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Three recent
articles (further) undermine the notion that we're seeing a light at the end
of the tunnel.
The first
examines the so-called rebound in growth:
"Dial
911 If This Story Makes Your Eyes Bleed" (New York Post)
In order to get
to [the] 2.8 percent growth [reported last Friday,] the Commerce Department
used a very unrealistic level of inflation in its calculations.
Let me explain:
The government comes up with a figure on how much it thinks the economy grew,
or shrunk. Friday’s figure was a first estimate for the fourth quarter,
so most of the numbers used in the calculation are only guesstimates anyway.
(But that’s for a different story.)
The government
then takes that growth figure, subtracts the rate of inflation and comes up
with the real growth it reports in its press release.
So, in other
words, if inflation is rising it reduces the rate of actual, after inflation,
growth — which is the figure that Washington reports.
In
Friday’s number the government used 0.4 percent as the rate of
inflation. Zero. Point. Four. Percent.
In which
country is inflation that low? Certainly not in America. Absolutely not in
the last four months of 2011.
The consumer
price index, which is put out by the US Census Bureau, had prices up 3
percent for the year.
And the rate of
inflation used in calculating the third-quarter 2011 GDP was 2.6 percent; in
the first and second quarters, combined, the rate was 2.5 percent; it was 1.9
percent in the fourth quarter of 2010.
So how does the
Zero-Point-Four-Freakin’ percent sound now?
That’s
how Commerce got to the not-very-inspiring 2.8 percent growth it reported
last Friday.
The
second weighs in on the so-called fall in unemployment:
"Latest
Congressional Budget Outlook For 2012-2022 Released, Says Real Unemployment
Rate Is 10%" (Zero Hedge)
The
unemployment rate would be even higher than it is now had participation in
the labor force not declined as much as it has over the past few years. The
rate of participation in the labor force fell from 66 percent in 2007 to an
average of 64 percent in the second half of 2011, an
unusually large decline over so short a time. About a third of that decline
reflects factors other than the downturn, such as the aging of the baby-boom
generation. But even with those factors removed, the estimated decline in
that rate during the past four years is larger than has been typical of past
downturns, even after accounting for the greater severity of this downturn.
Had that portion of the decline in the labor force participation rate since
2007 that is attributable to neither the aging of the baby boomers nor the
downturn in the business cycle (on the basis of the experience in previous
downturns) not occurred, the unemployment rate in the fourth quarter of 2011
would have been about 1¼ percentage points higher than the actual rate
of 8.7 percent. By CBO’s estimates, the rate of labor force participation
will fall to slightly above 63 percent by 2017. The dampening effects of the
increase in tax rates in 2013 scheduled under current law and additional
retirements by baby boomers are projected to more than offset the
strengthening effects of growing demand for labor as the economy recovers
further.
And the
last discusses the so-called turnaround in the property market:
"No Hope
For Recovery As Housing Falls Deeper Down The Rabbit Hole" (Forbes)
Don’t
expect housing to contribute to the so-called economic recovery any time
soon. Home prices continue to drop month-after-month according to the
latest S&P/Case-Shiller Home Price Index in the
face of record low-mortgage interest rates, suggesting all of
Bernanke’s attempts at reviving what he considers a key sector of the
economy have been futile.
Tight lending
standards and a record high number of foreclosed properties on bank’s
balance sheets will continue to push down on prices and hamper any recovery.
The latest
Case-Shiller data, which goes up to November 2011,
shows both the 10 and 20-city composites falling further into the rabbit
hole. The 10 and 20-city indices are down 3.6% and 3.7% respectively
over the November 2010 as home prices remain stuck at mid-2003 levels.
Both indices
are barely off their lows (10-city 1% above, while 20-city barely 0.6% north
of its trough) and are down about 33% from the pre-crisis peak.
“The trend is down and there are few, if any, signs in the numbers that
a turning point is close at hand,” said index chairman David Blitzer.
Welcome to our
so-called recovery.
Michael J. Panzner
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