We keep hearing how well the economy is doing.
The Gross Domestic Product (GDP) grew 4.4% last year. Total household net worth is up to $45 trillion. Unemployment is down to 5.2%. Productivity is projected to grow at 2.75% for the next several years.
Sounds great, but many people hear the words and wonder, because their own reality doesn't feel that good.
They're right, because this recovery has worked differently than those in the past.
This time, those who had got
Corporate profits have risen 60% over the past three years while wage income is only up 10% [The Economist 02/10/05], less than increased costs for housing, health care, energy, education and food. (Story links open in new windows)
Corporations have nearly doubled the amount of cash in the bank, while the overall savings rate for individuals has gone down. [Business Week subscription]
The total net worth of households has indeed risen, but the average net worth of households has dropped from $89,000 to $84,000 since 2000 [Business Week subscription] and the number of poor has increased by millions.
And the unemployment percentage and "productivity" aren't telling us what many people think they are.
Unemployment: stats vs. reality
The latest Bureau of Labor Statistics (BLS) release indicates that there are now 132.6 million jobs filled in the US. This preliminary number is about the same it was when president Bush was sworn in for his first term four years ago (132.5 million then).
So we're finally back to ground zero on jobs.
This isn't great, but it's not even as good as it looks since much of the gain was in temporary jobs - 2.5 million in January, up 10% from a year ago.
And the job growth in the last year was 1.7%, but the historical average has been 3%, so we're still not nearly out of the woods on jobs.
Worse, there are several million people out of work unaccounted for in the unemployment percentage.
In the last four years, about 7 million more new workers entered the work force and there were no jobs for them.
Unemployment was 6.6 million in January, 2001 and 8.4 million in January 2005, so that takes care of about 2 million.
But that leaves another 5 million out of work. Adding them to the 8.4 million unemployed, we get a real unemployment figure of as high as 8%.
Productivity growth should have a payoff
The productivity we're talking about is labor productivity as measured by the BLS. Their definition is reasonably complex, but a useful way to think of it is as a function of the GDP and the number of workers. For a given economic output, lowering the number of workers produces a growth in productivity.
Article comments
1 - Dave Nalle
Nice to see you keeping the dream alive, Hal. Don't let reality get in your way.
Dave
2 - Hal Pawluk
So which source do you think got it wrong, Dave?
Business Week? The Economist? The Wall Street Journal? The BLS?
As to "the American dream," Business week had a comment on that in their Waking Up From The American Dream . That addressed the loss of upward mobility. They also did a number of recent stories on "Are You Better Off Than Four Years Ago," qoting a right-wing icon, and their answer is "No."
Simple refusal to accept facts does not refute them.
Think, Dave, think.
3 - Eric Berlin
Great post Hal, one of the best I've read on BlogCritics. Not only do the facts and figures makes sense, it feels right in George Bush's America, doesn't it?
Dave - Let's hear your facts, your figures in response.
4 - Eric Olsen
reality lies somewhere between the rose- and ash-colored glasses
5 - Eric Berlin
That may be true, Eric, but I believe Bush's consistent pre-war, post-war, all-the-time 24/365 tax cuts for the rich (plus rampant deregulation, pro big-industry policies, anti-environment, etc.) produce the very figures that Hal provides.
That's not tinted; that's reality.
6 - Hal Pawluk
That's a cute turn-of-phrase, Eric, but it doesn't change anything.
Employment is still only where it was four years ago.
Median net worth is headed down.
Several million more Americans are in poverty and several million more do not have health care.
Most federal tax revenue is from wages not corporations and not "unearned income," so the wealth gap is increasing.
India and China each create at least as many post-secondary school graduates as we do, and our education system is on a downhill slide while theirs is improving.
China's manufacturing costs are far lower than ours, and India's software companies are better than ours.
The record trade and budget deficits have put the dollar at risk and a simple comment by the Bank of Korea a couple of days ago caused a 1.4% stock market drop.
So what's ash and what's reality?
7 - Dave Nalle
Well, Hal. I'm tired and there are so many errors in your original post that it's hard to know where to start, but I'll cherry pick a few right now and maybe catch some more later.
>>Corporate profits have risen 60% over the past three years while wage income is only up 10% [The Economist 02/10/05], less than increased costs for housing, health care, energy, education and food. (Story links open in new windows)<<
What you seem to miss here is that corporate profits are a good thing. They let corporations expand, they lead to profit for investors and they lead to growth in the economy. Those profits don't just go into the pocket of the CEO. That's not the way it works.
In addition, a 10% increase in wages over a 3 year period is extraordinary. It's just great. Rarely do wages increase that much that quickly. And as for that wage increase not keeping up with inflation, as established on a previous thread, the inflation rate is under 2.5%, so math tells us that wages have increased 33% more in that 10 year period than prices have.
>>The latest Bureau of Labor Statistics (BLS) release indicates that there are now 132.6 million jobs filled in the US. This preliminary number is about the same it was when president Bush was sworn in for his first term four years ago (132.5 million then).<<
Wrong. Nice try though. You seem to be using the non-farm employment figure. Farmers are workers too, you know. The current number of employed people (including farmers) shown on the BLS site is 140.241 million. That's a pretty substantial difference.
>>Not only are jobs being sent off-shore, so are profits earned in this country, and the payoff from improved productivity happens in someone else's economy.<<
Do I really have to go into this urban legend again? Only 7% of our jobs have been sent overseas. That number has actually been stable for the last 5 years or so with no substantial increase. Typically companies which outsource jobs in one area hire new employees in others because of the increase in available capital. On average during the last 3 years companies which have outsourced jobs overseas have seen a 22% increase in staffing rather than a decrease. This doesn't even take into account the fact that the companies overseas which take the outsourced jobs then buy phone, office and computer equipment from US companies for their workers, creating more jobs here in the US. I've said it all before, but you keep ignoring it.
>>In the last four years, about 7 million more new workers entered the work force and there were no jobs for them.<<
If this were true, which it's not, then unemployment would have jumped by 2% over that period, which it has not. In fact it's gone down slightly. Those workers may have entered the workforce, but 95% of them found jobs.
>>Unemployment was 6.6 million in January, 2001 and 8.4 million in January 2005, so that takes care of about 2 million.<<
Do you have trouble reading the files on the BLS site? Unemployment in January of 2005 was 7.7 million, not 8.4 million.
>>The total net worth of households has indeed risen, but the average net worth of households has dropped from $89,000 to $84,000 since 2000<<
Deloitte-Touche-Tomatsu (the largest economic consulting firm in the world) analyze this somewhat differently. They show household net worth up 8.6 percent in the past year and more than 80 percent in the past decade.
>> and the number of poor has increased by millions.<<
Haven't we already been over how this figure is incorrect?
It just goes on and on.
Dave
8 - Hal Pawluk
Wrong on all counts, Dave.
What you seem to miss is that corporate profits are a good thing if they are reinvested in America.
When the profits are made in America but then invested in some other country, this makes America poorer as the money moves off-shore. It's similar to what the IMF and World Bank have done to South American and Asian countries, except here it's multi-nationals doing the damage without their help.
You're wrong on the wages. Real wages factoring in higher costs for everything from energy to education are lower than three years ago.
On off-shoring of jobs, you've bought into the Heritage Foundation myth.
In addition to jobs that have been moved directly off-shore, like the Levi jobs I mentioned, you need to add in all the new jobs created overseas using profits generated here. Those are truly gone forever, and go a long ways towards explaining why job growth has been so slow in this "recovery."
On the unemployment figure, you're overlooking the fact that labor-force participation rate is down to its lowest level in 17 years at 62.5%. Millions have dropped out of the work force and are not counted even though they want work.
On net worth, you're trying to confuse the issue even though I thought I had made it plain.
The total net worth of everyone in America has gone up, as I said, but the median net worth of Americans has dropped. In simple terms, the rich got richer and the poor and middle-class got poorer.
You need to do more than just spew the party line.
America needs your help.
9 - Dave Nalle
>>Wrong on all counts, Dave. <<
Of course. Because facts are bad and the truth is evil.
>>What you seem to miss is that corporate profits are a good thing if they are reinvested in America.<<
Which they are in the form of dividends and stock value increases which go overwhelmingly to the rapidly expanding investor class here in America which includes more and more people in the middle income brackets.
>>When the profits are made in America but then invested in some other country, this makes America poorer as the money moves off-shore. It's similar to what the IMF and World Bank have done to South American and Asian countries, except here it's multi-nationals doing the damage without their help.<<
No. When the company becomes more efficient and more profitable it benefits investors regardless of how they improve their operations.
>>You're wrong on the wages. Real wages factoring in higher costs for everything from energy to education are lower than three years ago.<<
Not if you do the rather simple math.
>>On off-shoring of jobs, you've bought into the Heritage Foundation myth.<<
I'm not familiar with their work on this subject. Should I be?
>>In addition to jobs that have been moved directly off-shore, like the Levi jobs I mentioned, you need to add in all the new jobs created overseas using profits generated here. Those are truly gone forever, and go a long ways towards explaining why job growth has been so slow in this "recovery." <<
It's an international economy. Trying to discuss the loss of jobs at one specific company because of the closing of a few factories is meaningless. You have to look at the overall trends. People sometimes lose one job and have to take another, or move to a place where better jobs are. This isn't some new development.
>>On the unemployment figure, you're overlooking the fact that labor-force participation rate is down to its lowest level in 17 years at 62.5%. Millions have dropped out of the work force and are not counted even though they want work. <<
Again, completely wrong. In the last decade there has been a 25% shift of people from traditional jobs to entrepreneurial jobs and self employment. In most cases these people increased their income, and the number who moved into this rapidly growing segment of the economy more than account for the decline in the traditional workforce.
>>On net worth, you're trying to confuse the issue even though I thought I had made it plain. <<
God forbid I should confuse the issue with facts. Do you have a response for the Deloitte-Touche-Tomatsu analysis of net worth growth or do you just want to complain about being proven wrong again?
>>The total net worth of everyone in America has gone up, as I said, but the median net worth of Americans has dropped. In simple terms, the rich got richer and the poor and middle-class got poorer. <<
Actually, the Business Week article says that the RICH got poorer as well. But what you don't say when you take this one little point out of context is that the overall suggestion of that article is that despite the slight decline in net worth the overall economic picture for households in the US is positive. They point out the rise in consumer spending and the dramatic increase in wages and the fact that we're still recovering from a recession as indicators that things are going quite well - really remarkably well considering the lingering effects of recession. They also explain the decline in net worth and ascribe it to causes which are clearly not an ongoing issue.
>>You need to do more than just spew the party line.<<
Which party would that be? The truth and common sense party?
BTW, I love the way you ignore the places where I pointed out that the figures you supposedly got from the BLS were incorrect.
Dave
10 - Hal Pawluk
Okay, I see that it's your ability to comprehend that's the problem, Dave.
The Deloitte net worth figure does not conflict with what I said. One more time: total net worth in the country has risen, but the median has fallen.
Most of the rest of your stuff is just pulled out of thin air and has no credence.
11 - Eric Berlin
Hal - I think that total/median net worth trend is a great one in refuting those who seemingly are riding the wave of tax cuts and corporate profits.
12 - Dave Nalle
Pulled out of thin air, Hal? All of my information came from the BLS and Census figures. I guess those figures are good for you, but when I use them they're out of thin air?
I realize that you don't actually READ the articles you use as sources, but if you'd done so you'd realize that the change in net worth is the result of lowered interest rates and people refinancing their homes at lower interest rates, usually taking out money in the process to pay off their credit cards. So while they equity in their homes has gone down, thereby lowering their net worth, the actual amount they'll end up paying on their homes will lower because of lower interest and their credit card debt will be lower, so despite the appearance of a lowering of net worth, those households are actually substantially better off than they were 4 years ago. This is explained in the Business Week article, if you bother to read it.
In addition, net savings and investment has increased during this period, which is another positive sign for households, especially in middle income ranges which are investing more than ever before.
But by all means continue to pick your data selectively and edit out the parts that don't fit your agenda. Those who bother to go beyond your hogwash will easily figure out the truth.
What mystifies me is your motivation for spreading these lies.
Dave
13 - bhw
the change in net worth is the result of lowered interest rates and people refinancing their homes at lower interest rates, usually taking out money in the process to pay off their credit cards.
That's not exactly what the article says. It says that people are refinancing their homes "Because employment is down and so are hours worked, outweighing the pay gains. Even the affluent haven't been spared. To compensate, Americans have refinanced mortgages, piling on the debt and lowering their average net worth."
It says Americans aren't paying off debt but increasing it. Later in the article, it even says that Americans have kept up their spending even though they're taking home less money. They're using their credit cards and borrowing against their homes.
According to someone quoted in the article, consumption is the test for whether or not people are better off. If they spend more this year than last year, then they're better off this year than last year.
I personally don't agree because I think Americans are so addicted to buying things that they just can't stop: I don't see how you can interpret people borrowing against their homes to buy large screen TVs as a good thing when their take home pay has gone down. It's irresponsible.
So while they equity in their homes has gone down, thereby lowering their net worth, the actual amount they'll end up paying on their homes will lower because of lower interest and their credit card debt will be lower, so despite the appearance of a lowering of net worth, those households are actually substantially better off than they were 4 years ago.
Again, the article never said Americans were paying off credit cards with these refinanced mortgages. It said that Americans are surviving their lower take home pay by refinancing their homes AND using credit cards. But even if they weren't, borrowing against your house to pay off a credit card is a zero sum game because your credit card debt is figured into your net worth to begin with. You're just transferring the debt from the cards to your house, albeit at a much lower interest rate.
14 - Dave Nalle
>>That's not exactly what the article says. It says that people are refinancing their homes "Because employment is down and so are hours worked, outweighing the pay gains. Even the affluent haven't been spared. To compensate, Americans have refinanced mortgages, piling on the debt and lowering their average net worth."<<
Ah, I didn't quite catch that. I must have overlooked it because it doesn't match already established facts. Employment is up slightly and hours worked and wages are also both up according to the BLS.
>>According to someone quoted in the article, consumption is the test for whether or not people are better off. If they spend more this year than last year, then they're better off this year than last year. <<
Rampant consumerism has always driven the US economy. It's what makes us somewhat resistent to things like trade imbalances.
>>I personally don't agree because I think Americans are so addicted to buying things that they just can't stop: I don't see how you can interpret people borrowing against their homes to buy large screen TVs as a good thing when their take home pay has gone down. It's irresponsible. <<
There's no evidence that this is what they are doing. For all we know they're borrowing against their home at 5% to invest at an average return higher than that.
>>Again, the article never said Americans were paying off credit cards with these refinanced mortgages. It said that Americans are surviving their lower take home pay by refinancing their homes AND using credit cards. But even if they weren't, borrowing against your house to pay off a credit card is a zero sum game because your credit card debt is figured into your net worth to begin with. You're just transferring the debt from the cards to your house, albeit at a much lower interest rate.<<
Last I checked revolving credit card debt was the only kind of debt not figured into net worth. Did this change sometime recently?
Dave
15 - Hal Pawluk
You just make stuff up, don't you, Dave?
Credit card debt is a liability and is definitely included in determining net worth. You might want to check out page 5 of the Census Bureau's Net Worth and Asset Ownership (pdf file).
I will give you one: it was sloppy of me not to mention that the number was "non-farm payroll" jobs. This is the stat that's always used - it's what they're talking when they tell us "jobs grew or fell such and such an amount last month" - so it slipped past me but it changes nothing.
The jobs picture is still flat from when Bush took office through last month.
16 - Hal Pawluk
This item on Bloomberg today can help put things in perspective (opens in new window).
Some excerpts:
- the Fed's recession-fighting low-interest- rate policies helped drive down household savings in 2004 to the lowest level since the Great Depression, analysts say.
- Household net worth rose $546 billion from the second to the third quarter last year. Seeing those gains, consumers saved $20.6 billion less out of income in 2004 than they did the previous year.
- "Equity extraction has been the pixie dust of America's post-bubble recovery,'' Stephen Roach, chief economist at Morgan Stanley in New York, wrote in a Feb. 7 note to clients.
- In the third quarter, household liabilities rose by $244.4 billion, according to Federal Reserve data, while the net accumulation of new financial assets rose by just $72 billion.
- The dollar has fallen 15 percent over the past two years against a basket of currencies from the U.S.'s largest trading partners, and the current account deficit, which measures investment as well as trade in goods and services, reached a record $164.7 billion in the third quarter of last year, 5.6 percent of gross domestic product. Lower federal spending and higher household savings would help reduce the trade imbalance, which Geithner described as "unsustainable.''
FWIW.17 - Dave Nalle
Hal, out of curiosity, what is your motivation here? You search far and wide to pick out the few negative economic indicators in a strong recovery and put the worst possible spin on them, and try to make something of it. But how do you benefit from this one-sided portrayal of the economy? Is it just that you're out to bash Bush, or are you just a generally negative person who wants to spread negativity in whatever way he can?
If Bush bashing is your goal, then you're not ever going to make much mileage, because after 9/11 and the Clinton recession the level of revovery we've had so far is really remarkable, even if there are some areas which aren't perfect.
If you're just trying to spin the economy negative by ignoring things like CPI, GDP, comsumer confidence, low unemployment, increasing wages, increasing productivity, the booming stock market, etc. Then your tactics are pretty transparent, even if your motivation is obscure.
Dave
18 - Hal Pawluk
It's a reality check to counteract the lip-gloss you’re being fed by the administration and corporate lobbyists.
It took no particular searching, as the info is in Business Week, the Wall Street Journal and other reputable, even right-leaning, media all the time.
You only need to pay attention and make a nominal attempt to understand what you see.
19 - Turcot
Just as an aside:
>
<
An ongoing complaint from economists about reporters is that they generally tend to spin the facts to make it sound more dramatic, make it more interesting to the average reader, and sometimes are just blatantly ignoring micro/macro-economic theory.
lol... that being said: this was written in an arcitle which I read (and re-iterated by some economists who are also professors at my university)
Not saying that all are wrong... but one regular aspect of an economics course I took back in first year was to find an printed article in a nationally available news source which contained macro & micro economic stupidity.
The list included:
- significant factual errors
- misleading facts by failing to mention an important consequence
Most students didn't have trouble finding articles.
Cheers
20 - Turcot
I just read over my post. I should probably also say:
I won't claim to know as much about the current state of the economy as the two of you. Presentation of facts , figures and reports (in my mind) carry alot of weight. Especially if they can be backed by multiple sources (or be put in proper context with other facts)
Back to the real issue!