Everything is getting better (by which we mean “worse”)
It’s called recession dating, but you can’t find it by going to E-Harmony…
The GDP numbers are out for the period April 2009 to June 2009, and the movers and shakers – and assorted wannabees, hanger-ons, and cheerleaders – are out to convince you that the bottom is in.
Every sector of the economy shrunk except Washington and its printing presses – every sector!
- Companies are showing profits by shedding workers like a cheap suit at the end of a long work day.
- International trade has fallen off the radar.
- Private investment has the vapors.
- Consumer spending (the only measure of consumer confidence that counts) is still plummeting.
- The United States registered four quarters of GDP decline for the first time in post-war history.
- GDP in the already horrible first quarter – January 2009 to March 2009 – was revised downward by an additional 16 percent!
The situation is so awful one analyst actually had the balls to observe that business investment has to improve because inventory drawdowns were so severe.
There was one bright spot in the report:
Real federal government consumption expenditures and gross investment increased 10.9 percent in the second quarter, in contrast to a decrease of 4.3 percent in the first. National defense increased 13.3 percent, in contrast to a decrease of 5.1 percent. Nondefense increased 6.0 percent, in contrast to a decrease of 2.5 percent. Real state and local government consumption expenditures and gross investment increased 2.4 percent, in contrast to a decrease of 1.5 percent.
Isn’t it nice to know the Messiah is doing everything he can to boost the economy by girding up for World War III! Remote pilots for Predator drones are fully employed laying waste to Afghan villages.
The pressure is on to call this recession over and done with – this much can be seen given the speed with which the news outlets moved to accentuate the headline GDP figure, while hiding the fact that it was completely made up of increased government debt.
The National Bureau of Economic Research (NBER) has been given the responsibility to make that call, and we think you need to see the basis on which it will be made. There are a number of economists who sit on the committee making the call, including Christina Romer (she’s on leave now) one of the Messiah’s economic advisers.
According to their website:
In choosing the dates of business-cycle turning points, the committee follows standard procedures to assure continuity in the chronology. Because a recession influences the economy broadly and is not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee views real GDP as the single best measure of aggregate economic activity. In determining whether a recession has occurred and in identifying the approximate dates of the peak and the trough, the committee therefore places considerable weight on the estimates of real GDP issued by the Bureau of Economic Analysis of the U.S. Department of Commerce. The traditional role of the committee is to maintain a monthly chronology, however, and the BEA’s real GDP estimates are only available quarterly. For this reason, the committee refers to a variety of monthly indicators to determine the months of peaks and troughs.
The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. In addition, the committee refers to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes. The committee also looks at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers (see http://www.macroadvisers.com). Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process.
What might be interesting to you is how GDP, personal income, and employment looked when the last call was made – as shown in the three charts below. Since you might not notice what is wrong with the charts we”ll shout it out when you get there. But here is a hint: The average of the six pre-2001 recessions is represented by the light blue line in each chart, and the darker, heavier line represents where things stood when NBER decided the last recession ended:
Hmmm…this looks okay – GDP was rising, which means corporations were doing just fine…not rising as quickly as in the previous recessions, but definitely moving up.
And, personal income seemed to have been doing quite well – which means stockholders and CEOs were getting paid. Again, that 2001 recession line is well below previous recessions, but still moving up.
What with all that money being made by corporations, stockholders and management, somebody forgot you were still looking for a job when NBER called an end to the last recession!
Imagine that – they just plumb neglected to notice you were still out of work, or facing a tsunami of layoffs.
Brad Delong, a typical worthless economist, nevertheless summed the problem up succinctly:
In 1993—two full years after the National Bureau of Economic Research said that the 1990-1991 recession had ended—the unemployment rate was still higher, and the employment-to-population ratio lower, than it had been at the recession’s trough. We saw this same kind of “jobless recovery” after the recession of 2001. It wasn’t until 55 months after that recession ended that a greater share of Americans were working than had been working before the contraction.
That right, four years after the last recession employment still had not recovered – FOUR YEARS!
Now do this: Try googling the term, “jobless recovery” – we got 955,000 hits.
If you think unemployment was rising when the last recession ended, you are not going to believe what it looks like when the jobs never come back.
And, that is because Okun’s law has been repealed.
What is Okun’s law? Brad explains:
Back in the 1960s one of President Johnson’s economic advisers, Brookings Institution economist Arthur Okun, established a rule of thumb quickly named “Okun’s Law.” Here is the gist: if GDP (production and incomes, that is) rises or falls two percent due to the business cycle, the unemployment rate will rise or fall by one percent. The magnitude of swings in unemployment will always be half or nearly half the magnitude of swings in GDP.
As you can see from the charts above, the last recession produced a broken Okun, GDP began to rise, while employment was still falling.
But what will really set you blood boiling is the dirty little secret about this recession the Messiah and his advisors would rather you not know: unemployment in this crash has been rising at twice the rate predicted by Okun’s law – a wholesale decapitation of the labor force unleashed by corporate America in the middle of the worst downturn in 70 years.
The layoffs have been so viscious and unrelenting, the U.S. economy is actually becoming more productive even as it collapses.
“I don’t think anyone fully understands this phenomenon,” Lawrence Summers, the head of President Barack Obama’s National Economic Council, said in a speech Friday.
“One potential explanation is greater financial pressure on firms in this recession has led them to do anything they can to shed cash flow commitments by laying off workers at a more rapid pace or leaving jobs vacant when people leave,” he said.
Other theories posit that companies bracing for an even longer economic downturn, or perhaps the economy was even weaker than official government data showed.
And, this statement is by the guy who figured out the United States could keep the dollar as world reserve currency by manipulating the price of gold.
He doesn’t have clue, and his job description is to tell the Messiah how to fix something he can’t even understand. And, if you think it is difficult to create jobs in ordinary times, try doing it when companies are enjoying an orgy of pinkslip confetti.
So they are going to call this “recession” over – Brad predicts it is already over (Hah!) – and break out the champagne to celebrate, slap each other on the back for a job well done, give that buffoon Summers the job running the Federal Reserve.
And, you will still be waiting in line to file a claim.