Mainstream: “Promising signs for the economy!” Reality: (read here)
Last week’s economic numbers showed some lackluster and some fairly positive things on the surface. We got a first quarter GDP number showing a mere 0.1% growth. Lackluster. That’s the smallest gain in 3 years. Then near the week’s end employment numbers came out showing solid improvement down to 6.3% – the best in 2 years. Awesome, right?
Yes, those numbers are certainly better than the alternatives of a nominally shrinking GDP and increasing unemployment. BUT… what we are seeing in these numbers is an economy that the government broke and has now bought.
Further analysis shows that if you take out the effects of Fed asset purchases and other government spending, that 0.1% GDP growth is wiped out and we are put squarely in negative territory. True, state and local government spending decreased, but Federal spending saw an uptick, which is more than enough to carry big swaths of the economy. Personal spending rose 3%, but most of that was driven by higher utility payments because of cold weather and healthcare spending due to Obamacare. Also, government benefits – not regular earnings – drove the current-dollar personal income increase of 3.5%.
Many analysts have increasing fears that as Fed asset purchases continue to wind down, the stock markets have nowhere to go but down.
Well, of course. It is not healthy for an economy to be so heavily propped up by government shenanigans. Remember, governments do not produce anything, so to depend on them for economic growth is cannibalistic. For everything government pumps into the economy, it first must take from the economy in some form or fashion. So if sectors of the economy shrink when government life support is removed, it means that part of the economy wasn’t sustainable to begin with. Government is a terribly expensive middleman, too. If we could get the government to stop taking from the economy at the same time it stops giving, we would see growth – the real, solid, sustainable kind. We’re not holding our breath on that one, though.
And then to the jobs numbers: If we consider the discouraged workers and take a look at the whole employment picture, including total size of the labor force, there is actually little to be excited about. We have a shrinking labor force, not just because of waves of retirees, but people giving up and dropping out. Also, young people and students who typically enter the workforce this time of year are just not showing up. An unemployment number of 6.3% is fine, but one should not assume that means economic health. It means economic health if more people are working, and unfortunately, that is just not the case. The workforce participation rate declined last month yet again, with now more than 92 million Americans out of the labor force.
It’s all in what numbers you are looking at and what assumptions you’re making.
So while headlines may keep hammering that we’re in the black and still recovering, look beneath the surface a bit at what the numbers are really measuring (and how) before you bank on it.economy, federal reserve, gdp, jobs report, quantitative easing, unemployment