Summary: today’s post is another helping you more clearly see the present. We look at the condition of the US economy in pictures, cutting through the statistical noise and economists’ hopes that fog our vision. It’s easy to see, if we try. When we decide to try, America will become a different (and better) nation.
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During the past 4 years I have reported (& predicted) that the US economy has remained locked into slow growth, vulnerable to a shock (perhaps knocking it into recession), despite constant forecasts of acceleration coming really soon — returning us to normal growth.
If we had accurate newspapers, most economic reports would read like this:
The new economic data released today — the XXXX number — came in slightly less than expected by the consensus of economists, continuing its stable slow growth since early 2011. The monthly numbers change, but the trend does not. Also unchanged are economists’ assurances that the economy will accelerate during the next few quarters.
We often obscure this slow growth by reporting the change in terms of absolute numbers rather than percentages (since the population and economy grow over time, the same number represents a smaller percent change over).
News without the fake drama — would it sell advertisements? Or rather, we get the quality of news that we refuse to pay for.
This week the government released major new economic data. As always, analysis focused on tiny monthly changes (i.e., statistical noise) that support their forecasts, pretending to be ignorant of the tools to show statistical significance. And conservative financial “experts” whined about the large revisions made to past data (amnesiac about their complaints that the government taxes and spends too much, and the resulting gross underfunding of the vital government statistical agencies — our eyes by which to see the world.
So what did we learn?
(1) Real Gross Domestic Product
Let’s look at real GDP excluding inventory swings (which mask the trend), also called Real Final Sales. It has run at 2% per year for the past 3 years (starting Q2 2011). The month-on-month per cent change shows the trend, if you are familiar with such graphs.
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The same numbers shown as percent change since a year ago (YoY, year-on-year change) more easily shows the trend — flat for 4 years — but will more slowly show the eventual change in the trend.
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To evaluate this we need to see more years. Growth has been quite slow, slower than any previous recovery on record (data goes back to the 1930s).
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(2) Jobs jobs jobs
Perhaps the most important single economic metric is the number of jobs created (change in total non-farm employment). Same trend: slow growth since early 2011.
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As always, looking at this as YoY changes better shows the trend. The flat trend.
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How does job growth in this recovery compare to past cycles? Slower than usual, much like that after the 2001 recession.
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(3) Wage inflation
What about the fears of “wage inflation”: some of the productivity gains going to workers, instead of all to profits? After years of compensation growing far more slowly than productivity or profits, it rose in Q2. Fluke? Trend? It’s too soon to say. But not too soon for corporate leaders and their shills to begin compaining.
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For More Information
(a) Analysts look at the recent economic statistics:
- “Unemployment and the ‘Skills Mismatch’ Story: Overblown and Unpersuasive“. Gary Burtless, Brookings Institute, 20 July 2014
- “What Is Being Left Out of the ‘Inarguable’ Payroll Expansion Is Far More Important“, Alhambra Investment Partners, 1 August 2014
(b) Other recent forecasts and warnings:
- What can we expect from the US economy in 2014?, 21 February 2014
- Status report on the US economy: stand by for the boom!, 24 April 2014
- The next industrial revolution starts. Beware the Pied Pipers who lull us into passivity., 8 July 2014
- Economists forecast a boom soon. The numbers show slowing. Who is right?, 21 July 2014
(c) Looking further ahead, our longer-term prospects seem challenging, as described in these posts:
- The dilemma of the US economy: can’t take off & too close to the brink, 9 July 2014
- Has America’s economy entered the “coffin corner”?, 10 July 2014
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I would like FM to listen to David Foster Wallace’s speech entitled This Is Water. The link is below.
http://www.youtube.com/watch?v=dexIA_OfLzg
I listen to this frequently and think it has some relevance to the focus in your last several posts about messaging/myth/awareness.
I would be curious to hear your views on the speech. If you have seen or discussed this previously, i apologize. I found no reference to it after searching the site.
Ed,
Thank you for posting this.
Here is a transcript (not necessarily of the same version in the YouTube):
http://web.ics.purdue.edu/~drkelly/DFWKenyonAddress2005.pdf
Here is the Wikipedia entry:
http://en.m.wikipedia.org/wiki/This_Is_Water
For better or worse, the spoken word, and this one in particular, is more powerful for me.
Ed,
People assimilate info differently: some are better at auditory, some visual, some kinesthetic.
An important development is this work:
http://debt-economics.org/
Which summarizes data collected by an ex credit card mogul. The data unequivocally shows that private sector debt expands faster than GDP as a reliable predictor of financial crises. This lends further credence to the notion that loanable funds is a wrong approach to macroeconomic theory. Debt does matter and it matters lots more than through subtle variances in marginal proclivity to save as suggested by Krugman. We can debate the underlying mechanism but the empirical data says private sector debt really matters. It’s past time to reconsider our macroeconomic thinking as well as the limited policy choices this current thinking implies. The study author proposes to force banks to write down and restructure large swaths of private debt but that they be allowed to take the write down over thirty years. Speaking as an ex banker he thinks this might fly. We need more of this kind of thinking IMO.
Peter,
I agree that the treatment of debt is one of the frontiers in macroeconomics, and one of the limitations of the current Keynesian paradigm.
Where is the evidence that government statistical agencies are grossly underfunded?
Anthony,
(1) Congressional testimony of the agencies’ officials.
(2). Their replies to incessant complaints about the accuracy of the numbers, complaints by people who see the need for better numbers — but seen unaware that we get what we pay for.
(3) Look at their budgets’ change since 1982, when Congress adopted budget cuts as a hobby — and discovered that these agencies had no vast powerful lobbyists defending them.
(4) Personal communication over the past 2 decades with them, begun when I called to complain (see #2 above).
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