Posted on 09/24/2003 5:09:34 PM PDT by Starwind
The Daily Reckoning PRESENTS: The strong, compelling evidence of an economy that is as far away from a recovery as its disastrous job numbers.
EMPLOYMENT DISASTER
By Kurt Richebächer
There has been much talk to the effect that America has just had its slightest recession in the whole postwar period. That is measured in real GDP growth, being bolstered by many statistical tricks. Measured, however, by job losses, which certainly are the far more important gauge, it is already America's worst recession by far.
In June it was declared that the recession had ended in November 2001. Yet in the 20 months since, payroll employment has declined by a total of about 1 million jobs, or about 8%. In not one of the seven or eight postwar recoveries has there been any employment decline. Immediate strong job growth has been the regular characteristic of all business cycle recoveries. On average, payroll jobs increased 3.8% in the 20 months following the end of recession.
What's more, no letup in job losses is in sight. During the second quarter, widely hailed for its better-than-expected GDP growth, the household measure of employment slumped by 260,000. However, this figure concealed an even greater number of workers - 556,000 - who statistically quit the workforce because they have given up looking for nonexisting jobs.
This rapidly growing group of people no longer count as unemployed. What American job statistics really measure are not changes in unemployment, but changes in job seekers. Including the frustrated job seekers, the U.S. unemployment rate is hardly lower than in Europe. Certainly, it is rising much faster.
In addition, the Labor Department is employing month for month the same two practices that camouflage the horrible reality. In July, for example, it reported a decline in payrolls by 44,000, while job losses for June were revised upward from 30,000 to 72,000. For May, the retrospective upward revision was even from 17,000 to 70,000. As such upward revisions of job losses in the prior month have become a regular feature, this practice has the convenient effect of producing correspondingly lower new numbers every month. The same happens, at more moderate scale, with weekly reported claims.
There is still more spinning involved. The government adds every month some 30,000-50,000 imaginary workers to the job total. It is based on the assumption that in an economic recovery a lot of people start their own business. In normal recoveries, they have done so, indeed.
All it needs to activate this statistical job creation is a unilateral decision by the government that the economy is in recovery. Once a year, the statisticians reconcile their assumption with reality by a revision. When they did this in May of this year, 400,000 new jobs that had been reported earlier simply vanished. Such revisions, of course, take place outside the monthly reported job losses. Together, we presume, these statistical casuistries have reduced the reported job losses in the past two years by well over 100,000 per month.
It rather abruptly became the consensus view that in America the great recovery from protracted, sluggish growth is finally on its way. Record-low interest rates, runaway money and credit growth, new big tax cuts, record-high cash-outs by consumers through mortgage refinancing, increasing house and stock prices, and rising profits are cited as the compelling reasons for this optimism.
We are more than skeptical about the true impact of all these influences on the economy primarily for one reason: Most of them, if not all of them, have been at work for some time already, but with grossly disappointing overall effects on the whole economy, and now some of these influences are weakening or even reversing.
Think of the sharp rise in long-term interest rates that is most assuredly stopping the mortgage-refinancing bubble dead in its tracks. That, in our view, will not only abort any recovery but will also mean the economy's relapse into new recession.
As for fiscal policy, it clearly gave its biggest boost to the economy between the fourth quarter of 2000 and the second quarter of 2002. That is a period of six quarters during which the federal budget gyrated from a quarterly surplus of $306.1 billion to a deficit of $526 billion, both at annual rate. This year, the deficit is supposed to hit $455 billion. Most probably, it will come out much higher. But this follows a deficit in the last year of $257.5 billion. The fiscal stimulus is waning, not increasing.
In any case, actual, historical experience in the 1970-80s with large-scale government deficit spending has been anything but encouraging. It created more inflation than economic growth. Over time, rising deficits were rather recognized as impediments to economic growth. Japan's recent experience makes frightening reading. Since 1997, government debt has skyrocketed from 92% to 150% of GDP, rising every year by more than 10% of GDP. Yet nominal GDP keeps shrinking.
As to monetary policy, we have very much the same doubts about its efficacy in generating economic growth under current economic and financial conditions. It is the traditional American consensus view that monetary policy is omnipotent if properly handled. In this view, any recession, or worse, always has its decisive cause in the failure of the central bank to ease its reins fast enough. In this view whatever happened in the economy during the prior boom is irrelevant.
This time, both monetary and fiscal policies in America have acted with unprecedented speed and vigor. To people's general surprise, the economy's rate of growth abruptly slumped during 2000 from 3.7% in the first half to 0.8% in the second.
Starting on Jan. 3, 2001, the Fed slashed its short-term rate in unusually quick succession. Within just 12 months, its federal funds rate was down from 5.98 to 1.82.
Assessing the development, the first thing that struck us as most unusual was that this sudden, sharp economic downturn occurred against the backdrop of most rampant money and credit growth. Total nonfederal, nonfinancial credit grew by $1,144.3 billion in 2000, after $1,102.6 billion in the year before. This compared with nominal GDP growth during the year by $437.2 billion. The first important conclusion to draw therefore was that this sudden economic downturn had obviously nothing to do with money or credit tightness.
Ever since, nonfinancial credit growth has sharply accelerated. In the fourth quarter of 2002, it hit a record of $1,612.8 billion, at annual rate, followed in the first quarter of 2003 by $1,338.3 billion. This coincided with simultaneous nominal growth of $388.4 billion and real GDP growth of $224.4 billion, both also at annual rate. For each dollar added to real GDP, there were thus six dollars added to the indebtedness of the nonfinancial sector.
Regards,
Kurt Richebächer, for The Daily Reckoning
P.S. During the 1960-70s, by the way, there was on average about 1.5 dollars of debt added for each dollar of additional GDP. Just extrapolate this escalating relationship between the use of debt and economic activity. And think of it: the GDP growth of today is tomorrow a thing of the past, while the debts incurred remain. Plainly, Greenspan's policy has collapsed into uncontrolled money and debt creation that has rapidly diminishing returns on economic activity.
As we noted in these pages last week, the late economist Hyman P. Mynsky would call this a Ponzi economy where debt payments on outstanding and soaring indebtedness are no longer met out of current income but through new borrowing. Soaring unpaid interests become capitalized.
The facile answer is "Any Republican with a conscience."
But Bushie has more to worry about: Wisconsin, Illinois, Michigan, Pennsylvania, and Ohio.
He MAY get the South and the West, excepting the LeftCoast. But he may NOT get the Upper Midwest--and that's the end of the presidency for him.
Yep...more like a depression in mfg.
And they also pretend that we used to be this society of rugged individualist John Galts and Hank Reardens. Bull. The Victorian economy was tempered by the welfare agencies of the Victorian family, Victorian churches, and the kind of village-like working class neighborhood that doesn't exist anymore. The Victorian family no longer exists and few people know their neighbors. Civil society cannot cushion economic shocks the way it could in Victorian times. So people, when presented with Victorian economic shocks, will demand European levels of cushioning.
You bet, especially Ohio and I'd add NC to that list given their staggering job losses in manufacturing over the last 2 years.
BTW, I'm not surprised that the unemployment rate in Milwaukee is 14%. I know a lot of folks from that Great City and they have been hurting since the late-80s. Our Government’s One-Way jobs exporting trade polices have hit Milwaukee particularly hard for many years, along with areas in Chicago, Rockford, Beloit and a number of other industrial cites in the central Midwest area.
For the life of me, I just can't figure out where Bush and the RNC are coming from when they push for more of the same trade polices that are destroying the industrial muscle that made America great while enriching communist countries like Red China. Countries that share none of our Western values but will most definitely pose a threat to us economically and militarily in years to come. It boggles the mind.
The ever-growing numbers that end up on the unemployment line are the very voters that Bush needs to get reelected. Obviously Government Workers (if you can call them that) are not Bush’s natural constituency (or are they?). Bush is blowing it Big Time. .
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Fortunately, Bush Country is not in a recession.
More Texans behind on their mortgages State's delinquency rate No. 3 in nation
FYI, Last month's trade deficit with the EU was about the same as with China. Also last month's trade deficit with japan exceeded the trade deficit with mexico, ditto for canada. The EU, Canada and japan are not third world.
I believe that in 2000, bush was elected by losing WI,IL,MI and PA. Being an Ohio native, I can assure you Bush will carry OH in 04 just like in 00.
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