Last week the Bureau of Economic Analysis made a revision. You may have heard about it. According to the government statisticians, first quarter GDP didn’t decline at an annual rate of 0.1 percent as previously estimated.
Actually, when they re-counted the beans, first quarter GDP declined much, much more. In fact, based on the new estimate, first quarter GDP declined at an annual rate of 1 percent. What does this mean?
In short, it means the economy isn’t expanding…it’s contracting. And because the economy’s supported by massive amounts of debt it doesn’t take much of a contraction for the debt foundations along the margins to begin to crumble. Student loan and auto loan debt will lead the way in the next debt implosion.
But, nonetheless, nearly all news reports we came across blamed the weather for the economic lethargy. Some even celebrated the contraction as a brief resting place to another expansion. There were rationalizations that this is a good thing because it will inflate second quarter GDP.
“I believe this real GDP decline, mostly due to the polar vortex, coiled the ‘economic spring’ even tighter for a sharp snap- back (boing!) this quarter where I have an above-consensus forecast for a 4.0 percent annualized rise in real GDP,” remarked PNC Chief Economics Stuart Hoffman. “I expect real GDP growth to settle back down to near a 2.8 percent annual rate in the second half of this year.”
Prime Workers Not Working
Do you see how it works? The initial GDP report of a weak economy is set at a very minimal negative 0.1 percent. Once interest in first quarter GDP passed it was revised down to 1 percent, setting the bar lower for second quarter GDP to snapback above. Remember this when you hear about the “strong” second quarter GDP sometime in July.
Regardless of how the data’s twisted and turned to show a healthy economy, it’s really nothing more than lipstick on a pig. No matter what the GDP comes in at you can’t get past the fact that people aren’t working who should be. Here’s what we mean…
“There are currently 61.1 million American men in their prime working years, age 25–54,” noted Republicans on the Senate Budget Committee. “A staggering 1 in 8 such men are not in the labor force at all, meaning they are neither working nor looking for work. This is an all-time high dating back to when records were first kept in 1955.
“An additional 2.9 million men are in the labor force but not employed (i.e., they would work if they could find a job). A total of 10.2 million individuals in this cohort, therefore, are not holding jobs in the U.S. economy today. There are also nearly 3 million more men in this age group not working today than there were before the recession began.”
Just what kind of economic recovery is this, where men in their principal working years don’t work? Quite frankly we don’t know. We suppose it’s a lopsided recovery, if you want to call it a recovery at all.
Economic Blasphemy
And just what is it that these millions of men do with their time since they aren’t working? Have they found some sort of off the radar, niche way to make money? Perhaps some of them have. But most of them are likely being subsidized by a parent or family member.
Unfortunately, for a lot of people, the recession never ended. What’s more, and despite all time stock market highs, the economy is approaching a recession within a recession. Things could get real ugly real quick. Fed policy, which has encouraged massive amounts of household debt, has enticed the general public to shimmy out onto a creaky tree branch…
“The fact is, ZIRP (zero interest rates) in the current American economy is an economic blasphemy,” remarked former Director of the Office of Management and Budget, David Stockman. “Cheap interest rates were the historic tonic by which the Fed induced the middle class to bury itself in debt by ratcheting up its debt-to-wage-and-salary ratio year after year for the better part of four decades.
“But now that baleful work is over and done. Main street households have reached peak debt. This means that the only thing being leveraged-up today is student balance sheets which are backed by no income or assets and an increasingly evident hoax about future earnings gains; and by non-existent balance sheets among sub-prime auto debtors who are borrowing more than the car is worth at the closing.”
It’s as if no one learned a doggone thing from the last financial crisis.
Sincerely,
MN Gordon
for Economic Prism
