Who is Right? Peter Schiff or Peter Morici?

Filed Under (Economics, General, Markets) by Kristjan Velbri on 18-07-2009

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Lawrence Kudlow: When will this recovery materialize?
Peter Morici: December 30th
Peter Schiff: Not a chance.
Morici: Fourth quarter recovery!
Schiff: What decade [are you talking about]?

Morici cites housing starts and housing permits as if they were up enough to confirm a speedy recovery. Not so fast. Privately owned housing units that were given building permits in June were at a seasonally adjusted 563,000, 8.7% above the revised May number. Housing starts were at a seasonally adjusted 582,000, which is 3.6% above the revised May estimate. Yet, the year on year data is much bleaker: new starts down 46%, permits down 52%. There are already over 4 million houses on the market, and by some estimates, around 1.5 million that are being withheld from the market either due to foreclosure moratorium or in the hopes of a housing recovery. Who is building these houses? 4 million houses is enough supply for a whole year. It would be much better if housing starts fell even further as there are already too many vacant houses in the US.

july housing starts
Image courtesy: Barron’s

He also talks about falling jobless claims. I don’t know where this guy gets it from. Has he been smoking too many of those green shoots?
Department of Labor:
In the week ending July 11, the advance figure for seasonally adjusted initial claims was 522,000, a decrease of 47,000 from the previous week’s revised figure of 569,000.
The advance number of actual initial claims under state programs, unadjusted, totaled 667,534 in the week ending July 11, an increase of 86,389 from the previous week.

The government plays with the numbers to make data politically acceptable, if you’re not able to accept this there is probably something wrong with you. This is not about hope or a positive outlook, this is about the real data, which is getting worse by the week.

With the death-birth model, the government estimates that over 800,000 jobs have been created this year, many of them in the finance and construction sectors. The Obama administration said the jobless rate would top out at around 8%, but it’s 16,5% already! This is all public information, but for some reason there still are people like Mr. Morici who have been smoking too much of these green shoots.

What’s even worse is that if and when the recovery materializes in the US, there is a high probability that it will be a jobless recovery. Already, all the jobs created since the previous recession have been done away with, many of them never to recover (most of these were in construction, services and finance anyway). Besides laying off people, companies have been cutting working hours and the national average is not at 33 hours per week. If demand picks up, the companies will not hire new workers until they’ve exhausted the available underemployed workforce.

The stream of bad data goes on: taxes and feed are rising all across the board, foreclosures are rising, credit card delinquencies are up, defaults and redefaults on mortgages are rising. If I didn’t know better, I’d say Peter Morici is wrong, but given all the data, I think he is willfully ignorant, or in other words, an idiot. Note how he defends his position by implying that Schiff is bearish only to boost his book sales.

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