Zeev's Turnips Patch-No Politics (ZEEV)

[Lane Hall-Witt]

The Beige Book showed once again how utterly dependent we are on the auto industry, which along with housing is one of the few areas of strong economic activity. What's scary about this is that the UAW contract with the Big Three will expire next September, and the Big Three is going to cut back dramatically on capacity -- with five- or six-figure layoffs and an end to the wild-eyed incentives that have allowed them to move product during the past year. Each assembly-line layoff is estimated to cause at least four more upstream and downstream layoffs along the supply chain, so there's a major employment hit coming among some of the best-paid wage-earners in the country. We're also going to get a big double-whammy on the consumption side, as these laid-off workers will be forced to cut back and as the auto makers discontinue their post-911 practice of selling cars at or below cost.

For the past year, the Big Three has essentially subsidized the entire U.S. economy, propping up employment and consumption at higher levels than "the market" would dictate. But this is about to come to an end--.