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February 8, 1991
Though loan discounts are up a little this morning, they are net down from last week.
The Purchasing Managers' Index dropped to 37.4 in January from December's 40.5. This is a genuinely dismal report: any index value under 50 describes a no growth economy, and under 44 indicates recession. Consumer Credit fell 2.3% in Decmeber, and late January car sales fell 31%.
This recession is unfolding in most unusual form so unusual that it needs a distinctive nickname. The "Crash of '29" was descriptive and accurate, as was the "Great Depression." What should we call this episode?
How about the "Nightly News Nosedive," or "Saddam's Slump"? Maybe the "CNN Slide," the "TV Turndown," or the "Ground War Wobble"?
The economy was headed for a garden variety recession last summer before Saddam's Kuwait capture. After the August invasion, consumer confidence dropped as fast as oil prices rose, and the recession gained momentum.
But there was no freefall until the outbreak of war in January. Since Congress voted for war in early January, the whole nation has been glued to the tube, deferring all possible economic decisions.
If I need to hire someone, I'll wait. If I need to buy a house, or sell one, I'll wait. I'm certainly not going to change jobs, take on new debt, go on vacation, buy a new car, or skis, or shoes, or anything, if I can help it.
This sort of economic paralysis can change in an eyeblink. Sure, we have our share of bank, debt, and real estate trouble, all of which will take time to repair. But there is no persistent 10% inflation, which took two years and a 20% prime to defeat in the early '80s. Nor is there a typical overhang of business inventories, which ordinarily would take a year to wash out.
This January freefall is mostly a bad case of the waitandsees. When peace breaks out, even a untidy one, the economy will likely surge into seeandspend. Given a thoroughly panicked Federal Reserve, spewing greenbacks at an unprecedented rate, there will be plenty to spend.
So, how much lower are mortgage rates going to go? Will the recession get/stay deep enough to take us under 9% without points? If so, for how long?
The opinions here are not far, probably not, and if so, only for a heartbeat.
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