Explanation for economy woes simply doesn’t exist

Monday, April 14, 2008 at 1:48am

Friday proved to be another banner day for psyche abuse with reports that the University of Michigan’s consumer-sentiment index had “plunged” to its lowest level since 1982.

Recession here. Recession there. Recession everywhere.

Gas prices rise. More homes go into foreclosure. Companies file bankruptcy. Earnings disappoint. American Airlines cancels flights. (Yes, apparently that could have a negative impact on the economy).

The economy is sinking into a deep, dark abyss and we are all going to get sucked in along with it.

Of course, that depends on if you believe all the headlines and all the talking heads making a mint off pontificating about the dismal state of the economy or predicting it’s demise.

Doom and gloom is the talk of the town and many are as anxious as folks in other parts of the country who have more reason to worry. The national woes, mostly affected by the mortgage and housing troubles, weigh on minds here and cause pause everywhere.

It doesn’t help that information flows much more quickly than it did in 1982 or in the early 1990s. A person in a small town can get news as instantaneously as someone in New York City or Washington, D.C.

And, you can see and hear it over and over — and over and over again. Everyone knows what happens with repetition. It becomes belief.

Economists differ on whether the nation is in a recession and watching the experts can be confusing.

Some say no with models based on leading indicators and lagging indicators or maybe lagging leading indicators or leading lagging indicators. Others say ‘yes,’ based on four data points used by the National Bureau of Economic Research — employment, personal income, retail sales and industrial production.

Those have been off since January and momentum isn’t good. The bureau is expected to make it official soon that the country is indeed in a recession.

The last two recessions were eight months each. The average is 10 months long. There’s a view that this one will be shallower than most but longer, going into next year.

Nashville impact

To a certain extent, Maxwell Smart’s cone of silence needs to come down over the Nashville area, not so much that others can hear what’s being said under the cone but that folks here can’t hear what’s going on outside the cone.

The fact that Nashville has a diverse economy isn’t just economic development or Chamber babble used in selling companies on moving here. Economists have noted that Nashville’s economy never experiences huge swings. That is, it doesn’t get overly frothy nor does it sink deeply.

The area’s health care industry has a constant, almost anti-recessionary effect. State government and the universities here are a stabilizing factor. Then, there is religious publishing — texts of which folks seem to turn to more when times are bad than when times are good.

Music, manufacturing and distribution operations have big roles.

Nashville’s economy, for example, didn’t take near the hit peer cities took when the technology boom went bust in 2000 and 2001. Net job loss was minimal. But Austin, Texas, even with state government and a major public university, lost a lot of technology jobs.

Measuring stick

Rising gas prices seem to have the most impact on psyche. Just watching the sign change to a higher price seems to make people quit spending altogether, even though the impact on the pocketbook is minimal.

A 10-cent per gallon rise in gas is $2 extra for a 20-gallon fill-up. Does that break the bank even if you buy gas twice a week?

If someone is running that close to the line financially, gas prices are the least of their concern. But there are people who will drive to a different area of town to save 5 cents a gallon.

If prices jumped a $1 or even doubled, then that would sound serious alarm bells and certainly bring a major shift in driving and public transportation use. Oil prices haven’t gone up lately because of supply and demand at the gas pump. It’s supply and demand of investors looking for a hedge against the devaluing of the dollar.

The summer driving season likely will add to it, however, and there will be more headlines about the price of oil hitting record levels.

Everyone is looking for a simple explanation to complex economic issues, but that explanation just doesn’t exist.

The Chatter Class appears Mondays in The City Paper. Comments may be sent to rlawson@nashvillecitypaper.com

Filed under: City Business
By: bnakat on 12/31/69 at 6:00

Once again Richard Lawson exhibits his depth and perception. Balance, rather than bias in his reporting, as is his wont, is always refreshing.With a new organization taking control, we can only hope that its upper management adequately appreciates Richard's ability and importance to the operation. With mergers, take overs, and buy out's the existing workforce is often hammered. This man might well be future Pulitzer caliber. He is well in route toward such honor. We hope not to hurt him among his peers by saying that he is possibly "too smart for the room." Both the news organization and Nashville are the better by having such an honest, investigative reporter working there. We have read no other local publications with a similar byline.No, I am not his parent, sibling, or even an acquaintance. Good, solid journalism is now so rare that it is salient when observed.

By: revo-lou on 12/31/69 at 6:00

He makes good points except for the gas prices. For a person making minimum wage or even 8 to 10 bucks an hour, two bucks can be a lot of extra money disappearing out of your pocket. But it is also not just that direct out of pocket expense. Because the price of fuel rises for all, so to, do the price of goods and services. Food prices go up to help offset the price of fuel for delivery, service fees rise for those doing in-home repair of plumbing, heating, etc. Everything is related to the cost of fuel. It is much more than just a few bucks. Besides, that “few bucks” is just for this week. It has risen a dollar per gallon since last year, so now we are talking 20 dollars a fill up. Hope that guy making 8 bucks an hour got at least a $0.75 raise to cover his gas!!!!

By: RIchardLawson on 12/31/69 at 6:00

Thanks to you both. I couldn't write forever so there were things I wanted to touch but couldn't. But I can add to to the comment on gas prices. I still maintain the few dollars point even with minimum wage worker to a point. Such workers are a very small percentage of the workforce. Also it should be noted that the increase in gas prices has yet to show up in food prices, the producers index. If the price really jumped then that's one thing. Instead gas prices have squeezed profit margins at corporations some. Weak companies are feeling it more than solid companies.

By: JohnGalt on 12/31/69 at 6:00

I still maintain that the best move to help the economy "recover" would be for the windbags in congress to immediately recognize and reverse the consequences of their mandate to use food to create fuel.

By: idgaf on 12/31/69 at 6:00

Could be the masses are frustrated at the idiots we have running the country.Gas is going up yet they don't/won't drill the oil we know we have sitting in the ground and off our coasts.The Chinese and the Mexicans are? One has to wonder if they are intentionally trying to make us weak and dependent on others for survival. Part of the new world order.

By: vchester on 12/31/69 at 6:00

Excellent article, well written and covered a big topic. One item I will add is that the impact of corn ethanol in the fuel industry and the overall economy should be better understood and reported. It takes 1 gallon of petroleum based fuel to make 1.3 gallons of ethanol, according to ethanol producers, and this may be optimistic. Coupled with this are government incentives for ethanol producers as well as the impact on corn prices which is a major staple in our food supply.As much as we hate to admit it sometimes, the cost and availability of energy is at the base of everything in our economy. And naturally, it is a trigger for the price of all goods. One day, I am hopeful we will have cheaper, more abundant energy sources and more efficient processes that use energy. For now, our economy remains highly dependant on oil as its main energy source and we should allow for more exploration in our own country just as Canada and Mexico have.

By: frank brown on 12/31/69 at 6:00

I like to read a Richard Lawson "take" My question is how long will lower middle class America stand for this abuse by the super wealthy and the politicians. The rest of us will suffer and hope.

By: Dragon on 12/31/69 at 6:00

Well done article. I would also add the non-tangible drivers, perception and speculation.For example, a poll showing low consumer confidence (perception) can be driven in large part by the politicians and talking heads telling everyone that bad times are coming. Actions are taken in anticipation of bad times coming (less spending, less investment) and the resulting bad times occur.Another example would be the price of oil (speculation). The current commodities market is driven less by supply and demand and more by what the market will bear. Same with grains where price of corn, wheat, rice, etc. is being driven in large part by market speculation. Has ethanol production dramatically increased over the last 12 months or have the marketeers driven up the price in anticipation.

By: revo-lou on 12/31/69 at 6:00

Richard – This is a new and interesting piece of NCP, interaction with the article writer. I am not a financial expert, and am not trying to be. While you and others make a living out of, and put faith in, percentages, reports, formulas, surveys etc. maybe some times your insight is not “real world” enough.Yes the current rise of 10 cents a gallon is not that much, but, as I said, it has raised $1.00 or more in the last 6 months and that is a hell of a hit in anybody’s book. As to the price increase at the retail level because of fuel prices, maybe there is not a box to check because of it, but my observation is that the price of products are going up, especially those using petroleum based packaging. And service fees for technicians have increased. Those are facts in my world, and I think in others as well.As to the number of people making 8 to 12 bucks an hour, please, that is a huge base in this town. Look at the want-ads. There are as many low level jobs as there are high level jobs. And there is not a retail job out there, sans management, that pays more than 12 dollars an hour. Drive down the street, go to the mall, head over to Wally World. That is a LOT of 10 dollar or less an hour retail jobs. A lot!!As to those of you that think only corn is used in ethanol production, get better educated. Many avenues are being explored for the production of ethanol, corn is just the easiest to get, and at the onset of the ethanol push, it was the cheapest. Corn farmers were having a HARD time making money due to the crap prices on corn. If you want to put blame on the increase of your corn chips, put the blame where it belongs at the feet of ADM and ConAgra!!!

By: gdiafante on 12/31/69 at 6:00

Impact on the pocketbook is minimal? I suppose for those in Williamson County, but what about those that live paycheck to paycheck? Rising food and gas prises make a pretty sizable dent, wouldn't you think?The sky isn't falling, but it's not clear blue skies either.

By: RIchardLawson on 12/31/69 at 6:00

Revo-lou ... thanks... the problem with is form of interaction is it's somewhat cumbersome. I might start a blog in which I can get alerts when folks respond. Would folks be interested in that? Gas prices have been fluctuating so the best way to look at that is not an increase but an average over time. The services sector obviously will push prices up. But the fear there is gouging. Is a $10 per visit increase really for the increase in gas prices or an excuse to get more profit? Gas prices could be debated all day and we'd really end up chasing each other in circles, although I don't know who would be chasing whom. Soybeans also are good for making ethanol. And the Brazillians do it cheaper than corn produced ethanol. But it isn't solely that corn was the easiest to get at. That lobby was quite effective. One of the things I learned being around corn when I was young is that it's rotated with soybeans. One takes nitrogen out of the soil and the other puts it back in the soil. But like anything, the ethanol craze went over the top and created a glut. Seems no one knows how to apply the foot to the pedal smoothly. It's like being in the car with someone who drives by accelerating and decelerating all the time instead of the smooth, steady application to the pedal.OK enough for now. Tired of typing in this tiny window. Seriously, if you guys thing blog is better suited, let me know, via email or here.

By: revo-lou on 12/31/69 at 6:00

Maybe on the blogs, although the current set-up seems a little cumbersome, and I don’t use them too often (never). But it might work. Also, use word or the like to, for typing these comments, and then cut and paste into the opinion window. It is a heck of a lot easier!

By: ItsMyMoney on 12/31/69 at 6:00

I realize there are factors such as rising energy costs that are affecting the economy right now... but... if told long enough that tough times are coming... people will hold back on spending and create the tough times. The main stream media is as much to blame for the slow economy as is energy costs.

By: gdiafante on 12/31/69 at 6:00

Oh give me a break. You don't have to watch CNN of FoxNews to realize gas and food prices are increasing and houses are being foreclosed left and right. All you have to do is open your eyes.Why must the media be blamed for everything???

By: Muzhik on 12/31/69 at 6:00

The FED is creating money while Wall Street calls it "liquidity". Gold prices reaching $1000/oz and $100/bl oil means serious inflation. Wages are declining and savings interest rates have dropped once more. Watch out for inflation.

By: bnakat on 12/31/69 at 6:00

The entries for this particular article by some of the "regulars" have brought out more intellectual reasoning than usual. Oh, the political leanings, and hackneyed, knee-jerk reactions are still in evidence, but overall there is more meat. Perhaps having Richard responding has provided the necessary stimulus. Less finger pointing, and more thoughtful analysis should improve honest debate.

By: revo-lou on 12/31/69 at 6:00

I feel that I have been complimented and slammed at the same time!!