The US economy shrank at an annualized rate of 2.9 percent in Q1
washingtonpost.com
washingtonpost.com
Prime-age employment: http://data.bls.gov/timeseries/LNS12300060
Median wealth, and the median wealth of various segments: http://finance.yahoo.com/blogs/daily-ticker/for-most-familie...
Median income: http://advisorperspectives.com/dshort/updates/Median-Househo...
Wealthy people cannot drive consumption, because they spend a far smaller part of their income on it.
edit: I intentionally use the prime age employment rate (as is convention of late) in order to avoid objections that the low employment rate is the fault of a large segment of baby boomers retiring.
The general numbers look worse, not better: http://data.bls.gov/timeseries/LNS12300000
In good times, 1 in 5 people don't work. So saying 1 in 4 is a massive change [when it is 5%] isn't really correct.
It also is only 'prime' so 25-54. 55-65, people still work. Same with under 25.
Does the Social Security Administration release data on the number of people collecting SS benefits who are also working? Very interested in the number of people delaying retirement in order to keep working (either because base SS doesn't cover their living expenses, or because they're delaying collecting SS to increase their monthly benefit).
http://money.usnews.com/money/retirement/articles/2013/02/11...
Turning 65 is no guarantee that you will be ready or willing to retire. A rapidly growing number of Americans are continuing to work beyond their 65th birthday. The proportion of people age 65 and older in the workforce grew to 16.1 percent by 2010, up from 12.1 percent in 1990, according to a recent Census Bureau report. And the percentage of people between ages 65 and 69 who are working grew 9 percentage points to 30.8 percent in 2010.
Its still age 65 for the people who have hit age 65 so that is close enough I think?
Also, this is labor force participation, not unemployment. If you carried this back to the 1950s, it would be around 60%, because most women didn't work back then.
So yes, I am really accusing the Bureau of Labor Statistics of cherry-picking the scale. I don't assume any malice on their part, only that they intended the graph to be used for purposes other than how it is used here.
http://dictionary.reference.com/browse/cherry-picked
That's also not what arbitrary means. If you select numbers that are just outside the range of a particular set of data, that's anything but arbitrary. Arbitrary means to choose based on someones discretion or judgment rather than to determine by rule. Comes from the same root as arbitration.
http://dictionary.reference.com/browse/arbitrary
I'm not saying all of that to criticize your use of words, I'm saying it because I honestly don't know what you're trying to say. I think you're probably changing the goalposts.
That said, "unemployment" is a very tough figure to calculate (as are most macroeconomic figures), and there's a lot of pseudo-controversy about what the numbers mean. Wiki does a good job summarizing how the BLS calculates unemployment [1].
[1]: https://en.wikipedia.org/wiki/Unemployment#United_States_Bur...
You have mistaken bureaucratic doublespeak for English. I think it clear we are speaking in standard international English here. Letting the US government redefine words such as "unemployment" to mean something other than "the state of not having a job" is something straight out of a dystopian novel.
A graph of GDP plotted as a percentage of current GDP at that scale could make the recession seem like a tiny little 2% blip.
My point is that perspective matters - a lot. By the numbers, this recession is worse than any since the Great Depression. By the numbers, this recession is only a small percentage of the total U.S. economy. Which numbers are correct? Well, they're actually the same numbers, what matters is how you use them and what conclusion you're trying to draw.
From my personal perspective, the recession was great. It meant I could actually get decent rents in the Bay Area for the first two years after I moved out here, and I could pick up stocks for relatively cheap, and I had no problem getting a job. I realize this is not the perspective of many other people, and the numbers help tell me how many other people. And one of my professional startup interests is finding better ways to help people manage their careers, so I'm quite interested in hearing other people's perspectives (if you have stories or want to vent, feel free to e-mail me...I'm quite happy to listen, my e-mail address is in my profile.) But understand that numbers always require interpretation - whether the graph is misleading or not depends entirely on where you're leading people.
Personally, my salary has tripled since the recession, and my wealth increased by a factor of five or six. The adult, established upper-middle class is doing fine. My pre-tax savings rate is over 50% though, so I'm not doing a consumption-driven economy any favors.
Not trying to contradict anything you've said; merely adding an alternate perspective.
Choosing 0 to 100 doesn't add anything because what does it even mean to have 0% employment or 100% employment. Those are not even reasonable bounds to start with given the topic at hand. I can't even imagine any conditions under which either extreme is plausible.
A peers comp here would be far more illustrative than choosing any particular Y-axis scale. If for example the same employment figures for all other countries were plotted on the same graph, we would see extremes, from the country with the lowest employment rates to the highest employment rates. Those figures would serve to provide reasonable bookends for a graph. If no economy in the world has an employment rate of less than 45%, then a lower bound of 40% would be reasonable. If no country exceeds 85%, than an upper bound of 90% would be reasonable. The scale chosen should illustrate plausible ranges of employment for any modern economy.
What does matter in all this is the time series plotting and whether or not this data suggests that there may be a virtuous/vicious feed back loop when the employment deviates from some stable level. For example, once employment falls below a certain point, does that contribute to a perception that businesses should be tightening their belts, further exacerbating the problem. Likewise, when the figures are moving up, businesses anticipate economic growth and therefor start hiring in preparation for the growth.
This graph is the equivalent of measuring distance, when measuring the first (velocity) or second (acceleration) derivative might be more illustrative of how serious all this is. When matters is not how much something has fallen or rising, but how fast it is falling or rising and if it is starting to speed up or slow down.
When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business.
Before the financial crisis, consumers borrowed aggressively to finance consumption, like drunken sailors... but unlike the financial sector, they never got a bailout. They were forced by the circumstances to follow Steve Martin's advice from Saturday Night Live: "don't buy stuff you cannot afford."[2]
Are we really that surprised that many consumers are reluctant to borrow and/or spend like before the crisis?
--
Edits: modified first paragraph to convey what I actually meant to say, in response to ctl's comment. The original paragraph was poorly written. (Thanks for pointing out the inconsistency, ctl!)
--
[1] http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp...
Spending was muted because of the harsh winter. Recent economic indicators have been very positive so expectations are for a significant rebound for Q2.
http://www.businessinsider.com/why-health-care-spending-in-g...
Seems like it is not only unsurprising but also a good thing. People learned a lesson about spending recklessly and some economists would claim that's a bad thing. GDP is not the end-all, be-all metric of a healthy economy.
Bring on the pain, I say. Real growth comes from companies investing in their workforce, not people drowning themselves in debt.
Put another way: it used to be that you could buy a house for the equivalent of a year's salary. Now it seems most houses are about 5-6x the average salary of a given area. If that were still the case today, most Bay Area residents should be making near 1 mil/year or houses here should be closer to about $150-200k, more likely the latter since credit is primarily the reason for the inflated cost.
GDP is a great metric for long-term or inter-national comparison. It's terrible as a quarterly national management metric.
Specifically, I'm wondering if there was a time when we were having the same debate about housing that we are now having about college tuition, but that it has been long enough (and there have been economic gains for homeowners) that we conveniently forget how much our longstanding policies drive up housing prices. The idea of buying a home on a full year's salary sounds crazy, but then again there was a time when 4 years of college could be paid off fully via part time work while at school, something that is distant pipe dream these days for the majority of jobs within the reach of most college students.
I'd like to be in an alternate universe without the Iraq and Afghanistan wars. Afghanistan is famously The Graveyard of Empires, and I wonder if we are not just staggering around with a mortal wound, with another crash coming to bring us down comprehensively. Nationalizing the ibanks instead of TARP would be a nice alternate universe, too.
It is interesting, and sad, to think of how much may have ended up hanging on a couple of hundred Florida voters. Of course, it may be wrong to think that a Gore presidency would have been all that different.
And also consider that homes built today have to go through tons of regulatory costs (building codes, politics with permits), there are new technologies installed, AC, internet, upgraded roofing, better foundations, upgraded wiring, possibly an HOA, rec center, etc, paved sidewalks in front of every house. The US Census Bureau has also determined that the average size of a home is 2,480 square feet vs 1,600sqft in 1970. All the progress that we have made with homes today costs.
If this was true across the board (tightened credit), homes simply would not sell at their current prices. Most people, with the expenses of day-to-day living, would have a very difficult time scrounging up $600k for the down payment of a home, if they could do it at all in their lifetime. Meanwhile the stock of unsold homes and anxious homeowners looking to move would grow. Market forces would eventually push these prices down.
This isn't even theory. This literally happened after the crash when banks stopped loaning money. People wanted to buy houses, and why not? Loan rates were insanely low. But a substantial portion of the population found it difficult to extend their credit further, or get first-time credit, and thus house prices tanked around the country.
You're right that the Bay Area is unique. We have a dangerous combination of: The aforementioned credit, many highly paid people, and people who are younger, and perhaps less intelligent with how they evaluate the value of things, using credit as a sledgehammer to get what they want. But even well-payed engineers couldn't afford the houses around here without substantial credit extension.
http://www.tradingeconomics.com/united-states/personal-savin...
Savings rate, now: 4%
Pre stock-bubble average: 8%
edit: "Personal Savings in the United States increased to 4 percent in April of 2014 from 3.60 percent in March of 2014. Personal Savings in the United States averaged 6.82 Percent from 1959 until 2014, reaching an all time high of 14.60 Percent in May of 1975 and a record low of 0.80 Percent in April of 2005."
In fact, while personal income has been increasing on a low nominal basis, income growth rate has been slowing.
Yes, PSR accounts for "disposable" income, but that term can be somewhat misleading. Disposable income is simply the net of income minus taxes. It's not necessarily available for discretionary purposes.
I would say that savings rates are quite low right now, and that accordingly, nominal consumption is high. But there's a deeper story there.
http://www.bea.gov/newsreleases/national/pi/pinewsrelease.ht...
For instance, it is not incongruous right now to say that a) people are saving proportionately less, and b) people are not buying as much stuff. Obviously they are spending in direct proportion to what they're not saving -- but the categories of their spending matter a great deal.
Tl;dr is I'm not disagreeing with you at all; I'm just expanding.
Are you talking about some kind of consumption that isn't measured in dollars? I'm not talking about the amount of things that people are consuming, I'm talking about the percentage of their income that they are spending on consumption. Whether that buys a can of peas one year and a yacht the next makes very little difference. If during that first year, everybody bought a can of peas, and in the second, everybody bought a yacht, consumption hasn't increased.
In other words, if your savings rate had to lower because you make less money and things are more expensive, your consumption has gone up.
edit: I'm not trying to make a statement about Americans being wild spenders; I'm trying to make a statement about the possibility of a consumption driven recovery. Americans are very close to the limit of the ability that they have to spend more.
The original comment I was elaborating on was talking about other factors that can impact PSR without a change in consumption patterns as measured by what goods and services are received not the nominal value spent on them. One important and very real factor is that nominal income growth for most workers has not grown as fast as inflation. On a macro level you're right, but at the individual level it's that mismatch that matters.
I wasn't talking about measuring consumption in dollars but in value received. If I buy a can of peas this year for $1 and a can of peas next year for $1.10 (assuming no factors specific to the peas or can market), then I have consumed the same amount in terms of the benefit I get. You're also right that I've consumed more in terms of nominal dollar values, but nominal dollar values wasn't the measurement stick I was using when I said they consume the same amount.
The article implies that the main driver here is reduced consumer spending from a harsh winter.
I'm talking only about consumer borrowing and spending prior to the crisis in 2008. My understanding is that, five years after the crisis, consumer spending still has not recovered[1], which seems rather unusual for an economic recovery.
PS. I modified the first paragraph in my comment above, so it more clearly conveys what I actually meant to say.
--
[1] For example, see http://www.clevelandfed.org/research/trends/2014/0214/01houc...
While a large element of this was the affordable care act, it is also notable that healthcare inflation went negative for the first time in 20 odd years last quarter (education did too, but thats another story).
Given the US currently spends twice the amount of other countries on its health care as a % of GDP (14%) for similar health outcomes and individuals are being significantly disincented to spend on healthcare via subsidies and high deductibles respectively, I think we will see increasing normalisation of healthcare spend to levels under 10% of GDP, a huge drag on GDP.
This will be further accelerated by smartphone and biometric proliferation allowing for easier and more reliable diagnosis and treatment choice.
Interesting times.
While the primary aim of the ACA is not overall cost reduction (but, rather, make it affordable for the uninsured to get insurance), there are several reasons it could go down that path.
The marketplaces and minimum standards for insurance plans make it easier to comparison shop.
The fact that people will have insurance will lead to earlier and cheaper treatments for potentially serious disease.
Businesses can get out of the insurance business altogether. As businesses remove themselves from the equation individuals will be more attuned to the cost of their insurance plans and shop accordingly.
There are some direct provisions for paying providers for disease prevention and effective treatments that lead to patients not having to return for the same issue rather than just for treatments reversing that twisted financial incentive.
Granted, there are plenty of ways for these potential cost benefits to go sour but there is a good chance that the ACA will actually reduce costs relative to what they would have been without the ACA.
It's a pretty impressive study. They took a number of uninsured in Oregon and held a lottery. Half of the people got free access to Medicaid and the other half remained uninsured.
The study found that costs go up (because people now have health insurance), but people weren't better off in terms of health (except for those with depression).
[1]http://en.m.wikipedia.org/wiki/Oregon_Medicaid_health_experi...
Seems like the study didn't reach any significant conclusions at all...
The root of the problem is that GDP doesn't measure changes in capital stock. For example, after Fukushima, Japan's GDP ticked up slightly because of the expenditures from disaster recovery. Obviously it's absurd to conclude that Fukushima was good for the economy--the loss of capital more than outweighed the money spent fixing things. The same principle has many different implications. For example, if we reduced air pollution, expenditures on treating lung cancer would go down, hurting GDP. Countries that are heavily based on oil or mineral exports have artificially inflated GDP, because the measure excludes the decline in the value of reserves.
If GDP does included anything stock, would that really be accurate? Not an expert, but isn't stock priced on the future value of something (ie dependent upon future sales forecasts). since GDP is backward looking, i don't think it should be counted? stock could be used as a predictor of future GDP since the stock is trying to put a value to future sales.
Also, wouldnt that also double count certain sales? ie each iPhone sold would increase goods sold as well as the companies stock price?
But getting a true measure of the ability of the US economy to create a comfortable life for as many people as possible also needs to take a very hard look at military spending and the share of the manufacturing economy that goes into actual and potential destruction of capital. Are those police rifles and APCs "economic output?"
When the Soviet Empire was stripped of an outsize military and internal security apparatus, what was left was a GDP the size of Italy.
So it cuts both ways: Health care deflation is probably good, and calls for a higher quality of life number. But that monstrous security state we are dragging around also should get moved to the negative column.
That depends on your definition of "economy," doesn't it? When I picture an economy, I picture goods and services being consumed and money changing hands. That's what GDP measures. Should money locked up as capital be counted as part of the economy?
The problem you allude to, rather, is that:
1) People use GDP as a proxy for some kind of "economic goodness" (not simply "activity").
2) The two concepts generally correlate.
3) But there are known cases where the two diverge -- when economic badness happens, and yet GDP goes up.
4) But people still call it good despite the recognition of the special case.
[1] I think the appropriate way to economically characterize window-breaking/repair scenarios is: "It used to be hard to identify good uses of scarce resources; now that vital stuff got destroyed, it's easy." See: http://blog.tyrannyofthemouse.com/2011/12/broken-windows-par...
The US does an incredible job with a fat, unhealthy, diverse population, even if we pay dearly for it.
To me, the "winter sucked" excuse sounds like complete BS, a transparent lie along the lines of, "Well, I just didn't want to order the tide to stop right now." This is a massive change (down a total of 7% or so from two quarters prior) and surely the weather, while unusual, wasn't that strong.
But maybe it really is a big factor. I'm far from an expert. Can anyone comment on whether the weather (heh) reasoning is sane?
- Damage due to harsh weather causing a net drag on businesses, causing them to be more conservative with spending.
- All of the store, school, etc closures due to inclement weather.
- Even without store closures, many people are less likely to leave their homes (i.e. spend money) when the weather is bad, even if the weather isn't 'snow day' bad.
I feel that it's probably unlikely to be entirely due to the weather, but I don't think that we can discount the effects a harsh winter can have.
A quarter is roughly 91 days. About 65 of which are week days, and that is where most economic activity happens.
Suppose that bad weather costs you 30% of economic activity in half the country for just one of those week days. That works out to losing 0.23% of the quarter's economic activity. But we are using a quarter to estimate annual growth, so that now looks like losing 0.92% annualized growth. From one day of disruption over part of the country.
As you see, blip from a bad winter storm on the East Coast really can cause the economy look like it is headed in a much worse direction than it is for a quarter.
This past winter was peculiar in that regard because not only there were more snowstorms overall than the previous year, but also there were major snowstorms in regions that seldom see that kind of weather like the South. And it shows in the figures for residential and commercial building during the quarter.
These seasonalities however are well understood and don't matter nearly as much, in part because construction companies often catch up on their delayed projects during the subsequent quarter. This is one the reasons why reading too much into annualized quarterly fluctuations can be misleading at times [1].
[1] http://jaredbernsteinblog.com/whoa-whassup-with-that-big-neg...
Also, I love how I can ask this question and get a ton of quality answers in quick succession.
Here you can take a look at the most recent release of the Employment Situation.[2] It states that the survey of businesses indicated 217,000 more people working. Now, look at the table of the data.[3] You have
May: 139,192 thous Apr: 138,272 thous
=> Surveys of businesses therefore indicated that 920 thousand more people were working!
So, what's going on? It is that no one cares about reporting the seasonal cycles in employment, because it isn't news that helps you understand economic trends. So, people actually look at the seasonally adjusted data.
May: 138,463 million Apr: 138,246 million
=> 217 thousand more people
In order to come with the seasonal factors the Census (and BLS and BEA) use an autoregressive integrated moving average. Back to your original question, what does it mean to say that winter sucked? It means that people's prosperity was lowered by the winter, just like it always is, but while the seasonal factors usually remove that effect this time they are part of the seasonally adjusted data because the seasonal factors are derived from past data with less severe winters.
Really it comes down to the fact that a single score is inappropriate for an understanding of the economy. GDP measures GDP, and something else with a different methodology would measure something else. You can find the fallacy acted out online with sites that purport to improve the data with adjustments without explaining the tradeoffs that come with adjustments by definition.
[1] http://research.stlouisfed.org/fred2/graph/?id=RSCCAS,RSCCAS...,
Note the decidedly different tone from this entry on the same Washington Post Wonkblog:
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/25/t...
Besides, computers are just tools. A means to an end. To the hammer designer, is a discussion about home building relevant? The economics of home building? The economics of people buying homes? The psychology of homebuyers? Is psychology relevant to hammer design? Maybe. Relevance is complicated.
No, it's not. There is little to no recovery. The only surprising thing about analysis like this is how far the author goes to avoid explicitly stating this when it's so implicit in the article.
To me it seems the goal should just be how much stuff did we make? If that number went up, then good (except corn).
We know what inflation is, and that the price of healthcare is not dropping.
>To me it seems the goal should just be how much stuff did we make? If that number went up, then good (except corn).
We also know about the trade deficit: http://www.businessinsider.com/us-trade-balance-march-2014-2...
Also, in what units are you going to measure the total amount of stuff made, if not in currency?
sp332 uses the ~= symbols for approximately equal because technically you can't just divide the percentage by four like that. 2.9%/4 = .725% (exactly), but technically four quarters at .725% shrink each would produce 100%-((100%-.725%)^4) for the year, which is a 2.869...% decrease, not exactly 2.9%. But for small percents being compounded a small number of times it is a decent approximation, in this case thoroughly dominated by measurement inaccuracies and noise levels; the small percentage and the small number of compoundings work together to keep the error very small.
Anyways, for the reasons given above, it's indistinguishable. If the economy was changing rapidly enough for it to matter, well, since it can pretty much only shrink at sufficient rates to make a difference we'd probably all have better things to do than argue about compounding correctly...
But it is worth reminding people you can't do than in general, because it is easy to forget. See also the Rule of 72: http://en.wikipedia.org/wiki/Rule_of_72
It would be an extremely false statement to write, "The U.S. Economy contracted by 18.25% on Sunday before Thanksgiving", which is how our title reads. ("The economy shrank almost 3 percent in Q1").
The number 3% doesn't appear anywhere, just as the number 18.25% doesn't appear anywhere. sp332's very good point is that it should include the word "annualized" or read "0.7%". A huge difference!
If we assume the annualized rate, the economy would be 97.1% of its current size in a year. The fourth root is 99.267%, so the economy shrank about 0.733% this quarter. If it does so for four consecutive quarters, it will decrease by 2.9%.
I know that's what you said in the first place, but when extrapolating further into the future, it makes a difference.
If you calculate 1-(1-x)^(1/4), the difference between the true answer and x/4 is approximately 3 * x^2/32. For a figure of y percent, this is a relative error of 0.375 * y percent. Ignore it when y is small.
The GDP figure is only known to something like 1 or 2 decimal places.