The darkest hour is just before dawn, but midnight looks just as dark
The AP reported last week that â''Retail sales fall unexpectedly in March.â'' Really? Was it really unexpected?
Iâ''m continually amazed at the relative optimism being expressed on Wall Street, in Washington D.C., and in the business press.
According to the AP, analysts expected a 0.3 percent increase in retail sales. In fact, they dipped 1.1 percent. The analysts predicted the Producer Price Index to rise 0.1 percent, in fact it went unchanged.
Who are these analysts and why canâ''t I get that job? Throwing darts at a cork board would seem to have about the same accuracy, and I could go to the movies for the other 39 hours of my workweek. Or maybe 36, assuming my hours were to get cut, as they are for many employees.
Actually, the business world has a reason for this relative optimism, itâ''s just not a very good one. Typical is this quote from U.S. Fed Chair Ben Bernanke:
"Recently we have seen tentative signs that the sharp decline in economic activity may be slowing," Bernanke said. "A leveling out of economic activity is the first step toward recovery.â''
Yes, Ben, the curve that sees us bottoming out would show negative indicators slowing down before the economy goes into recovery. However, the curve that sees us heading into depression might also show a slowing. Hell, the pessimists believe that the downturn has so much momentum, even with the brakes on, weâ''ll coast into depression.
We know from the polynomial theorem that an infinite number of curves are consistent with any finite set of datapoints. You would think an MIT-trained PhD economist who won his stateâ''s spelling bee at age 11 would know these things. In fact, you would think everyone would know it, at least intuitively, but the Washington Post had a nice, um, post, about The Shape of the Recession.
Will it be V-shaped, as in a steep decline followed by a rapid recovery? How about U-shaped, with a longer downturn and slower upswing? Or even L-shaped, featuring a quick plunge that flatlines forever?
An alternative forecast taking hold around town sounds (but only sounds) like a swipe at the former president: the W-shaped recession, in which the economy falls and bounces back quickly, only to decline again.
The W shape provides a single theory that is consistent with both the crazy optimistic V ideas spouted by Bernanke, and the pessimistic view that the economy is in much worse shape than the optimists think.
To put it mildly, thereâ''s a lot more bad news than good. As was widely reported, March was the first deflationary month in more than 50 years in the U.S. The Guardianâ''s story was typical.
The consumer price index fell at an annual rate of 0.4% in March, the first decline since August 1955, figures from the US labour department showed today. It was bigger than the 0.1% drop expected by economists.
Compared with the previous month, consumer prices dipped by 0.1%.
The decline was mainly caused by lower energy costs, which offset a surge in tobacco prices, the biggest since 1998. If energy and food costs are excluded, the annual inflation rate stands at 1.8%.
Energy costs fell by 3% on the month and gasoline prices were down 4%. Food and housing costs both edged down by 0.1%.
Even the quasi-optimistic AP story reported that â''wholesale prices plunged 1.2 percent in March as the cost of gasoline, other energy products and food fell sharply.â''
Worse, companies are freezing and even decreasing salaries, particularly in high-tech, where HPâ''s much-publicized 5% cut back in February has been typical.
A Houston Chronicle article earlier this month quoted John Challenger, of recruitment firm Challenger, Gray & Christmas, as saying â''The number of pay cuts weâ''re seeing around the U.S. is unprecedented.â''
Unprecedented. Consider that, business columnist Robert J. Samuelson, who, like Bernanke, ought to know better but who wrote in todayâ''s Washington Post, â''Given today's economic crisis, our renewed fascination with the Depression is natural. But we ought not stretch the parallels too far.â''
If youâ''re wondering how bad things can get, Eric Savitz over at Barronâ''s says we should â''Ask FSI International.â''
FSI International (FSII) is now a company that almost no one follows. But the latest results from the tiny Minneapolis-based semiconductor equipment firm offers a sobering snapshot of conditions in the industry.
For its fiscal second quarter ended February 28, FSI posted revenue of $8.6 million, which is down 60% - 60%! - from the $21.4 million reported in the year-earlier quarter.
Ask FSI when the economy will recover and you wonâ''t get one of these rosy Bernanke V-shape answers.
In a statement, CEO Don Mitchell gives the explanation youâ''d expect: â''the global economic downturn is continuing to adversely impact credit availability, consumer confidence and technology spending,â'' which in turn has caused â''low factory utilization levelsâ'' at most semiconductor manufacturing companies, resulting in reduced or delayed capital spending.
And despite some optimism on the Street, Mitchell does not see any early recovery. â''Even though it is reported that several device producers have recently started to experience improved utilization levels, we anticipate that this situation will persist until at least early calendar 2010,â'' he says.