall in fiscal 2010. The U.S. will need to raise $3.25 trillion this year to finance its objectives, up from less than $1 trillion in 2008, according to Goldman Sachs Group Inc., one of 16 primary dealers of U.S. government securities that are obligated to bid at Treasury auctions.

Bloomberg

 
At 6/13/2009 6:06 PM, Anonymous Anonymous said...

A glut of unsold homes continued to grow last month, fed by a new wave of foreclosures, even though sales of existing homes rose, a national real estate trade association said Wednesday.

The National Association of Realtors reported that the inventory of unsold houses, townhouses and condominiums rose to 3.97 million in April, the highest level since November. At the current rate of sales, it would take 10.2 months to exhaust those unsold properties.

“We’ve got all this looming inventory out there, and the likelihood that whatever gains we see in sales are going to be pretty anemic,” said Joshua Shapiro, chief United States economist at MFR. “If you look at the broad middle of the market, price adjustment has a long way to go because of this whole inventory issue.”

New York Times

 
At 6/13/2009 6:12 PM, Anonymous Anonymous said...

Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.

“A government debt burden of that [100 per cent] level, if sustained, would in Standard & Poor’s view be incompatible with a triple A rating,” as the risk rating agency stated last week.

I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?

Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth – probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.

The fact that the Federal Reserve is now buying longer-term Treasuries in an effort to keep Treasury yields low adds credibility to this scary story, because it suggests that the debt will be monetised. That the Fed may have a difficult task reducing its own ballooning balance sheet to prevent inflation increases the risks considerably. And 100 per cent inflation would, of course, mean a 100 per cent depreciation of the dollar.

Financial Times of London

 
At 6/14/2009 1:27 AM, Blogger bobble said...

anon, please try to stay on topic.

as far as CEO's prognostication abilities, i would put them at par with the number of economists who foresaw the economic train wreck we are now in.

 
At 6/14/2009 7:28 AM, Blogger 1 said...

benny says: "No 1. I assume your moniker is not bathroom humor.

But you do have a sense of humor-your first link is a doozy
"...

Oops!

That's what I get for trying to type and chew gum at the sametime...

From the Associated Press: First Quarter Wiped Out $1.3 Trillion in Americans’ Personal Wealth

Yeah! That's the ticket...

Thanks benny...

 
At 6/14/2009 8:55 AM, Anonymous Anonymous said...

bobble,

My topic, like the topic of this post, "Chief Execs: No Recovery Soon", is that given the sorry state of the economy, and the incredibly inept way in which Obama and the Democrats are handling it, "recovery" may be a generation away - if we're lucky.

You're topic, as usual. is gibberish.

 
At 6/14/2009 2:25 PM, Blogger bobble said...

anon:"You're topic, as usual. is gibberish."

lol. coming from you, that qualifies as a compliment.

 
At 6/14/2009 2:30 PM, Blogger Robert Miller said...

Only more evidence of the horrible conclusions one can draw about the economy from SURVEY data.

Aside from personal biases, hidden agendas, miscommunication of questions and answers, and flawed sampling techniques, there is often a strong departure between what people SAY they will do and what they actually do.

"You can use all the fancy statistical techniques you want, but always remember that the data is collected by the village watchman who writes down whatever the hell he wants."

 
At 6/14/2009 9:53 PM, Anonymous gettingrational said...

I will not vote for Bill Clinton this fall if he picks Al Gore as the Vice Presidential candidate. Gore keep talking about an information super-highway, the Intervent, that thing will never catch on. These guys together will never be able to figure out where new jobs will be.

This has been an historical re-creation based upon recollections of a fictional elder.

 
At 6/15/2009 10:23 AM, Blogger Marc'n'NY said...

"And 100 per cent inflation would, of course, mean a 100 per cent depreciation of the dollar."

Actually, it would mean a 50 percent depreciation of the dollar. Numeracy adds to credibility.

 
At 6/15/2009 12:30 PM, Blogger Dennis said...

As somebody with knowledge of both corporate planning and economics, I trust the corporate people. They are the folks who are operating under the hood, so to speak. I find most economists are lazy because they draw conclusions based too heavily on historical data and correlations. Pick an economist, and you'll get a different correlation in a data set to justify why we're on the verge of a recovery, or not. You guys aren't much better than bookies who say we should take the Jets over the Bills because when games are played on the second sunday of November with a temperature of 30 or less and the Jets have a QB with the last name starting with "T" they've covered 9 of the last 11 times. Economists have become nothing more than bad arm-chair handicappers. Many seem to get paid to be cheerleaders because I don't know how an objective person sees such optimism in this data. The argument has now shifted to we're not as bad as before. But what kind of position is that? Of course, you're not going to get almost 700K people a month unemployed indefinitely. But it doesn't mean we're on the verge of a sustained recovery.

I think we're entering into a new stage in certain respects. But we'll see. www.rightreturn.blogspot.com

 
At 6/15/2009 12:35 PM, Blogger Dennis said...

To Paul's comment, that's exactly right about CFOs. If the execs are the financial people than I would agree that they are probably too pessimistic. When the new CEO is a financial person, it's a bad sign. If the execs are not comprised of the financial folks than I would take them seriously and not as a lagging indicator. Another interesting view on this is venture capitalists who I understand are also not bullish. I would take those folks very seriously if their opinion is "no recovery soon".

 

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