Economists Need Better Inflection Detection
Here’s a way of articulating the effect of force-feeding the economy residential investment from 1990 to 2005. This is in David Leonhardt’s “Economic Scene” column today in the New York Times.
It’s not fair to expect Mr. Obama’s economists to be clairvoyant. But they did make one avoidable mistake that led directly to their overoptimism. They relied on the same forecasting models that had completely failed to see the crisis coming.
These models, which are also used by Wall Street and various research firms, do a decent job most of the time. But they are notoriously bad at forecasting turning points because they are based on an assumption that the recent past will more or less repeat itself.
Clearly, recent economic history is not going to repeat itself. It included two huge asset bubbles, first in stocks and then in real estate. The models came to treat those bubbles — and the additional consumer spending they caused — as the new normal. When asset prices began falling, the models couldn’t keep up, with either the pace of declines or the economic damage they were causing.
Leonhardt argues that an effective Stimulus and an incipient economic recovery are two different things (i.e. just because the Stimulus is working doesn’t mean the economy’s getting better). His essay sort of suggests that the Administration’s money math meisters should redo their arithmetic and come back with a Stimulus 2 that actually gets the economy going again.
His big conclusion is to back the old car tire right over the rose-colored glasses: Look ahead with a sober eye.
Calculated Risk’s blog has been great at holding Treasury Department “stress test” scenarios for housing and unemployment up against the mirror of reality. Here he simply gives White House senior economic advisor Christina Romer enough rope to hang herself. She bids us to stay tuned as the real fun of the Stimulus starts kicking in, and says the programs will have palpable impact in the back half of 2009. Calculated Risk says, hey, that’s where we are now.
So we should see an impact in the 2nd half of 2009 … and that starts now!
The organizational structures, facilities, and implementation programs to get in place to actually spend $30 billion a month in Stimulus monies are enormous. One can believe that it would take this amount of time to get the infrastructure for spending in place.
But the material issue behind whether the Obama economists are way off in their math boils down to the continued tolerance limits of the financial system that the stress test may have failed to expose.
Also, it’s a natural in a highly politicized and polarized culture that people react in one of two ways to dramatic errors in significant economic forecasting: 1) they think you’re lying or spinning and have something to hide; or 2) they think you’re an idiot.
Either way, credibility takes a hit. So Christina Romer, Larry Summers, and Tim Geithner had better hope they’re right about second half traction for their programs. Not just in measuring whether the Stimulus money has been effectively deployed; but in seeing the multiplier effects of success begin to turn the tide of expectations from negative to positive.
A Less-is-More Footprint for Re-loaded Stock Building Supply
Click to access Stock site. Now 51% owned by the Gores Group, a private equity firm.
Financially chastened and dramatically cropped, Stock Building Supply beat a fast track–a la the Chrysler 60-days-and-out restructuring model–under new majority ownership toward resuscitation and reincarnation.
ProSales editor Craig Webb reports this morning on Stock’s announced emergence out of Chapter 11 a leaner meaner outfit that will operate 100 locations in 19 markets.
The bullet points on the story:
- Stock has emerged from Chapter 11, saying it had satisfied concerns raised in court during its nearly two months under federal bankruptcy-law protection;
- The company’s new footprint: Washington, D.C., area; Paradise, Pa.; Richmond, Va.; Raleigh-Durham, Charlotte and Winston-Salem/Greensboro, N.C.; Greenville and Columbia, S.C.; Atlanta; Austin, Amarillo, Houston, Lubbock and San Antonio, Texas; Albuquerque, N.M.; Salt Lake City and Southern Utah; Spokane/Northern Idaho, and Los Angeles;
- Stock cut the number of facilities it had on May 6 roughly in half, to 100, and has departed 32 markets;
- Employee headcount peaked at 17,000, and fell to 7,200 in May 2009, on its way toward staffing of about 5,000, per the company.
Stock’s strategic overhaul sounds as if the company wants to leverage its relationships with builders and remodelers toward a deeper, more holistic supply partnership, a plan that makes sense particularly as home builders work to streamline vendor rosters toward measurable cost cuts in their offerings, which translate into lower home prices that can compete with foreclosures.
It said it will do this by seeking to sell a larger number of products to each customer, rather than just one or two core offerings. For example, Stock said it will roll out what it described as a tracking system that will give customers real-time ability to track the location and expected delivery time for their orders.
Any relationship between Stock minority parent Wolseley Plc’s CEO shake-up yesterday, and the timing of Stock’s surfacing from BK today? [see yesterday's post].
Not really, says ProSales Webb. Wolseley removed outgoing CEO Chip Hornsby because the company needed someone to take a fall commensurate with the 75% loss in shareholder value that had occurred on his watch.
Meetings Today
We look at our Outlook Calendar. There are meetings there we never knew about before we’d checked the view of the day’s obligations. A problem with Outlook meeting scheduling is that any time slot that is not blocked out entitles someone to go in and grab you for a meeting. No discussion necessary. No picking up the phone to check on your availability. If it’s not blocked out, you’re in for the meeting.
It then becomes an offense to decline the meeting. “Your Outlook said you were available. You should organize your schedule better so that if you’re not available, others will know.”
Hmmm.
A tactic might be simply to block out all of one’s time permanently on Outlook so that someone who wants to “Invite” you into a meeting would have to pick up the phone to check on your availability.
Well, the meetings are going to happen today. One boss we had recommended this:
Our strategy for this meeting is … to get out of the meeting as soon as possible.
That one stuck, and still makes sense. Where else to turn for inspiration?
Indexed, maybe. We’d like to invite Jessica Hagy to our meetings, although she may or may not have actually been in a few.
Click to access Indexed.