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Nouriel Roubini thinks the US economy is dangerously close to a double dip recession, and covers the topic in detail on his website. Below are his introductory notes on the topic of what kind of recovery we’re experiencing, and these topics are covered in detail on his site (which is subscriber based).

A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010. The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic levels of growth which RGE forecast for H1. The U.S. faces continued challenges in H2—particularly as historic levels of fiscal stimulus fade—and appears far too close to the tipping point of a double-dip recession. more…

The Bureau of Labor Statistics non-farm payroll report showed that the economy lost 36,000 private sector jobs in February. January was revised from -20k to -26k jobs lost and December was revised from -150k to -109k jobs lost. This means 25 of the last 26 months have shown losses, putting the job loss toll since the recession began in December 2007 at 8.4 million. In 2009, 4.8m jobs were lost. BLS also reported that 14.8 million people are unemployed. This is a 9.7% unemployment rate, up 4.8% since the recession began in December 2007. See charts below.

Additionally there are now 8.8 million people who would like to work full time but are working part time because their hours have been cut or they can’t find full-time jobs. This forced-into-part-time-work category is up 4.1m million since January 2008, and increased by 500k this month, offsetting a big drop in January. January’s drop from 9.2m to 8.3m was the first improvement in nine months. This is the fine print of the jobs report—the headline job loss and unemployment statistics show that these 8.8 million people are employed and therefore not in the job loss category, but because of their job status these 8.8 million workers aren’t likely to be consuming at normal levels. Markets are interpreting today’s report as positive—stocks are rallying, bonds are selling off, and rates are higher—but this statistic is mostly undiscussed in market coverage.

The second of three 4Q09 GDP readings came in today at +5.9%, making a second consecutive quarter of positive GDP growth after four consecutive quarters of economic contraction (a 60yr record for consecutive GDP declines). The strong initial GDP reading was due largely to acceleration in private inventory investment, a deceleration in imports, and an upturn in nonresidential fixed investment that were partly offset by decelerations in federal government spending and in Personal Consumption Expenditures (which we’ll hear more about Monday). Real GDP in 2009 declined -2.4% versus a +0.4% gain in 2008.

Stocks are up modestly on this GDP update today and bonds (including Treasuries and Mortgages) are up about 22 basis points, which is a big gain. The main reason seems to be because increasing inventories isn’t viewed by markets as a meaningful or sustainable contributor to GDP growth. Consumer Spending needs to be higher before any sustained GDP growth can occur, and the data don’t suggest we’re there yet. All GDP figures are ‘real’ or inflation-adjusted, and the next reading will come on March 26. The last nine quarters of GDP are at the bottom of this post, and you can also visit our Data section to see historical GDP figures, graphs and download data. more…

Following Ben Bernanke’s semi-annual monetary policy testimony to the House Financial Services Committee this morning, stocks are rallying, Treasuries are up modestly and mortgage bonds are flat. The full testimony is below and the core message hasn’t changed: a “nascent” economic recovery means that inflation is likely to remain subdued for some time, the Fed will wind down asset purchases between now and March 31, it will evaluate rate hike measures and further asset purchases as needed, and the first signal of a post-crisis reversal of policy is hiking the Fed-to-bank Discount rate and decreasing the term from 90 days back to the more traditional overnight terms.

Bernanke had a special section of his testimony called Federal Reserve Transparency where he discussed how the Fed is the most transparent central bank in the world and while they do share explicit details about their policy decisions and methodology, “it is vital that the conduct of monetary policy continue to be insulated from short-term political pressures so that the FOMC can make policy decisions in the longer-term economic interests of the American people.” As we’ve said repeatedly, it’s unfortunate that short election cycles are completely out of sync with long-term economic cycles and this kind of Fed message is therefore lost on lawmakers who are more concerned with a election year soundbytea than long-term solutions. We’re glad Bernanke got this message out officially but that doesn’t mean it will change the approach of most lawmakers. We also think Bernanke is perhaps a bit too easy on inflation messaging but he’s got a tough job: the US raises money by selling Treasuries to the entire world and a hawkish inflation message in the midst of the largest Treasury issuance in history erodes the value of those efforts. That said, we still think that inflation became a sudden threat Bernanke would tighten policy just as quickly as he loosened beginning in Fall 2007. more…

NAR’s Proposal for Fannie/Freddie
My daughter and I went through the McDonald’s take-out window and I gave the clerk a $5 bill. Our total was $4.25, so I also handed her a quarter. She said, “You gave me too much money.” I said, “Yes I know, but this way you can just give me a dollar bill back.” She sighed and went to get the manager, who asked me to repeat my request. I did so, and he handed me back the quarter, and said, “We’re sorry but we could not do that kind of thing.” The clerk then proceeded to give me back $1 and 75 cents in change.

Numbers can really be confusing. And when you are dealing with companies that back half of the $11 trillion home loans, things become even more confusing. What would you do about the role of the agencies in the mortgage industry? The National Association of Realtors has put forth a proposal to convert Freddie & Fannie into nonprofit corporations that would largely leave the mortgage-finance giants intact. Of course, the NAR or anyone else just can’t snap their fingers to make this happen: the proposal is likely to meet stiff political resistance because of the bail out money already spent and Congress’s desire to make bold changes. NAR suggests that unlike a federal agency, the new government non-profit authorities will function as self-sustaining organizations, without needing annual appropriations from Congress and without a profit motive but with government backing and guarantees. MI companies would continue to mitigate risk on loans above 80% LTV, and MBS guarantee fees would still be paid by originators. Of course no one wants to endanger the currently fragile housing and credit markets, least of all the NAR and Congress, so look for this process to be a very long and involved one. more…

Extreme rate volatility discussed in this WeeklyBasis report two weeks ago still holds. Rates traded up and down about .375% this week on fears about business inflation and Fed rate hikes. Today’s tame consumer inflation contributed to rates dropping again, and rates end the week roughly .25% above all time record lows. But this record low rate window looks to be closing. Rates could rise by about 0.5% by summer for three reasons:

(1) The Fed will end it’s $1.25t mortgage bond buying program March 31 (they’re 95.8% into their MBS buying budget as of today), and then we’ll likely see profit taking on mortgage bonds as private investors sell, which pushes prices down and yields—or rates—up. The San Francisco Chronicle published a very good consumer-friendly story on this topic Monday, and my quote in that story explains other factors affecting rates after March 31. more…

The Onion unquestionably produces the best satire headlines in the humor business, but sometimes their stories miss the potential of the headlines. This is unfortunately the case with this week’s story entitled U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion. But not to worry because here’s another choice Onion cut from their video work: US To Trade Gold Reserves for Cash Through Cash4Gold.com. This is a classic story along the same economic lines, and their video news format is quite a bit different from Daily Show/Colbert because it’s a hard news format—surprising these videos don’t get more attention because they’re hilarious.

Frank Rich’s piece about Sarah Palin in yesterday’s New York Times contains the beware-Palin’s-supposedly-naive-tactics warning we’ve seen a few times since her Tea Party hand job last week. But it also makes the relevant point that, despite a GOP end game that does nothing to help those hardest hit by recession, her populist message is resonating more than Obama’s right now. And GOP leaders who are perhaps more electable than her are adopting her populist template.

The Obama White House remains its own worst enemy. No sooner did Palin’s Tea Party speech end than we learned of the president’s tone-deaf interview expressing admiration for “very savvy businessmen” like Lloyd Blankfein of Goldman Sachs. With that single remark, Obama ingeniously identified himself with the most despised aspects of both Washington and Wall Street — the bailout and the bonuses. He still doesn’t understand that to most Americans, Blankfein is a savvy businessman only in the outrageous sense that he managed to grab his bonus some 17 months after the taxpayers had the good grace to save him from going out of business altogether. more…

The Bureau of Labor Statistics non-farm payroll report showed that the economy lost 20,000 private sector jobs in January, and December was revised from -85k to -150k. This means 24 of the last 25 months have shown losses, putting the job loss toll since January 2008 at 8.42 million. In 2009, 4.8m jobs were lost. BLS also reported that 14.8 million people are unemployed. This is a 9.7% unemployment rate, up 4.8% since the recession began in December 2007. See charts below.

Additionally there are now 8.3 million people who would like to work full time but are working part time because their hours have been cut or they can’t find full-time jobs. This forced-into-part-time-work category is up 3.6 million since January 2008, but dropped significantly this month for the fist time in nine months (it was 9.2m last month). This is the fine print of the jobs report—the headline job loss and unemployment statistics show that these 8.3 million people are employed and therefore not in the job loss category, but because of their job status these 8.3 million workers aren’t likely to be consuming at normal levels. But the significant drop this month along with the drop in unemployment is encouraging. more…

Economic Worries
Yesterday’s stock market drop dominated the financial news. And a slowing economy helps rates and mortgage loan agents, right? (It’s a two-edged sword.) So the markets did not pay much attention to Non-Farm Productivity increasing over 6% during the fourth quarter of 2009. Efficiency in the last nine months of 2009 soared at the fastest pace since 1966 as companies cut worker hours even after sales stabilized. Factory Orders for November were up 1%, better than expected. And 4Q09 GDP was 5.7% at the first reading last week. But the focus, and one of the reasons given for stocks taking a beating, was on Jobless Claims which hit a 7-week high.

There is certainly a lot to be nervous about. There is the concern that around-the-world budget deficits will need to be financed by issuing more debt. California, with the 8th largest economy in the world, is continuing to have budget problems. On top of all that, oil prices declined over 5% while gold prices also fell, down over 4%. The dollar was weaker to the yen, but firmer to the euro as the risk aversion trade returned, and this helped Treasuries and mortgage security prices, dropping rates to December levels. more…