March 26, 2003

Sung Won Sohn at Wells Fargo Is Depressed

Sung Won Sohn at Wells Fargo is depressed about the current state of the business cycle. Data continues to come in significantly weaker than I had thought it would, but I have not yet thought seriously about what it means for the forecast... WRAPUP 1-Data paints weak picture of U.S. economy: WASHINGTON (Reuters) - Business spending fell and home buying slowed sharply in February, the government said Wednesday, while the number of Americans unable to make credit card payments at the end of last year climbed.

Durable goods orders in February sank 1.2 percent, the largest fall since November, while sales of new homes fell to their lowest level in more than two years. Credit card delinquencies in the final quarter of last year rose to their highest level since records began in 1990.

"The economy is basically stalled, treading water at the moment. The combination of geopolitical uncertainties, the inclement weather, the lousy stock market and lack of confidence are all combined to depress economic activities for the moment," said Sung Won Sohn, chief economist at Wells Fargo.

Posted by DeLong at March 26, 2003 12:59 PM | TrackBack


The guess is that we are scarcely growing this quarter and will likely grow quite slowly next quarter. Consumer expenditure slowed in February and there is no sign or reason for a quick resurgence. Producer expenditure is weak for capacity is about 75%. Europe is weak, Japan is weak, Latin America has stopped growing. China continues to surge, and several other Asian economies are growing moderately, but the group offers us little boost.

Posted by: anne on March 26, 2003 01:13 PM

It's a good thing we have something else to think about these days! Watch out for the hang-over...

Posted by: Jean-Philippe Stijns on March 26, 2003 01:20 PM


What do you mean about a "hang-over?"

Posted by: dahl on March 26, 2003 01:34 PM

The record levels of household debt created largely by historically low interest rates simply could not continue.

Some of the borrowing was basically irresponsible (in a financial sense) by unsophisticated individuals who were offered credit by that burgeoning industry.

Others borrowed on the assumption that stock market returns would continue at the rate of the late '90s and/or that they would maintain a certain level of employment compensation.

I have long believed that the increasingly large amount of household debt as a result of low interest rates was not being taken seriously enough by the Fed. in its modeling. It should have been considered as a potent medium term counter to the growth impact of interest rate drops.

Posted by: E. Avedisian on March 26, 2003 01:50 PM

Mentioning debt....

March 26, 2003

Home Equity Borrowing Rises to Worrisome Levels

Americans are borrowing against their homes at unprecedented levels, leading some bankruptcy lawyers and consumer advocates to warn that many people could wind up losing their houses.

Homeowners raised $130 billion last year through home equity loans and lines of credit, nearly double the total a year earlier, according to the Federal Reserve....

Posted by: anne on March 26, 2003 02:01 PM

Brad DeLong mentioned that one of the great puzzles of the last 2o years was why individual savings rates were so low in America. Consumers spent and spent through the recession, as though the stock market decline was of no account. Perhaps a rise in home values and low interest rates was enough to generate continued consumption. Perhaps consumers will slow purchases for a while. A difficult prospect.

Posted by: anne on March 26, 2003 02:09 PM

Oops -

March 26, 2003

W.T.O. Rules American Steel Tariffs Are Illegal

The United States lost a major trade dispute to Europe today, with the World Trade Organization ruling that the steel tariffs imposed by President Bush last year were illegal....

Posted by: jd on March 26, 2003 02:13 PM

"Jean_Philippe, What do you mean about a "hang-over?""

I'm not sure either, but hangover in my point of view definitely means a debt overhang(over). ;-) Sooner or later, if Bush Republicanism keeps control of the White House and Congress, the government's position will become fiscally unsustainable and either debt default (unthinkable) or inflation (thinkable, but still very painful) will be in the cards. Unless there's a major change in policy, we will soon learn what it's like to live in a Latin American country...

Posted by: andres on March 26, 2003 03:13 PM

"Jean_Philippe, What do you mean about a "hang-over?""

I didn't think this was so cryptic. I simply meany that once warphoria will fade, one way or another, we will return our attention to the state of the economy, with sobering news to look at and dim prospects to look forward. Martin Wolf had an excellent column in today's FT but, unfortunately, it is not available yet to non-subscribers.

Posted by: Jean-Philippe Stijns on March 26, 2003 05:02 PM

Wait, we're blaming the poor economy on bad weather?

Oh wait, "inclement weather," well, that's all right then.

Posted by: J.Goodwin on March 27, 2003 06:32 AM

I don't think there's really anything new here: the Kondatieff cycle of debt repeats its appoximate 50 year cycle which conveniently seems to be about the same amount of time it takes to have people who have been thought it once not be around to warn those whose actions will lead them to go through the same course of events. To commit to working very hard to earn the money to pay off debt is a catch-22 since if all are saving, no-one is spending and there is little work to be had. Inflating to reduce the value of debt (see 1930s Germany) helps the govt most but wipes out savings and similarly devalues non indexed retirement income. That would hurt a lot of voters who would only condone such action if inflation was a byproduct of something of greater significance.. beyond a war against terrorism. Say, now isn't that a coincidence.

Posted by: Bridge on May 23, 2003 08:14 PM
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