October 1, 2009
Economic Outlook: Recovery’s new clothes
With 10,000 points in sight for the Dow Jones industrial average, U.S. markets took a 200 point tumble Thursday -- the worst one day drop since July.
The DJIA closed at 9,509.28 -- only slightly closer to 10,000 than to 9,000 -- on a slide triggered by turbulence in several key reports. The most critical reports of the day, however, may have come from auto makers that described a sudden sales skid in September in the absence of the Car Allowance Rebate System.
CARS, more commonly called the
cash for clunkers program, threw $3 billion in rebates at car buyers who traded in gas guzzlers for more fuel efficient new vehicles at the end of July and the beginning of August. It was so popular -- running out of the first $1 billion allotment within two weeks -- it must have been nearly impossible from a political standpoint to fashion a nightly news sound-bite out of the idea that
this is going so well that we must have done something wrong.
What was wrong showed up in September, and with ominous overtones.
Automakers said in September vehicle sales fell back to a pre-cash-for-clunkers slump. Ford Motor Co. said September sales were down 5 percent from a year ago. General Motors Co. reported a 45 percent year-over-year drop; Chrysler called it a 42 percent slide; Honda, 20 percent; and Toyota 13 percent, The New York Times reported Thursday.
GM Vice President for U.S. Sales Mark LaNeve called it
a real post-clunker hangover.
For automobile executives, dealership sales staff or machinists in the parts supply line, those are not encouraging numbers. Economists also recognize the ominous possibility that those who said forward movement in the economy in recent months was stimulus spending masquerading as a recovery might be right.
In turn, the government said Thursday consumer spending jumped 1.3 percent in August, the largest jump in nearly eight years. But it was a spike that sounded hollow, given the main thrust upward was provided spending on durable goods -- new cars replacing old ones.
Amid the turbulence of the day, Federal Reserve Chairman Ben Bernanke told members of the House Financial Services Committee that systemic risk might best be handled by a council of regulators, rather than one particular agency.
The broader task of monitoring and addressing systemic risks "¦ may exceed the capacity of any individual supervisor, he said.
The gesture may pave the way toward a quicker resolution to one of the Obama administration's key proposals on regulatory reform, keeping an eye on systemic risk, especially when the financial system is threatened by an entity outside the banking regulatory system.