Global Economic Growth Slowing. What a Surprise.

August 26, 2015

Though it seems that nearly everyone lately is alarmed by a global economic slowdown – especially in China, no reader of Five Short Blasts or this blog should be surprised.  You may recall that, late last year when I published my annual predictions for 2015, I warned of a faltering economy and, specifically, a slow-down in growth in China from 7.5% to less than 6%.  Last week, China’s growth rate fell to 6.7%, a story that sent global stock markets into a tail-spin.  At the time of my predictions, coming off of a strong 3rd quarter in 2014, virtually everyone was bullish on the prospects for accelerating growth.  Now, everyone is wondering, “What the hell happened?”

What happened is delusional economic growth theory running smack into the  economic reality of the inverse relationship between population density and per capita consumption.  On the news this morning I heard that only three countries account for 80% of the world’s economic growth – China, India and the U.S.  Since growth in the U.S. is practically negligible, that leaves China and India – the two most populous nations on earth.  Let’s focus on China.

To be sure, economic growth in China for the past two decades has been phenomenal.  Twenty years ago, China was among the poorer nations on earth.  It was a nation with a population four times that of the United States, but one that consumed virtually nothing.  Corporations drooled over the seemingly limitless growth potential.  Just imagine turning every Chinese citizen into a western-style consumer!  So they rushed in to build factories and infrastructure to make it happen – more development in two decades than the U.S. saw in two centuries.

Now their economy has gone as far as it can go on exports.  China’s continued growth now depends on domestic consumption, and it just isn’t there.  China’s consumers consume more products than ever before – far more – but nowhere near the level that was projected.  What economists have been unable to see is that China’s severe over-crowding caps its economic potential at a much lower level than they thought – at a level that it is very close to reaching, if it’s not already there.  In fact, it may have already over-shot its economic potential, with the export-driven economic momentum propelling it beyond that point.

This is actually good news.  Anything that exposes economic growth theory as the fraudulent pyramid scheme that it is hastens the day when economic stability and sustainability reign, a day when corporate lust for population-driven sales growth takes a back seat to the common good and an optimum quality of life.  But there’s a hell of a long way to go.



Obama’s Greatest Failure

August 16, 2015

With a year-and-a-half of the Obama presidency left to endure, it might seem a bit premature for post-mortems of his administration, but this call is easy to make at this point because his policies only assure that, as bad as the situation is, it will only be worse by the end of his administration.  I’m talking about trade.  President Obama was elected in no small part on the hopes that he would fulfill his campaign promises and address what was, at that time, an already enormous trade deficit.

However, soon after taking office, his fledgling attempt at addressing our trade deficit with Mexico was an absolute disaster.  Mexico sent him home with his tail between his legs and new tariffs on American goods.  Soon after, he turned his focus away from imports toward exports, questioning his economic team why the United States can’t be an exporting powerhouse like Germany.  Obviously, no one on his team pointed out to him that Germany is an exporting powerhouse because it has the United States to serve as its importing stooge, and that there are no other such stooge countries out there to do the same for us.

He obviously didn’t get this message because, in January of 2010, he publicly proclaimed a new focus on exports and vowed that the United States would double its exports within five years.  That was 5-1/2 years ago.  Why do I bring all of this up now?  Because the June trade figures, released last week, put an exclamation point on just how abysmal his failure on trade has been.  Exports fell yet again and our trade deficits with China and the EU set records in June.

At the time that he vowed to double exports, I knew and predicted that it was impossible for this strategy to succeed because the United States has almost no control whatsoever over exports, which are driven entirely by foreign demand.  What few measures are at the president’s disposal to influence exports – primarily things that would make American manufacturers more competitive – are all easily countered by similar measures taken by other countries.

So I began to track the data, beginning in January, 2010.  Since then, America’s already-bad trade deficit is now even worse.  Here’s a chart of our total trade deficit:  Balance of Trade.  Our total trade deficit has worsened from $37 billion to almost $44 billion in June.  That may not seem so bad until you consider the fact that, during that same period, our deficit in oil improved from $22 billion to $6.3 billion, almost all of which is due to a big jump in domestic production.  Take that away, and our total trade deficit would now be $60 billion.

The real trade story is what has happened to the trade deficit in manufactured products which, incidentally, is where the real opportunity for job creation lies.  Look at what has happened to the deficit in manufactured goods since January, 2010:  Manf’d Goods Balance of Trade.  It has nearly doubled!  And what about exports, the focus of Obama’s strategy?  Manufactured exports in June were actually lower than in September, 2011.  In other words, manufactured exports haven’t increased one iota in nearly four years!  Here’s the chart:  Manf’d exports vs. goal.

If this isn’t a total failure, then I don’t know what is.  (It should be noted that this failure isn’t just the result of turning a blind eye to trade.  President Obama’s disastrous trade deal with South Korea, which he proclaimed a “big win for American workers,” has played a key role in the worsening of the manufactured goods deficit.  Our trade deficit with S. Korea is on track to double what it was only three years earlier!)  The president owes the American people an explanation for this abject failure and for letting us down so badly on one of the key campaign promises upon which he was elected.

Improvements in Labor Force Slowing Dramatically

August 11, 2015

OK, I’m back from fishing in the north woods and there’s much to catch up on.  I’ll begin with Friday’s release of the July employment report.  It was a little anemic, with only 215,000 jobs added (according the survey of businesses).  It was down from June, which was down from May.  Worse (but not included in the headline figures), the “employment level” (a figure taken from the household survey) says that employment only grew by 101,000 in July.  That leaves per capita employment essentially unchanged since February.  Here’s the chart:  Per Capita Employment.

The growth in employment level was barely sufficient to keep pace with the growth in the labor force.  As a result, unemployment remained unchanged in July at 5.3%.  However, a more accurate reading of unemployment – one that has done an honest accounting of the growth in the labor force (almost all of which is driven by immigration) – would have the unemployment rate at 8.8%.

The number of unemployed Americans seems to have leveled off after dropping some since the “Great Recession.”  It hasn’t changed significantly since January.  Here’s the chart:  Unemployed Americans.

And to illustrate just how much improvements in the labor market have slowed recently, consider this:  during the first six months since July of last year, employment level grew by an average of 300,000 jobs per month.  But in the most recent six months, ending with July, that growth has slowed to an average of 107,000 per month.  Take away January and the growth slowed to 90,000 per month in the most recent five months.  That’s less than needed to keep pace with growth in the labor force and is a good indication that unemployment, truth be told, is actually beginning to rise slowly again.