"This economy is going to come on. I'm confident it will."
- President Bush
More than 3/4 of Americans think we are in a recession. Fortunately the Bush Administration has been able to prove the vast majority of Americans wrong this week, because all the numbers it released say that the economy is still growing.
Well, it is still growing as long as you don't look at the numbers too closely.
Don't be fooled by a larger-than-expected increase in consumer spending. People aren't buying more - they're just paying more for what they buy.
Of course recessions aren't measured by consumer spending. They are measured by GDP growth (or lack of). The economy avoided a contraction in the 1st Quarter and grew by 0.6%, as was reported on Wednesday. Republicans were quick to seize on the numbers as proof of something or other.
So the headline numbers say that we are in slow growth, but not a recession. But below the headlines there are a few problems.
A buildup in business inventories, which bolsters growth in the period in which it occurs, helped the economy keep growing in the first quarter. Stocks of unsold goods rose at a $1.8-billion annual rate in the first quarter after shrinking at an $18.3-billion rate in the final quarter of last year.
Let me translate for you: the fact that companies kept producing goods that they couldn't sell was the reason that the economy growth in the last quarter. Now that's something to build an economy on, huh? And remember that the 0.6% is annualized, thus making economic growth in the first quarter of 0.15% (note: the population of the country increased nearly 1% in the first quarter).
Of course that wasn't the BIG reason why the GDP number avoided negative territory last quarter.
I'll let John Crudele explain it to you.
In coming up with the 0.6 percent annual growth figure, the Commerce Department decided that inflation was just 2.6 percent.
That's lower than Wall Street had been expecting and a tad higher than in the fourth quarter.
Still, the 2.6 percent figure for price increases used for the GDP calculation was nowhere near the 4 percent inflation calculated by other government agencies.
If inflation, for instance, had been 4 percent then the nation's economy would have contracted by an 0.8 percent annualized rate.
And not only that, if inflation was being honestly reported the economy would have contracted in the fourth quarter of 2007 as well.
In other words, there would have been two straight quarterly declines in GDP and the debate over whether or not we are in a recession would be settled.
In the 4th Quarter of 2007 the GDP was also reported to be 0.6%. The government used a 2.4% inflation rate to calculate the GDP of that quarter.
In what universe is the inflation rate only about 2.5%? Even the vastly understated CPI shows more than 4% inflation.
And finally we have today's unemployment numbers.
The U.S. lost fewer jobs than forecast in April, and the unemployment rate dropped, signaling that the economic slowdown may be milder than the 2001 recession.
Anytime the economy loses jobs but the unemployment rate goes down you should be skeptical, and this time is no different. There are a lot of things wrong with this report, so stay with me here.
1) The number of people not in the labor force but still want a job rose from 4.492 million to 4.677 million.
2) The number of part-time workers rose by 661,000, while multiple job holders increased by 131,000.
3) Unpaid family workers (who still get counted as part of the labor force) increased by 26,000.
4) People unemployed for 15 weeks or more went from 2.698 million to 2.911 million. Average duration unemployed went from 16.9 weeks to 18.1 weeks.
5) And finally there is the report that the economy only lost 20,000 jobs last month. The fact is that 267,000 jobs were "created" by the BLS' birth/death model, which is a statistical model used to calculate jobs that don't get picked up in any government survey. In other words, they added in more than a quarter of a million jobs that may or may not exist, just to get a negative number that doesn't look as bad.
And so there you have it. One recession officially avoided by the timely use of truthiness.