I came across this little piece in the NYPost discussing the sluggish economy and the arbitrary numbers that come out of the Labor Department. It starts off discussing the 1st Quarter GDP contraction, which stumped many “economists”, and even went so far as to possibly blame the algorithms themselves by which the government analyzes 1st Quarter numbers. Because it certainly couldn’t be domestic policies, could it?
This writer posits that we could indeed be on the bring of a recession, the definition of which is 2 straight quarters of economic contraction, and points out something fairly obvious. People just don’t have a lot of money to spend. I concur this is a major part of assessing the health of an economy, although I would argue that investment spending spurs economic growth even more than consumptive spending, which is this writers argument. Putting that aside, however, he does a decent job pointing out the concerns about the economy that we should all be paying attention to. Here’s the article and food for thought below:
“Anyone with even a quarter of a brain now understands that the US economy got off to a bad start this year.
There was an economic contraction in the first three months — when the nation’s gross domestic product fell at an annualized rate of 0.7 percent — that some quarter-brainers are still blaming on the cold weather, strikes at ports, the strong dollar, solar flares, Martian landings and (insert your own poor excuse here).
The truth: Most of these excuses are part of the problem, although I didn’t personally see or not see the Martians.
But the biggest part is that people don’t have enough money to spend. Interest from savings is down to zero, people don’t liquidate stock gains to make purchases, and job and income growth has been sketchy.
The economy isn’t doing much better in the current quarter either. The Federal Reserve Bank of Atlanta, an independent observer if ever there was one, measures growth so far in the second quarter at an annual rate of just 1.1 percent. That means growth — un-annualized — is a paltry 0.275 percent with less than four weeks left in the quarter.
It’s quite possible that we will eventually be told, after all revisions are made, that the economy met the official definition of a recession in the first half of 2015, which is two straight quarters of contractions.
But the quarter-brainers will probably get something to cheer about when Friday’s employment numbers come out. And, if they don’t strain their quarter-brains looking too deeply into the numbers, they could come away with a smile that can only happen because ignorance is bliss.
Wall Street expects the Labor Department to report that 235,000 new jobs were created in May. That would be higher than the 223,000 new jobs that — before any revisions are made — were created in April.
I’ve written before about the so-called birth/death model, which is the government’s fist-on-the-scale way of adding jobs they assume but can’t prove exist when new companies suddenly come into business in springtime.
The only problem is, entrepreneurs — especially those just starting out and risking their own capital — aren’t very daring when it’s clear to everyone that the economy isn’t doing well. So maybe, just maybe, there are more companies dying this spring than being born.
Labor must be having some second thoughts about the validity of that model since it guessed that only 213,000 phantom jobs were created by newly born companies in April. That’s way down from the 263,000-phantom-job guesstimate in April 2014.
The guesstimate for May should still be substantial. In May of 2014, Labor’s phantom jobs guesstimate added 204,000 jobs. Even if that’s been adjusted downward, this will still give a nice boost to the job growth that will be reported Friday.
There’s no guarantee, of course, that Friday’s number will be good. Any number of things could go wrong. Seasonal adjustments could hurt Friday’s number. And, of course, companies could have actually cut jobs in April. There were plenty of announcements of such cuts.
So, will Wall Street get the 235,000-job growth it expects? I say there’s a 60 percent chance Friday’s number meets or exceeds that guess.
But even if you guess right on Friday’s jobs figure, the prize could be elusive. Most folks don’t know how Wall Street will react to a better-than-expected number. If the figure is too strong, it’ll causes interest rates to rise and bond prices to fall in anticipation that the Federal Reserve’s interest rate hike is back on the table. If the number is weaker than expected, even the quarter-brainers will start worrying the economy is tanking.”