Although this does cut against the grain of those who in the words of Paul to the Romans, "Professing to be wise, they became fools", we need to recognize the current economic climate in which we live so as not to join the fools in their endeavors. However, this past foolishness has led to our current predicament and it is these same individuals who presently maintain that we are "on the road to recovery". This is not only short-sighted, it is destructive of personal wealth, happiness and in many instances, life itself. So it is through these means that we arrive at the question - Where do we stand now?
From Vox Day, a man who also saw the current depression coming -
At the end of 2009, conventional economists are claiming that the economic contraction which began in 2008 is over. Most government published statistics show growth and the stock markets have recovered half of their previous losses. While some of the wiser economists are hedging their bets by stating that they expect growth to be "sluggish" with "downside risks," there are no more expectations of market crashes, financial collapse or widespread economic contraction than there were at the beginning of 2008. The question is not one of growth versus contraction, but rather how much the economy will grow. However, the conventional economists are just as wrong to think the contraction is over as they were to believe that it was not on the horizon before.The United States Gross Domestic Product (GDP) = private consumption + gross investment + government spending + (exports - imports).
This figure will be become important over this series as we will use it to analyze our current economic standing and health. In our review Private Consumption is the first component of GDP and can be viewed as you and I or more specifically, the private sector. Let's look at some facts and figures from the perspective of John Q. Public
Unemployment
One method of examining whether or not private consumption is healthy is to measure unemployment. Why? In order to purchase something, an individual needs to have something that the other party would like to trade for. Generally this would mean that a person would need to be employed in order to have money to trade for goods and services in the economy.
But just how is the employment situation doing? Let's examine the government numbers.
- U3 data - The much trumpeted "official" 10 %.
- U6 data - 17.2%
- U6 data historic as calculated by John Williams is over 22.4%. (This leaves out the birth death ratio of government "guessing".)
So from this we can safely conclude that there is massive unemployment already. While the unemployment rate of increase is slowing slightly it is hardly comforting for those without a job that less people are losing jobs currently. This uptick does not necessarily mean improvement, but only a slowing in the plunge down, especially when viewed in light of the massive amount Federal stimulus, but we'll cover that later.
In November unemployment slowed down even more as temporary workers were added to payrolls. But here is a question - Do these numbers reflect a seasonal increase for the holidays and 4th quarter numbers? In other words are we "adding jobs" because it's Christmas and afterwords these temporarily fortunate individuals will go back to being unemployed? In addition, how many are presently dropping off the unemployment numbers because they're running out of benefits and therefore no longer counted?
Some numbers from Calculated Risk-
According to the BLS, there are a record 5.887 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 3.8% of the civilian workforce. (note: records started in 1948)
And regarding our seasonality -
Retailers only hired 54.2 thousand workers (NSA) net in October. This is essentially the same as in 2008 (59.1 thousand NSA). However retailers hired 321.3 thousand workers in November (NSA), an increase from the 233.7 thousand last year. This suggests retailers are a little more optimistic than last year.And it doesn't look like it will get any better soon -
At best, it could take until the middle of the decade for the nation to generate enough jobs to drive down the unemployment rate to a normal 5 or 6 per cent and keep it there. At worst, that won't happen until much later - perhaps not until the next decade.Wages and Purchasing Power
The previous data looks discouraging, but it ignores the millions of individuals that are employed, so let's assume we currently have a job. In today's terms this means wages or in lieu of wages, credit, as many turn to credit cards to make ends meet.
A cursory review of employment data reveals that wages are flat at best and available hours are plunging.
To make matters worse, purchasing power has declined 22% from 2000 to 2009 and of this even less is disposable income. (Meaning available to purchase items other than necessities) With inflation at an annual rate of 7%, there is nothing to suggest that this will be getting better.
Capitol Savings
Perhaps John Q. Public can dip into his savings, 401k, bonds, etc.? Some of that money has to be hitting the market as our consumer is running out of income? With 401k, most have been pummeled down and unbeknown to John Q. Public, fund managers are taking risky and wild gambles in an attempt to make up the difference. When the stock bubble pops, it will place these pensions in jeopardy. We just haven’t gotten there yet.
“Schneider…the privately owned company imposed a pay freeze earlier this year and stopped paying into 401(k) retirement plans.”Real estate prices are plummeting, median home prices have fallen more than 30% from their 2006 peaks. Remember yesterday when the mantra was 'housing has never gone down, you can't lose!"? Well chew on this little tidbit
More homes were foreclosed in the last 12 months than in an entire decade in the first Great Depression of the 1930’s.Credit
What some view as an option of last resort, others actually use for daily operating expenses, but how is the final piece of our Private Consumption puzzle fairing?
"Total credit market debt remained essentially flat since the fourth quarter of 2008. Total loans and leases by commercial banks decreased 6.2 percent in 2009, which was six times more than the largest previous decline in 1975."
Consumers are jettisoning credit cards, which is actually a good thing long term, but has negative short term consequences. But this says little of the average debt load that the consumer has been building up until this point.
For many students - $40,000 in educational debt becomes an avoidable noose as they are unable to procure a job in their field as current applicants are able to take the salary with more experience. This is having the effect of creating a whole new wave of revolutionaries disatisfied with the status quo and ripe to be used for rebellion.
Bankruptcies are rising fast as the canary in the coal mine has alerted many that debt can be, in fact, toxic.
So what's the verdict? Is the consumer spending?
The Consumer Confidence Index, released by The Conference Board, sank unexpectedly to 47.7 in October -- its second-lowest reading since May. Forecasters predicted a higher reading of 53.1. A reading above 90 means the economy is on solid footing. Above 100 signals strong growth. The index has seesawed since reaching a historic low of 25.3 in February and climbed to 53.4 in September.And from the U.K. -
the UK Office of National Statistics reported an unexpected contraction of -0.4% GDP growth in the third quarter. This confounded widespread expectations of 0.2% growth and extends the length of the “recession” to six quarters, which is the longest continuous contraction since the 1950s.In June, I posted the following -
‘90% of economists believe we are recovering economically’ and ‘we have hit bottom and we will see slight growth in the Q3 and moderate growth in Q4.’ …' Responding to that, I will say the following: They are wrong! Absolutely in no uncertain terms dead wrong.”Take a good look. This is the true condition of the American consumer as of now. In many instances, a decade of growth, wiped out.
To summarize, the American consumer has less jobs to apply for, to receive a smaller wage, with a dollar that is quickly fading. In addition, his last 10 years of capitol growth has vanished and there are rumblings that the safety nets meant to catch him are failing. Not exactly promising.
In light of all this, it was reported that the GDP of the United States is up 3.5%! But given what we now know about the American consumer, how could this be? Well, to be sure, there is a modicum of spending going on out there but the relevant question is what is it being spent on and by whom?
In part two, we shall review the other side of Private Consumption, business consumption.
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