For those who believe, as I do, that
the U.S. economy is in far worse shape than Washington and Wall Street have
let on, here are five recent reports that cast more than a little doubt on
the official story of how things are going.
1. Inflation
"Food Inflation Kept Hidden in Tinier Bags" (New York Times)
Chips are disappearing from bags, candy
from boxes and vegetables from cans.
As an expected increase in the cost of
raw materials looms for late summer, consumers are beginning to encounter
shrinking food packages.
With unemployment still high, companies
in recent months have tried to camouflage price increases by selling their
products in tiny and tinier packages. So far, the changes are most visible at
the grocery store, where shoppers are paying the same amount, but getting
less.
...
In every economic downturn in the last
few decades, companies have reduced the size of some products, disguising
price increases and avoiding comparisons on same-size packages, before and
after an increase. Each time, the marketing campaigns are coy; this time, the
smaller versions are “greener” (packages good for the
environment) or more “portable” (little carry bags for the
takeout lifestyle) or “healthier” (fewer calories).
2. Growth
"Things Are Not as Good as They
Look" (The Aleph Blog)
[Editor's note: Curious about how the
economy was actually doing, David Merkel looked at the 4Q “Final”
GDP figures.]
After a little while I realized that we
are facing the same phenomenon as we did back in 2Q 2008, when I write the
piece, Another Look at Preliminary Second Quarter GDP. Let’s
start with the definition of Gross Domestic Purchases, which I think more
closely tracks the way average Americans feel than Gross Domestic Product
does.
Gross domestic purchases
The market value of goods and services
purchased by U.S. residents, regardless of where those goods and services
were produced. It is gross domestic product (GDP) minus net exports of goods
and services. Equivalently, it is the sum of personal consumption
expenditures (PCE), gross private domestic investment, and government
consumption expenditures and gross investment.
Source: U.S.
Bureau of Economic Analysis
Pretty simple — GDP minus net
exports equals Gross Domestic Purchases. The trouble is that import
price increases increase real GDP relative to real GD purchases.
...
In 4Q 2010 real GDP rose 3.1%, while
real Gross Domestic Purchases fell 0.2%. Why? Energy and other import
costs rose which depressed the price indexes for GDP versus Gross Domestic
Purchases.
Over the long haul, the two series are
close to equal, but when they diverge, they tell a story. The current
story is that average consumers in the US are doing badly, while those
benefiting from high corporate profits, and increasing exports are doing well.
4. Housing
"Flawed Housing Data Might Mask Depth of
Woes" (Msnbc.com)
Critics say Realtors' monthly report
overly optimistic
Two high-profile reports on home sales
this week confirmed that the housing market is still mired in a deep slump
with prices still falling and sales activity sluggish at best. In fact, the
market may be in much worse shape than even those numbers suggest.
Figures from the National Association
of Realtors that are among the most closely watched indicators on the housing
market have been called into question by economists who say they may
overstate existing-home sales activity by up to 20 percent.
"It's very important for the
industry but also for policy makers," said Mike Fratantoni, head of
research at the Mortgage Bankers Association, one of the groups that is
challenging the Realtors' data.
"Folks at the Fed and at the
Treasury and anyone involved in economic policy throughout government are
very concerned about the health of the housing market. So if your primary
indicator is giving you an overly optimistic reading, that's cause for
concern," he said.
The Realtors, a trade group of licensed
real estate agents and brokers, concede that there has probably been some
"upward drift" in its numbers since the unprecedented collapse of
the housing market in 2006.
4. Unemployment
"Hidden Workforce Challenges Domestic
Economic Recovery" (Washington Post)
Overshadowing the nation’s
economic recovery is not only the number of Americans who have lost their
jobs, but also those who have stopped looking for new ones.
These workers are not counted in the
Labor Department’s monthly unemployment rate, yet they say they are
willing to work. Since the recession began, their numbers have grown by 30 percent,
to more than 6.4 million, amounting to a hidden labor
force that could stymie the turnaround.
Adding these workers to
February’s jobless rate pushes it up to 10.5 percent, well above the more
commonly cited 8.9 percent rate.An even broader measure of
unemployment, which includes people forced to work part time, stands at
nearly 16 percent.
Economists say the longer these workers
stay out of the job market, the harder it will be for them to find
employment, creating a vicious circle that can spiral for months or longer.
Meanwhile, their delayed entry into the job market means smaller paychecks in
the future. And if these ranks remain high, economists worry that it will
signal a much deeper and more troubling problem for the country:
Workers’ skills don’t match the jobs available.
“It can be a self-reinforcing
problem, where it just gets worse over time,” said Burt Barnow, an
economist and professor at George Washington University.
Part of the reason these workers are
not factored into the unemployment rate is a technical quirk: Workers are
counted as unemployed only if they are actively job-hunting. Otherwise, they
are considered outside of the labor force altogether.
5. Productivity
"How Much of the Productivity Surge of
2007-2009 Was Real?" (Mandel on Innovation and Growth)
In the 2007-2009 period, the U.S.
economy experienced its worst recession since the Great Depression.
Nevertheless, despite this deep downturn, the near-collapse of the
financial system and unprecedented global economic turmoil, U.S.
productivity growth actually seemed to accelerate in the 2007-2009 period, or
at least maintain its previous pace.
The 2007-2009 productivity gain had a
major impact on both economic policy and political discourse. First, it
gave the Fed a free hand to feed mammoth amounts of liquidity into the system
without worrying about inflation. Second, it convinced the economists
of the Obama Administration that the economy was basically sound, and that
the big problem was a demand shortfall. That’s why they expected things
to get back to normal after the fiscal stimulus.
However, I’m going to show in
this post that the productivity gain of 2007-2009 is highly
suspect. Using BEA statistics, I identify the industries that
contributed the most to the apparent productivity gain, including primary
metals, mining, agriculture, and computers and electronic products. Then I
analyze these high-productivity growth industries in detail using
physical measures such as barrels of oil and tons of steel. I conclude
these ‘high-productivity’ industries did not deliver the gains
that the official numbers show.
Based on my analysis, I estimate that
the actual productivity gains in 2007-2009 may have been very close to
zero. In addition, the drop in real GDP in this period was probably
significantly larger than the numbers showed. I then explore some implications for
economic policy.
Michael
J. Panzner
Editor, Financialarmageddon.com
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