The Economy: Some Good News?
Jan 29th, 2010 | 17 responses
I am not an economist, so I cannot comment in depth as to the “real” meaning and consequences of what I believe is some real good news that I read this morning about our economy, our country.
The New York Times and several other publications report that the U.S. economy grew at its fastest pace in over six years during the last quarter:
Gross domestic product expanded at an annual rate of 5.7 percent in the fourth quarter, well above analysts’ expectations. It had grown at an annualized rate of 2.2 percent in the previous quarter. Analysts had forecast annualized growth of 4.8 percent in the quarter.
The biggest lift to economic activity came because businesses ran down their stockrooms at a much slower rate than they had earlier in the year. The change in inventories added 3.39 percentage points to the fourth-quarter change.
Regrettably, the job market is still dismal: “On net, the economy lost 208,000 nonfarm payroll jobs last quarter.”
However,
Perhaps the most promising trend, at least for job growth, to come out of Friday’s report was the pickup in equipment and software spending. Businesses increased their investment in these areas at an annualized rate of 13.3 percent last quarter, compared with an increase of 1.5 percent in the third quarter.
I look forward to posts and comments by our more knowledgeable contributors and readers as to what this development really means—hopefully without too much politics.
17 Responses to “The Economy: Some Good News?”
IMHO there is no “recovery” until we start gaining jobs. It might be 2011 until we have a positive quarter.
Totally unfderstand, shannonlee. Foer those who are unemployed there will be no recovery until that paycheck starts coming in again. However, the Times article does mention a “promising trend” for jobs??
One of the problems of gauging economic growth is that the economy, like politics, is all local. Because of the unprecedented effort put into propping up the financial sector, we're in a position where history can't help us. How can an economy grow when almost 1/5th of the willing workforce isn't working (the 10% unemployment figure is a known lie, and shouldn't be repeated)?
It's a wait-and-see economy right now. One decent quarter, followed by one good quarter, combined with a fair recovery in the stock market in the last 10 months holds some promise. The snake in the wood pile is trying to figure out if pending problems like a commercial real estate bust or a credit card bust can be avoided to keep moving forward.
Any promising trends are good news, but I agree with others; none of this means anything to anybody who doesn't have a job. Maybe the reason why the last quarter was somewhat promising is because so many companies gave the axe to their employees throughout the year. When you no longer have to pay all those salaries, you should see an increase in your profit margin.
It's hard to find details, since most articles are focusing on whether this will help Obama or not instead of looking at the numbers, but it looks like the gain is mostly from businesses building inventory. That is good news since theoretically it reflects optimism which will lead eventually to increased hiring.
A few months ago, I wrote here my short term investment policy was tied directly to labor productivity stats.
That has served me well and I believe accounts for the inventory rebuilding you speak of. There comes a point where that tails off though without a significant structural shift……..the extent of which is always hard to forecast (because this is stuff that didn't exist in the past). Nonetheless, since 1980 or so, each downturn has fostered some degree of structural shift and I think we will again see more this time around. That means intellectual capital “jobs” (read professional and business services) will grow, but manufacturing and construction will not.
The participation rate the Professor refers to hides more than just a statistical issue. It is also reflective of the fact that there is not only an unemployed contingent, but an unemployable contingent as well. The “improvement” in business climate will increase the participation rate, but that will simultaneously continue upwards pressure on the unemployment rate I say for two more full years. Net of new job growth in the appropriate sectors and I think the next two years might move the published rate down to 8.5%.
It is probably extended unemployment comp or EPA jobs for the rest……by the paycheck will come from the same source.
I am no expert of the economy, (I'm sure I'll get lots of agreement) but early on, when Wall Street blew up, I conjectured that the unemployment tipping point for our economy was 10%. That figure seemed like a logical place where a service economy finds that those unemployed is great enough that they cut back on service purchases.
I've always seen a service economy as a kind of round robin where a circle of people keep passing the same dollar bill around. The lawn service guy gets a haircut, the barber gets insurance, and the insurance agent gets his lawn done….. Obviously, this is greatly simplified.
I can cite no great economist for this belief, but it seems to fit our current situation. The economy did not go up because things built in American factories started selling; in fact, the economy went up discordant to anything actually being produced and the labor force actually lessened.
The service industry does seem to self-perpetuate once it's up and going, but like now, inertia has stopped the financial hot potato that a service economy relies upon.
Like I said, I may be wrong.
Good news to be sure but lets not break out the party hats just yet. From MSNBC:
GDP data overstates economy's health
A closer look at 5.7 percent gain for 2009's fourth quarter
By John W. Schoen
Senior producer
msnbc.com
http://www.msnbc.msn.com/id/35149367/ns/busines…
But hey 2.2 is still in the positive and thats a very good thing even if not 5.7.
We know there's no real recovery yet, or at least no recovery's effects that we're experiencing. The proof: There is no media hype and hosannahs for Obama and the Dems for their miraculous economic recovery, that we would be told about incessently.
WSJ – Wage and Benefit Growth Hits Historic Low
The Cheap Labor Conservatives are loving it…
You can tell Cheap Labor Conservatives aren't running government:
“State and local government workers' compensation in 2009 grew 2.4%, twice the pace of the 1.2% increases in the private sector. State and local government employees' compensation has outpaced private-sector increases for the past few years.”
EPA jobs for those laid off when industry locates to China due to a “cap and trade” scheme or to a “carbon tax”: Is that the answer?
Compensation includes health care benefits. Therefore if the cost of those benefits goes up then compensation “increases”.
“if the cost of those benefits goes up then compensation 'increases'”
… and becomes a Dem tax target, discouraging “overuse” (at the same time, generous minimum benefit “packages” and preventive care are sought!).
At least this past year, imputed rents of owner-occupied housing hasn't been added to taxable income (with upward-ratcheted rates, never to reverse direction, as prices decline or stay low).
No, it does not become a Democratic tax target because as currently designed the proposals take into account increases due to insurance policy/health care inflation.
These high-cost plans did become a tax target, and what happened in the end was that unions got a special break. In case you missed the news of the break as well as the long-known news about the high-cost plans (“Cadillac” plans) being targeted (Baucus's comments about overuse were common news, as well, and Baucus had earlier exempted some unionized workers from his proposed tax), the unions' special deal is described in the article linked below.
http://online.wsj.com/article/SB200014240527487…
The tax on high-cost plans was such a news item in and of itself, there even were articles about these plans (see below) as well as on the twists and turns of the tax. It remained aimed at high-cost plans.
http://localhealthguideonline.com/cadillac-insu…
http://swampland.blogs.time.com/2009/09/22/bauc…
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