Real Per Capita GDP Growth Slows to 1.4% in the 4th Quarter

January 31, 2015

The government announced yesterday that fourth quarter GDP growth slowed from 5.0% in the third quarter to only 2.6% in the fourth.  That’s a dramatic slowdown – worse than analysts expected, and the stock market reacted accordingly.

But what matters to you is not the size of the pie, but the size of your slice.  Thanks to the president’s immigration policies, a lot more people are beginning to crowd around the table, shrinking your slice.  Each quarter, in conjunction with tracking per capita GDP, I also track the rate of increase in the population.  Check out what’s been happening in the past year compared to the previous 13 years of the century:  % change in population (quarterly).  As a result, the growth in real (adjusted for inflation) per capita GDP slowed to 1.4% in the 4th quarter.  Here’s a chart:  Real Per Capita GDP.

Since the end of 2007, real per capita GDP has risen only 3%.  That’s an annual rate of growth of only 0.4% – barely any growth at all, and that’s if you believe the government’s inflation calculation.  No wonder incomes are stagnant when the economy is too.

One of my predictions for 2015 was that GDP growth would be sub-2% for the year and would be on the brink of recession by the end of the year.  This 4th quarter report already gets us close.


“The shadow of crisis has passed.” Or has it?

January 21, 2015

Last night, at the beginning of what can best be described as a victory lap, President Obama began his State of the Union message by declaring that “…the shadow of crisis has passed …”  The crisis he spoke of included lots of things, but foremost was the economy which, at the time he inherited it, was indeed in a full-blown crisis.  Perhaps two decent quarters of GDP (gross domestic product) growth are enough for him to declare “mission accomplished,” but has the crisis passed or has it merely been swept under the rug?

Three sentences later, he asked, “Will we accept an economy where only a few of us do spectacularly well?”  Yeah, that pretty accurately sums up the state of the economy.  But that’s not stuff worthy of a victory lap, so he then went on to make some claims that merit closer scrutiny.

  • “We believed we could reverse the tide of outsourcing, and draw new jobs to our shores. And over the past five years, our businesses have created more than 11 million new jobs.”  The implication here is that we did, in fact reverse the tide of outsourcing and bring eleven million jobs home.  If only it were so.  The fact is that, while the economy has grown by 15% in real (inflation-adjusted) terms in the last five years, the trade deficit in manufactured goods has widened by 72%.  The only explanation for that is that the “tide of outsourcing” has actually gotten worse.  That’s no surprise when you look at Obama’s record on trade, especially the terrible deal he signed with South Korea.  And “eleven million new jobs?”  According to the household survey, the employment level has grown by only 9 million.  And, during those five years, the population has grown by 11.4 million.  In other words, almost all of the growth in the employment level is due purely to population growth, and not a matter of putting people back to work.  In fact, during those five years, of the 18.3 million Americans who were out of work in January, 2010, only 3.2 million have been put back to work.
  • “More Americans finish college than ever before.”  That’s because we have more Americans than ever before.
  • “… we’ve seen the fastest economic growth in over a decade … a stock market that has doubled and health care inflation at its lowest rate in 50 years.”  We have had two good quarter of GDP growth, preceded by a really bad quarter at the beginning of 2014, but the president didn’t mention that.  The best in the past decade?  That’s not saying much when you look at the past decade.  The stock market has doubled thanks to the Federal Reserve pumping $4 trillion into the bond market, crowding investors out of that market, leaving the stock market as the only place to invest.  And health care inflation is at its lowest rate in 50 years because overall inflation is also down that much.  Relative to everthing else, especially stagnant wages, the inflation in health care is still pretty bad.
  • “Wages are finally starting to rise again. We know that more small-business owners plan to raise their employees’ pay than at any time since 2007.”  Wages are rising – barely – until expressed in real (inflation-adjusted) terms. In those terms, they’re stagnant.  And planning to raise wages isn’t the same thing as actually raising them.
  • “We set up worker protections, Social Security, Medicare, Medicaid to protect ourselves from the harshest adversity. We gave our citizens schools and colleges, infrastructure and the Internet, tools they needed to go as far as their efforts and their dreams will take them.  That’s what middle-class economics is: the idea that this country does best when everyone gets their fair shot, everyone does their fair share, everyone plays by the same set of rules.”  True, we did all that.  Then we signed the Global Agreement on Tariffs and Trade, initiating a trade regime that completely undermined all of the aforementioned programs, deprived American workers of their “fair shot” and gave away millions and millions of our best jobs.  Is that “middle-class economics?”
  • “Of course, nothing helps families make ends meet like higher wages. That’s why this Congress still needs to pass a law that makes sure a woman is paid the same as a man for doing the same work.”  While I agree that women should be paid the same as men, this would do nothing to raise wages.  No company is going to raise its overall cost of labor.  If forced to equalize the pay between men and women, companies will simply lower the wages for men.  The only thing that can drive wages higher is a higher demand for labor, like we’d have if we really did turn the tide on outsourcing.
  • “… to make sure folks keep earning higher wages down the road, we have to do more to help Americans upgrade their skills.”  Here we go again.  Job training as a solution to unemployment.  No one ever takes note of the fact that we lost our manufacturing jobs to people who were uneducated and practically devoid of job skills.
  • “…  we still live in a country where too many bright, striving Americans are priced out of the education they need.”  That’s because far too many of the seats in our college classrooms are filled with foreign students.
  • “… 21st century businesses, including small businesses, need to sell more American products overseas. Today, our businesses export more than ever, and exporters tend to pay their workers higher wages.”  We don’t sell more American products overseas because so many countries are so badly overpopulated that they can’t even consume their own productive capacity.  Yes, we export more than ever, but not much more.  In the meantime, imports have exploded, draining our economy of those manufacturing jobs that the president admits pay more.  In the past five years, manufactured exports have grown by $27 billion per month.  But imports have grown by $47 billion – all thanks the president taking the chicken’s way out on trade and deluding himself into thinking that exports can be grown by just wishing it so.
  • “I’m asking both parties to give me trade promotion authority to protect American workers with strong new trade deals from Asia to Europe that aren’t just free but are also fair.”  Following this assertion, the president admitted that trade deals have gone badly for American workers.  And now he wants to double down on that trade policy.  (Mr. President, if it doesn’t make any sense to continue the same policy with Cuba that has been a proven failure for 50 years, why does it make sense to continue pursuing trade deals that have been proven a failure for just as long?)  There is no “free” trade.  There is no “fair” trade.  There is only trade, and trade with overpopulated nations is a sure-fire loser.  But bend over America.  Here comes more of it!
  • “… 95 percent of the world’s customers live outside our borders. We can’t close ourselves off from those opportunities.”  This is the very heart of our trade problem – the pursuit of more customers – customers capable of producing more than they consume.  That’s good for companies who couldn’t care less where their products are manufactured, as long as they sell more products.  But it’s an absolute disaster for American workers and the American economy.
  • “More than half of manufacturing executives have said they’re actively looking to bring jobs back from China.”  We’ve heard this for years, but how many of them actually do it?  Very, very few.
  • “I want Americans to win the race for the kinds of discoveries that unleash new jobs: converting sunlight into liquid fuel; creating revolutionary prosthetics, so that a veteran who gave his arms for his country can play catch with his kids again.”  We do win those races, but every time we do, the manufacturing of those new products very quickly ends up in some badly overpopulated country.

No, the crisis hasn’t passed.  Nothing has been done to fix the problems that caused it in the first place – our trade deficit and our use of population growth as a crutch for economic growth.  In fact, these issues have gotten worse.  The crisis has been swept under the rug and will slither back out sooner than most people – especially the president – think.

Unemployment Rose in December, “Detachment from Reality Index” Hits Record Level

January 13, 2015

The Labor Department reported on Friday (see the above link to the report) that the economy added 252,000 jobs and that unemployment fell by two tenths to 5.6% in December.  But the report wasn’t all good news.  Analysts noted that hourly earnings actually fell by five cents in December.  And the labor force participation rate fell too.  (Here’s a chart:  Per Capita Employment.)

When you look more closely at the details, you begin to understand why earnings and the labor force participation rate fell (signs of a weak labor market) when the other headline numbers were so good.  The following is the bad news that escaped the headlines:

  • The employment level – the number of people employed according to the household survey (and not the establishment survey which produced the 252,000 jobs figure) – rose by only 111,000 – the second consecutive month that that figure was weak, following growth of only 71,000 in November.
  • The decline in unemployment was once again due to the “smoke and mirrors” tactic of claiming that 273,000 people actually left the work force in December, in spite of the fact that population growth actually adds about 100,000 workers per month.  (If the Labor Department is to be believed, the labor force is actually smaller than it was in March.)
  • Not included in the employment report is the fact that the Census Bureau did a correction to its estimate of the U.S. population in December, resulting in a population that grew by 610,000 in December instead of the usual monthly growth of about 200,000.

Roll the above factors together and you find that the number of unemployed Americans actually grew in December:  Unemployed Americans.

A more accurate gauge of unemployment – one in which the labor force grows along with a growing population – shows that unemployment actually rose by one tenth to 9.3% unemployment in December.  Because of this, my unemployment “detachment from reality index” (the difference between an accurate gauge of unemployment and the official number) actually hit a new record in December.  Here’s the chart:  Detachment from Reality Index.

Recent economic data (like durable goods orders, mortgage applications, housing starts and manufacturing activity) have hinted at a cooling economy.  More evidence of this is found between the lines in Friday’s December employment report.

Exports Lag Obama’s Goal by Record Margin in November

January 8, 2015

Click to access trad1114.pdf

As reported by the Bureau of Economic Analysis (see above link), the overall trade deficit contracted by $3.25 billion in November, due entirely to a drop in oil imports.

That was the good news.  The bad news is that the deficit in manufactured goods rose by $1.2 billion, thanks entirely to a $2.8 billion decline in exports.  After hitting a record in October, manufactured exports fell to their lowest level in five months.  In fact, since June of 2013, manufactured exports have risen by only $1.8 billion.

In January, 2010, President Obama set a goal of doubling exports within five years.  In November, exports lagged that goal by $54.7 billion per month – a record.  There are now only two months to go until the data for January, 2015 is released.  So far, instead of rising by 100%, exports have grown in five years by only 32%, all of which can be explained by inflation and by the rebound in the global economy – a rebound now faltering.  Absolutely none of the increase is due to any improvement in America’s trade position relative to other countries.  Here’s an update of the charts:

Manf’d exports vs. goal

Manf’d Goods Balance of Trade

Obama set this goal because he naively believed that there was no reason that the U.S. couldn’t become a net exporter like Germany.  There is, of course, one very big reason – the inverse relationship between population density and per capita consumption.   Germany is five times as densely populated as the U.S., making its per capita consumption a fraction of ours.  Like the citizens of so many other badly overpopulated nations (Japan, China, Korea and much of Europe, just to name a few) they can’t even absorb their own productive capacity, so why would they buy products from us?  (Well, they do, but not nearly as much as they export.)

Obama ran in 2008 on a platform that included tackling our trade deficit.  He took the coward’s way out, choosing to ignore the import problem, which everyone knows is where the real problem lies, focusing instead on exports in order to avoid unpleasant confrontations around the punch bowl at G8 meetings.  Aside from making the promise to double exports, he never lifted a finger to do anything to make it happen.  He’s done nothing to address the imbalances of globalization which nearly collapsed the global economy in 2008, and it’s going to come back to bite us.

My Predictions for 2015

January 3, 2015

I just published my predictions for 2015.  Click “2015 Predictions” in the bar on the right-hand side of this page.  In 2014 I predicted that the “flash-in-the-pan” recovery would stall and the economy would begin to slip back into recession.  Obviously, that didn’t happen.  Was it a bad call, or just one year early.  I think that 2015 will prove that the latter was the case.