The former so-called leader of this country may be gone, but his economic policies are still gathering steam. The long national nightmare that was the Reign of Error is nowhere near being over.

Just looking at the numbers today doesn’t tell you the whole story. A lot of the job losses announced in the last week are of decent paying jobs, and when those jobs go, a whole bunch of other jobs get affected. It is safe to assume that there are probably at least a couple of jobs tied to every lost GM job-perhaps down at the local Lowe’s, or at a restaurant-that will be impacted in a negative way because the GM worker no longer has the means to go out to eat, or fix up his/her house. The Republican Depression of 2008 is a bullet train, and there are no speed limits on the horizon.

The final week of January began with a bloodbath for the job market, as more than 50,000 more cuts were announced on Monday alone.

At least six companies from manufacturing and service industries announced cost-cutting initiatives that included slashing thousands of jobs.

About 170,000 job cuts have been announced so far this year, according to company reports. Nearly 2.6 million jobs were lost over 2008, the highest yearly job-loss total since 1945.

“It’s all about the consumer, and the consumer’s been hit hard,” said Robert Brusca, chief economist at Fact and Opinion Economics. “It’s a vicious circle as weakness begets layoffs, which beget more spending weakness.”

Construction machinery manufacturer Caterpillar said Monday it will cut 20,000 jobs amid a “very challenging global business environment.” The company had already planned to cut 15,000 workers since the fourth quarter of 2008, but added another 5,000, bringing the total to 20,000.

Sprint Nextel Corp. will cut a total of about 8,000 jobs by March 31, the company said in a release. The telecommunications company’s plan is to reduce internal and external labor costs by about $1.2 billion on an annual basis.

Home Depot, the world’s largest home improvement retailer, announced Monday it will eliminate its EXPO design center business and cut 7,000 associates, or approximately 2% of the company’s total workforce. The company blamed a lack of demand for big ticket design and decor projects.

Dutch financial group ING said Monday it will take a 2008 loss of $1.3 billion and cut 7,000 jobs. The company could not comment on where the cuts would take place. ING employs around 130,000 people across 50 countries.

Pfizer said in an earnings report it would cut 10% of its staff of 81,900 and close five of its manufacturing plants. The drugmaker recently announced that it was cutting up to 8% of its research staff, or up to 800 jobs. The company already cut 4,700 jobs in 2008.

Deere& Co. , the world’s top farm-equipment maker, said it would cut nearly 700 jobs between factories in Brazil and Iowa.

The job cuts across sectors didn’t surprise Brusca, as nearly all are weak, he said.

“The services sector is shedding jobs at a horrific pace, because that’s where most of the jobs are,” Brusca said. “When the consumer is in tough shape it’s hard for business to do well, because it all depends on consumption or investments.”

In the good old days (for some,) every job cut in America just found its way to some place like China or India. That trend is also gone, as the Chinese economy is export-dependent. Thanks to the evaporation of wealth around the world, nobody wants to buy anything anymore. As a result, the Chinese Year of the Ox begins with their economic fortunes wrecked by an ass.

China’s National Bureau of Statistics released fourth quarter GDP growth statistics for 2008 today, and it turns out that (according to their initial estimates) the Chinese economy expanded by 6.8 per cent in the last quarter of the year when compared with the same period in 2007. This was the weakest quarterly year on year growth rate in seven years. For the year as a whole, the economy grew 9 per cent, down from the revised 13 per cent growth rate in 2007.

Strikingly, Japanese exports to the US were down some 37% yoy, losing some 26pp since the 11% yoy contraction in July. But we cannot highlight strongly enough how truly mindboggling Japan’s collapse in exports to China are. Last July they were expanding at a 16% yoy pace. Now they are contracting at a 35% yoy rate! This is a phenomenon throughout the region. Hence despite the notoriously manipulated Chinese GDP data showing a shocking slowdown in GDP growth to 6.8% yoy, I would eat my hat if the Chinese economy was doing anything other than contracting right now. - Albert Edwards Societe Generale

The steepness of this slowdown is likely to have a significant impact on much of the rest of Asia, which relies heavily on demand from China. Only this week a Singapore based economist friend of mine sent me this in an e-mail:

At S’pore’s port container terminal (the busiest in the world), a third of the cranes are idle. There are some companies saying they have inventories stretching 6 months out. December’s plunge in Asian exports was due to the shutdown of electronic companies during the Christmas period because of the pile up in inventories.

Basically there is still far to much we don’t know about what is happening in China, like, for example, the seasonally adjusted quarter on quarter rate. Barclays Capital economist Peng Wensheng estimates that after taking into account seasonal adjustments, the Chinese economy barely grew at all in the fourth quarter compared with the third quarter. My feeling is that he is most probably right. Most of the consenus analysts are therefore very probably well behind the curve. Like Daiwa Institute of Research, JPMorgan Chase & Co. and Citigroup Inc. who while they all today reduced their estimates for China’s growth in 2009 remained at remarkably high levels. Daiwa cut to 6.3 percent from 7.5 percent; JPMorgan to 7.2 percent from 7.8 percent; and Citigroup to 7.6 percent from 8.2 percent. This seems to me to be the next best thing to living in ‘cloud cuckoo land’.

Basically it seems to me that few people other than professional macro economists and bank analysts (and far from all of these if the truth be told) really realize what the implications of such a dramatic decline in year on year GDP actually means. If the quarter on quarter rate of expansion was very low indeed, possibly verging on the negative then – guessing a bit, you know what they call back of the envelope stuff – this means output must have been moving in the October-December period somewhere in an annualized 0 to 2% range. This means we may well see quarter on quarter negative growth in 2009 in China, and that the possibility of a technical recession of two consecutive quarters of negative growth must be over 50% at this point. It wasn’t so long ago that the consensus was saying that annual GDP growth which was as high as 6% would be tantamount to a recession!

It is really very frustrating to find that with all the trillions of dollars at issue, and a whole army of China watchers, virtually no one seems to be trying to derive monthly and quarterly rates of movement from the official statistics.

The OECD do at least seem to be aware of this problem and they do have a lead indicator for China (which includes items like cargo handled at ports, Enterprise deposits, Chemical fertilizer production, Non ferrous metal production, a Monetary aggregate M2, and Imports from Asia. Below I have a chart which compares this indicator for both Spain and China. Since Spain, as we know, is having a very strong contraction at this moment in time, it gives some sort of reference point. What is so striking is that it appears China is now slowing much more rapidly than even Spain, and GDP may, looking at the steepness of the recent month on month drops,have even started contracting in November. This is obviously all shell shock stuff.

Societe Generale economist Albert Edwards is one of those who has been drawing our attention to the rapid decline in China’s GDP (although I myself had a go here) and he uses one very interesting “proxy” (an indicator which can serve as a rough and ready substitute for something else, in this case movement in GDP) – electricity output. If you look at the 3 month year-on-year moving average for electricity output in China (see chart below) you will see it is already falling, which means that (in all probability) China’s GDP is falling, which is just wow!

The history of using electrical output as a convenient proxy where we simply don’t have very adequate data has a long and reputable history – going back to the pioneering work of US growth theorist Edward Dennison in the 1960s – but in case you feel that the correlation may not be a good one, here (see below) is a chart from Edwards which shows China GDP and electricity output compared. The fit is obviously not a perfect one, but that isn’t the name of the game here, what should be evident is that a drop in electrical output as large as the one we are seeing in China at this point will be reflected in a very sharp reduction in GDP output.

Remember that fantasy notion that some folks entertained about China leading the world out of recession? Right here’s the answer. The wealth in China, just like the wealth in America, is concentrated in the upper 1 to 2% of the population. That kind of income distribution simply does not lend itself to a strong economy. It never has, but that doesn’t stop idiots like McConnell and Boehner from insisting that if we just give it a LITTLE MORE TIME, it will.

We’ve heard that one before. Hitler, back in 1945,promised the German people that with just a little more time, his scientists would develop a weapon that would allow Germany to win the war. Hitler clung to this notion even as Soviet artillery shells were falling on the ground above his bunker in Berlin, and street fighting was under way a couple of blocks from where he was hiding out.

I do not know if a Keynesian boost will be enough to bring this economy back to a position of growth. What I know for certain is that any more tax cuts for the wealthy and large corporations absiolutely will not. People who labor under the impression that tax cuts will fix this economy should know better by now, but Barnum was right: there are plenty of suckers.

Tags: bush, economy, failure, financial crisis, layoffs, republicans

This entry was posted on Monday, January 26th, 2009 at 3:03 pm and is filed under Jolly Roger, The Republican Depression of 2008-?. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.