Join us for debate at our Facebook Group, Liberty Cafe!

Monday, February 1, 2010

Inside the Numbers: 5.7 Percent Fourth Quarter Gross Domestic Product Provides a False Sense of Optimism

It’s been a long time since we’ve seen gross domestic product (GDP) grow at such a robust rate. Not since the third quarter of 2003 has the United States experienced this type of growth. However, that’s all for the good news. Once this number is broken down, it reveals glaring weaknesses.

First off, about two-thirds of the 5.7 percent uptick is attributed to inventory replenishment. This marks an end to businesses’ panicked inventory liquidation and nothing more. Eventually, restocks are in order regardless of market conditions. Considering the mass liquation that has taken place, this number should have been much higher. Furthermore, private inventory investment does not address unemployment.

735,000 jobs were lost in the last six months of 2009. (1) The economy is continuing to shed jobs, as year-over-year GDP growth has remained flat. (2) One key indicator of a strengthening economy is real nonresidential fixed investment, as it indicates the level of confidence business has in the economy. The 2.9 percent increase seen in the fourth quarter does not come close to offsetting the 14.6 percent decline from 2008. (3) Upon digging deeper into the employment numbers, wages and benefits rose a meek 1.5 percent in 2009 – the smallest change since the series began in 1979. (4)

Some will tout the 18.1 percent increase in U.S. exports. (2) However, it is naïve to think the United States can play the same game as China. The pain felt and problems associated with a weak U.S. dollar are far greater than any reduction in the trade deficit. A weaker dollar leads to inflation and makes the prices of imports more expensive. Needless to say, there will be a lot of consumer frustration at the gas pump this summer.

After going inside the numbers, more evidence illustrates that none of the “growth” is real. Last quarter, positive GDP rode the coattails of government injected stimulus. This quarter, inevitable inventory replenishment along with growth being derived from government gimmicks is supposed to excite people. The key here is that sectors that are not benefiting from government stimulus are severely lagging such as equipment and software – down about 16 percent from 2008. (3)

History has proven that the government cannot prop up the economy. During the Great Depression, GDP grew at an average rate of 9 percent per year between 1933 and 1937. However, unemployment remained extremely high, and then the economy suffered another severe downturn in 1937 and 1938. The measures being taken today are not only planting the seeds for inflation, but are creating the conditions for the same kind of unstable environment seen during the Great Depression and the 1970’s.

President Obama’s $3.8 trillion budget will set a record breaking $1.56 trillion deficit for 2010. It is clear that Obama remains steadfast in pursuing anti-growth policies. Taxes on those who produce and provide jobs; burdensome regulation that serves as barrier to entry as well as escalating compliance costs for small businesses; increasing the government’s already huge presence in healthcare; and cap and trade which will increase taxes along with skyrocketing utility costs will ensure the current economic environment for years to come.

How long are people going to fall for the “if we didn’t act, things would be much worse” bit? How well is government-funded “growth” working? How many will be happy with positive first quarter 2010 GDP growth when it is very possible unemployment will continue to rise? Going inside the numbers reveals an ugly truth.





No comments: