Economists say Falling Inventories, Steady Unemployment and Shrinking GDP is actually Good News

Posted by PITHOCRATES - February 2nd, 2013

Weekin Review

There is a slew of bad economic news but you wouldn’t know that if you listened to the economists.  Who say that this bad news is some of the best news bad news can be.  Even with unemployment rate ticking up slightly and GDP shrinking they still see the glass is half full.  Eternal Keynesian optimists they are.  But even their explanations are cause for concern (see US economy shrinks 0.1 pct., 1st time in 3 ½ years by Christopher s. Rugaber, Associated Press, posted 1/30/2013 on Yahoo! Finance).

The U.S. economy shrank from October through December for the first time since the recession ended, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles. The decline occurred despite faster growth in consumer spending and business investment.

The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That’s a sharp slowdown from the 3.1 percent growth rate in the July-September quarter and the first contraction since the second quarter of 2009.

Economists said the surprise decrease in the nation’s gross domestic product wasn’t as bad as it looked. The weakness was primarily the result of one-time factors. Government spending cuts and slower inventory growth subtracted a total of 2.6 percentage points from growth.

Those volatile categories offset a 2.2 percent increase in consumer spending, up from only 1.6 percent in the previous quarter. And business spending on equipment and software rose after shrinking over the summer…

Subpar growth has held back hiring. The economy has created about 150,000 jobs a month, on average, for the past two years. That’s barely enough to reduce the unemployment rate, which has been 7.8 percent for the past two months.

Keynesians focus on consumer spending.  For them an increase in consumer spending equals a healthy economy.  Despite that economy shrinking by 0.1%.  They explain that away as just being a fall in inventories.  As if businesses will go back to increasing their inventories in the next reporting period.  Making everything fine once again.  But if non-Keynesians take all of this data together they arrive at a different conclusion.  The economy is bad.  And will be getting worse.

Consumer spending rose while inventories fell.  And no one is hiring.  What does this mean?  Businesses above the retail level (wholesalers, manufacturers, industrial processors, raw material extraction, etc.) don’t like what they see.  So they’re cutting back production.  They’re not expanding or hiring people.  With these businesses producing less there is less product flowing into inventories.  With less flowing in while there’s more flowing out inventory levels fall.  Which eventually will lead to higher retail prices as goods become scarcer.  Leading to a fall in consumer spending.  And less hiring at the retail level.

So what does this mean?  Businesses above the retail level see a recession coming.  And they’re already hunkering down to limit their losses.

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Consumer Confidence falls as President Obama’s Policies fail Economically but succeed Politically

Posted by PITHOCRATES - February 2nd, 2013

Week in Review

If you watch any reporting on the economic news chances are you’re a little confused.  Apple posts record profits and its stock price slides.  The Dow Jones Industrial Average broke 14,000 despite an uptick in the official unemployment rate.  Democrats talk about how great the economy is despite some 8 million people dropping out of the labor market since President Obama took office because they can’t find a job.  And the U-6 Unemployment rate that measures everyone who can’t find a job is holding steady at 14.4%.  The Democrats can spin the economic news all they want but it doesn’t change the numbers.  And they’re not fooling the people (see Consumer confidence drops to lowest level since November 2011 by Ricardo Lopez posted 1/29/2013 on the Los Angeles Times).

Consumer confidence continued to slip in January, falling to its lowest level since November 2011, the Conference Board said Tuesday…

The index, based on a compilation of consumer polls, found that those claiming business conditions are “good” declined from 17.2% to 16.7%. On the labor market front, those claiming jobs were “plentiful” declined to more than 2 points to 8.6%.

The economy sucks.  Despite the trillions in new government spending.  And it’s only going to get worse now that the 2% payroll tax cut has expired.  And more of the Obamacare taxes hit the American people.

Obama’s economic policies have failed.  If you measure success with things like the unemployment rate, job creation and consumer confidence.  Of course if you measure by a different metric one could say Obama’s policies have been a great success.  Politically.  Especially if people keep demanding the government do something to fix the economy.  And if they never fix the economy the people will always demand that the government do something.  Which is what those in government want.   People demanding for more government.  So by this metric the Obama policies have been a great success.  Because they have been a great failure.  Economically.

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The Obama Administration says we’re Moving in the Right Direction Despite 30 Months of Bad Economic Reports

Posted by PITHOCRATES - July 7th, 2012

Week in Review

The economic news is in.  And it’s not good.  Again.  But the Obama administration says that’s it important not to read too much into one monthly report.  Again (see Obama: 30 months of excusing bad jobs numbers by Byron York posted 7/6/2012 on The Washington Examiner).

The Obama White House says Americans should not “read too much into” the latest bad news from the jobs front.  Employers added just 80,000 new jobs in June — far fewer than needed for a healthy recovery — and the unemployment rate stayed at 8.2 percent.

Not long after the new figures were released, the White House sent out a statement from Alan Krueger, chairman of the Council of Economic Advisers.  Facing a bleak situation yet again, Krueger said, “It is important not to read too much into any one monthly report.”

If that sounds familiar, it is because that is what the Obama White House has said during month after month of troubling economic reports.  The White House has said it so often, in fact, that the Romney campaign has compiled a list of 30 — yes, 30 — examples, going back to November 2009, of the administration cautioning that Americans should not “read too much into” the latest bad economic news.

But when these ‘any one monthly reports’ repeat for some 30 consecutive months I’m thinking we can read a lot in these monthly reports.  When coupled with the rosy economic spin they put on (like the Recover Summer back in 2010) you can make but one conclusion.  The Obama administration doesn’t understand a thing about economics.  Which is why three and half years of their programs have resulted in nothing but ‘we shouldn’t read too much into these monthly reports’.

A failure period lasting some 30 months?  I think the real danger is if we don’t read too much into these reports.  For up to now there is a perfect correlation between these horrible economic reports and President Obama’s time in office.  Perhaps if we vote one out we can remove the other.  And get some better economic news.  Sometime following the 2012 election.

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Debt Ceiling Debate is Masking the Horrific Economic News

Posted by PITHOCRATES - July 29th, 2011

The Meaning of Bipartisan Depends on your Point of View; on the Right it means Compromise whereas on the Left it means Unconditional Surrender.

In the budget debate to raise the debt ceiling, both sides have dug in.  The Left says the Right is being intransigent.  Saying they are unwilling to compromise.  Even though they have done far less in the compromise department themselves.  They want to raise taxes.  They want to borrow more.  And they will not compromise on these positions.  They refuse to pass any Republican bill in the Senate (and President Obama says he will veto any bill that makes it through the Senate) unless it completely gives way to the Democrat position. 

All the while this theatre is playing out credit rating agencies are lining up to downgrade U.S. sovereign debt due to excessive deficits, debt and out of control government spending.  Unless they see at least $4 trillion in real spending cuts (not promised cuts that never happen or baseline ‘spending cuts’ that still increase spending), the downgrades are a fait accompli.  At least according to an S&P report.

If they’re that Bad at Analyzing Data do we really want them Tweaking the Economy?

As cheerful as all that is at least we can look forward to some upbeat economic news.  Just like Obama, Biden, Bernanke, Geithner, et al have been promising with all their economic tweaks to win the future.  And the result of all that vey extensive and very expensive tweaking?  Hmm.  What would be a good choice of words?  How about abject failure (see Economy in U.S. Grows Less Than Forecast After Almost Stalling by Shobhana Chandra posted 7/29/2011 on Bloomberg)? 

Revisions to GDP figures going back to 2003 showed that the 2007-2009 recession took a bigger bite out of the economy than previously estimated and the recovery lost momentum throughout 2010. The world’s largest economy shrank 5.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the previously reported 4.1 percent drop. The second-worst contraction in the post-World War II era was a 3.7 percent decline in 1957-58.

The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, climbed at a 2.1 percent pace, the most since the last three months of 2009, compared with 1.6 percent in the first quarter, as higher oil and food costs pushed up the prices of other goods and services. The central bank’s longer-term projection is a range of 1.7 percent to 2 percent.

“This is the worst of all worlds for investors, certainly the worst of all worlds for the Fed,” John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said in an interview on Bloomberg Television. “A little too much inflation, not enough growth, that is a tough scenario in the U.S.”

Of course, they’ll say it was even worse than they thought.  Again.  Blame George W. Bush.  Again.  Which doesn’t fill one with a lot of confidence.  For if they’re that bad at analyzing data, do we really want them tweaking the economy?

Still, they keep telling us how bad things would have been if they didn’t act?  Why, there’d be dingoes running in the streets eating our babies.  To be honest, we’re tired of hearing about how many jobs they created and saved.  We’d probably be further ahead today if we’d taken the chance with the dingoes and they left the economy alone.

The Obama Social Engineering is giving us Carter Stagflation

Inflation.  And low GDP growth.  That is a horrible combination.  But it’s what you get when you try to use monetary policy to fix fiscal problems (see Forget About The Debt Ceiling Debate, Where’s The Economic Growth? by Kevin Mahin posted 7/29/2011 on Forbes). 

I recognize that the debt ceiling debate may make for interesting political theatre for some.  I also recognize that the spending and revenue issues underlying the debate need to be addressed sooner than later.  However,  the heightened threat of stagflation*, now present in the system, is of paramount concern to me.

*Stagflation is a financial term often used to describe an environment where inflation (i.e. prices) is high and economic growth is low.  Periods of stagflation have historically been accompanied by high unemployment as well.

We are fast approaching the malaise of the Carter stagflation.  We need fiscal policy that is conducive to creating jobs.  Instead, this administration is more concerned about social engineering at the expense of job creation.

Killing the American Automotive Industry and Killing Americans

For all the talk about the auto bailouts to save American jobs, the latest policy appears to want to kill American jobs.  When the auto industry is suffering anemic growth, the Obama administration just made it harder to be in the auto industry by raising fuel efficiency standards to 54.5 miles per gallon by 2025 (see Obama to unveil auto fuel rule deal by David Shepardson posted 7/29/2011 on The Detroit News). 

The deal would extend a May 2009 agreement that boosted fuel efficiency standards to 34.1 mpg by 2016, costing the auto industry $51.5 billion over five years.

In the current budget debates, Obama keeps saying that because of the slow economic recovery we shouldn’t go on a cost cutting spree.  That would only pull consumer spending out of the economy.  Of course he has no such empathy for the struggling auto industry.  He’s more than willing to raise their cost of doing business.  Killing jobs in the process.

Incidentally, there are only two ways to squeeze this kind of mileage out of a car.  Making it so light that it (and its passengers) would probably not survive most accidents.  Or being unable to build a car to meet this standard.

Gas Prices must Rise to between $4.50-$5.50 for the Electric Car to Succeed

But what on earth would be the reason to enact standards that automakers can’t meet?  Well, how about this (see Gas must hit $4.50 to make electric cars cost-effective by Joel Gehrke posted 7/29/2011 on the Washington Examiner)? 

Gas prices must rise to between $4.50-$5.50, the study authors suggest, for electric vehicles to become less expensive to own than gas-powered vehicles…

Of course, this omits the other method of making electric cars competitive — enact fuel efficiency standards that make gas-powered vehicles illegal to make or impossibly expensive. Given President Obama’s announcement today that fuel economy standards are set to rise to 54.5 mpg between 2017 and 2025, it seems that the electric vehicle industry is getting the government props necessary to make consumers buy the cars.

This is not how you increase domestic auto output.  Or create jobs.  This is how you change human behavior.  By forcing people to act against their will.  And in the process making us all poorer by increasing the cost of food.  How?  Gasoline and diesel are a big component of food costs.  For it takes fuel to grow food.  And to bring it to market.

The One Thing the Obama Administration is Good At

It makes you think.  Is all of this debt ceiling debate pure theatre to distract us from the destruction of the economy?  Because this destruction is pretty good as far as destruction goes.  You probably couldn’t have done a better job if you tried.  Which begs the question was this all planned?  A social reengineering of the United States brought about by the destruction of the U.S. economy? 

If so, at least you can say there was one thing the Obama administration was good at.

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The Recession Lingers on Despite the 2010 Recovery Summer

Posted by PITHOCRATES - June 1st, 2011

Manufacturing Report comes in below Expectations

There’s a lot of economic news coming out now.  None of it good.  Especially the manufacturing data (see ISM Joins Disappointment Parade, Lowest Since Sept. ’09 by Mark Gongloff posted 6/1/2011 on The Wall Street Journal).

May’s ISM manufacturing report came in at 53.5, below expectations of about 57, and down from 60.4 last month.

This is the 10th-biggest drop on record (going back to 1948) for the ISM, outpoints Kelly Evans, and it’s now at the lowest level since September 2009.

The lowest level since 2009?  Funny.  Because we had the Recovery Summer in 2010.  What, are we driving the economic recovery backwards? 

A leading indicator of factory activity, the index for new orders minus the index for inventories, fell sharply to its lowest level since November.

Remember, this is a key indicator for the stock market. It joins the parade of disappointing data lately, including this morning’s ADP report, which have economists rushing to downgrade their estimates for second-quarter GDP growth and for Friday’s jobs report.

We’re also talking about what has been a pillar of the recovery shaking. This will keep that QE3 talk going.

The 10-year Treasury yield, which dipped below 3% just before the report, is now at 2.98%. Wow.

Wow indeed.  And a year following the Recovery Summer.  Everything that should be up is down.  And everything that should be down is up.  To borrow a little politicking from Al Gore

QE3?  Why?  Because QE1 and QE2 did such a fantastic job?  I’m being sarcastic, of course.  Because if quantitative easing worked we wouldn’t have needed QE2 let alone a QE3.  Which just goes to prove that monetary policy is not a magical economic elixir.  Printing money to make it dirt cheap to loan doesn’t create jobs.  And you need a job if you’re going to buy manufacturers goods.  And manufacturers need people to have jobs before they consider adding jobs themselves.  Because they’re not going to manufacture more stuff when no one has the money to buy the stuff they’re already making.

Construction Spending is Down, Too

Yes, jobs are everything.  Jobs make customers.  People who have money to buy stuff.  If they don’t have a job, they don’t have disposable cash.  To buy the things manufacturers make.  And there just isn’t any good news about jobs (see Stocks Fall on Jobs, Manufacturing Data by Steven Russolillo posted 6/1/2011 on The Wall Street Journal).

The slowdown in manufacturing activity follows a much weaker-than-expected employment report. Private-sector jobs in the U.S. rose by just 38,000 last month, according to a national employment report published by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. The figure came in well below the gain of 190,000 economists had anticipated.

Additionally, construction spending in the U.S. rose 0.4% in April, ahead of economists’ expectations. But the figure was revised sharply downward the month before, confirming that the sector remains a drag on the struggling economy.

Wednesday’s data follows a string of data that indicate the U.S. economy struggled in May. Regional factory reports were weak, jobless claims remained high and the Conference Board’s consumer-confidence index fell sharply last month.

And they’ve revised construction spending down.  That means businesses aren’t expanding.  And developers aren’t building new homes.  Why?  Because there is no market demand to do so.  So they don’t.  Again, this a year after the Recovery Summer.  Things should have been looking a lot better today.  But they don’t.  Instead, now is the winter of our discontent.  Not made glorious by the Recovery Summer. 

And it gets worse.

Jobs Down, Too

Employers plan to cut jobs.  And mortgage applications are down (see Private payrolls disappoint, add 38,000 jobs in May by Reuters posted 6/1/2011 on the Los Angeles Times).

Employers announced 37,135 planned job cuts last month, up 1.8 percent from 36,490 in April, according to a report from consultants Challenger, Gray & Christmas Inc.

The housing market, meanwhile, continued to struggle as a report from an industry group showed applications for U.S. home mortgages fell last week, pulled lower by a decline in refinancing demand.

Recovery Summer, wherefore art thou?

The Recovery Summer

So what about that Recovery Summer?  What exactly was it supposed to do?  And did it (see Obama, Biden declare ‘Recovery Summer’ by Mike Allen posted 6/17/2010 on POLITICO)?

[David] Axelrod [a senior adviser to the president] continued: “In the face of the greatest economic crisis since the Great Depression, Republicans in Congress chose to play politics with economic recovery and declared the Recovery Act a failure before it even began. They made a cynical bet that if the President fails, they win. Democrats chose to act by tackling the crisis head-on. Just over a year later, the Recovery Act is putting millions of Americans to work and helping the economy grow again. But our work is far from over:”

Kevin Smith, a spokesman for House Minority Leader John Boehner (R-Ohio), responded: “The president’s trillion-dollar ‘stimulus’ has failed to meet his most basic promises on job creation, and Axelrod knows that. We’ve lost 3 million jobs since the ‘stimulus’ was enacted. Yet another desperate sales pitch about the virtues of massive government spending and piling up more debt on our kids and grandkids isn’t going to fool anyone.”

The vice president on Thursday will present Obama with a report laying out a spike in stimulus activity this summer, and how it will contribute to a steady climb to a total of 3.5 million Recovery Act jobs by the end of the year.

Well, it’s fair to say Axelrod et al were wrong.  In a big way.  That trillion dollar stimulus did nothing.  Except add a trillion to the deficit.  And the debt.  It didn’t end the recession.  It appears to only have extended the recession.  Because truth be told, there was no Recovery Summer.  The United States is still in recession.  At least, based on the economic data.  And based on this data, it isn’t coming out of recession any time soon.

Oh, woe is we.

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