Friday, December 11, 2009

Signs That The Recession Continues

Despite recent media and government claims that we are our recovering from the most recent recession, Moses Kim discusses evidence to the contrary. Factors such as the the amount of debt that Americans carry, limited recent rates of savings and under-reported unemployment rates may lead to a longer recession that previously expected. See the following post from Expected Returns.

The non-stop media propaganda signaling the end of the recession, supported by government officials and mainstream economics who didn't see any of this coming, is amazing in light of the evidence that we are in an environment that can only be described as depressionary. What you are witnessing now is a concerted effort to obfuscate true economic conditions, which are obvious to small business owners, the millions of underemployed and unemployed, bankrupt states and municipalities, and the minority of individuals who saw this disaster coming in the first place.

Ask any proponent of the "jobless recovery" theory for their reasoning and you'll likely get a response that mentions the growth in 3rd quarter GDP. However, simply focusing on GDP growth rates, and heavily manipulated rates at that, is an incredibly simplistic approach to assessing the health of an economy. The latter portion of the 1930's were characterized by rising GDP rates and prolonged unemployment- yet we were still in a Depression. Furthermore, preliminary GDP numbers are subject to massive revisions. Case in point: Japan's 73% downward revision for 3rd Quarter GDP.

Retail Recovery?

The cheerleaders were out in full force following the consensus that Black Friday retail sales increased 0.5%, albeit from disastrous 2008 figures. I believe these initial reports are overly optimistic and that eventually data will come in that is more in line with reality. For example, check out this recent report from Shoppertrak that shows foot traffic in November fell 6.1% from last year. The report goes on to add that consumers are more tactical with their buying decisions, which essentially equates to lower profits for corporations that must grow accustomed to thinner margins.

Why am I so sure that preliminary retail sales numbers for Black Friday are in lala land?

Personal Income

Individuals can only spend what they have. The home equity piggy bank that funded consumption expenditures has long disappeared along with jobs. Individual personal income figures for November are up 2.0% YoY. But note that personal income includes direct subsidies from government, which of course, have been rising, and deducts tax contributions form individuals, which have been falling. Essentially we are shifting from organic income growth to debt-financed, government supported income growth. It doesn't take an economic expert to figure out which is the preferred driver of income growth.

Consumer Credit Outstanding

Without access to credit, Americans have to rely on savings to fund consumption. Unfortunately, Americans did not save for the better part of the last decade. See this post for more information on the collapse of consumer credit outstanding.

Deteriorating Unemployment Picture

The simple approach to analyzing unemployment data, and the approach most analysts take, is to look at a falling unemployment rate and use that as evidence that more people are getting jobs. Remember in July when the unemployment rate fell from 9.5% to 9.4% and everyone was signalling a turn in unemployment? What followed? A spike right back up to 10% that had the commentators over at CNBC positively befuddled.

The truth is that government methodology, especially post-Clinton, is a joke and that millions of discouraged and marginally attached American workers are not measured in unemployment statistics. Courtesy of the Bureau of Labor Statistics, here's a chart of discouraged workers since the start of the recession. Note that these unemployed people have given up looking for a job, and are therefore not included in unemployment statistics. This number increased by 53,000, with little fanfare of course, from October to November.

The "real" unemployment picture must explain why Americans are growing more pessimistic on the Economy.

Government Stupidity Guarantees Epic Disaster

Our economic policy is dictated by Keynesian economic theory filled with holes the size of planet earth. I honestly believe Keynes was too smart to actually believe his own theories that take presumptions, intuitions, and groundless assumptions and present them as scientific fact. One example of Keynesian sophistry is that government-created dollars are just as good as real savings. How anyone can posit such a ridiculous theory and get away with it is beyond me. Why work if the printing press can magically create savings (which are effectively your source of investment funds- even according to Keynes)?

Because of our mammoth debt load, I am 100% sure there will eventually be a debt default in America. That more Americans aren't aware of this mathematical certainty that requires elementary-level mathematics is amazing to me. Most people won't recognize we're in a Depression until it's staring them right in the face, and at that point, it will be way too late to prepare.

I have included a poll posing a question: Is the "Great Recession" over? Please participate, I'm interested in what everyone thinks!

This article has been republished from Moses Kim's blog, Expected Returns.

1 comment:

Anonymous said...

This article is ubeleivable!!!!!
Answers all my questions and concerns. God I though only I was so stupid and don't see this "RECOVERY" media and some Harvard educated professors are shamelessly telling us is under way..... Is there any conscience left in this society?

Thanks for the article!