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Although
relative comparisons are quite useful, the absolute numbers matter, too. In
my experience, Wall Street "analysts" tends to give short shrift to
the latter. That's why, for example, they can argue (with a straight face, no
less) that stocks are cheap vs. bonds -- without making reference to the fact
that bond yields are at artificially-depressed extremes as a result of
unprecedented Federal Reserve assistance.
In "Don’t
Be Fooled by These 10 Misleading Economic Indicators," The Philly Post's Gene Marks highlights a number of instances where knee-jerk
relativism has clouded the bigger picture.
What reports
like "consumer confidence" and "housing starts" really
mean.
We all hear
plenty of economic data every week. And recently, the news reports have been
generally positive. Increased retail sales. Decreasing unemployment. A higher
stock market. But it’s all relative. Sure, we’ve been seeing
better numbers lately. But compared to what? The recession? A lot of the
economic news is more than a little misleading. Let me give just a few
examples, using data and charts from the very excellent Calculated Risk
blog written by Bill McBride.
1. Gross
Domestic Product
Gross Domestic Product, or GDP, is a measure of a country’s industrial
output. During the recession, the U.S. had a negative GDP. So people are
high-fiving because the Fed is predicting growth of 2 to 2.3 percent this
year, which is up from the 1.7 percent growth recorded in 2011. This is not
something to cheer about. China’s economic growth has slipped to
(gasp!) only 8 percent! India is growing at a 7 percent rate. Even Sweden—Sweden,
for God’s sake—is predicted to grow at more than 3 percent next
year. How bad are we doing? If our economy’s projected growth rate
doubles to 4 percent it would still be 30 percent behind its growth rate from
before the
recession, and half of what it was back in the ’80s.
2. Housing
Starts and 3. Home Sales
Did you know that housing starts are about to cap their best quarter
since 2008? Whoopee! But hold on a sec … let’s look a little
closer. Yes, the real estate and construction industries are slowly starting
to recover. But for small businesses in those places you’ve got a long,
long way to go. For example, that fantastic housing starts number? It’s
still at one-third the
level of housing starts back in the mid-2000’s.
Yes, you read right: one-third. New home
sales are hovering around 300,000 per month compared to
1.4 million (yes, million) back in the mid 2000’s. And today’s existing home
sales are about 35 percent less than they were back at
the same time.
4. Unemployment
Rate and 5. Weekly Unemployment Claims
People were slightly concerned the
other week when it was announced that the unemployment rate only fell to 8.2
percent. We should be very concerned. Ask any economist, and they’ll
tell you that a “natural” rate of unemployment (where the supply
of labor is near where the demand of labor is) should be about 6 percent.
That’s because there will always be a percentage of people
unemployed—seasonal employees, etc. Today, our unemployment rate is
much higher than it should be. We still have more than five million
people less employed than before the recession started. In
early April, everyone was excited because weekly unemployment claims were at
375,000 … a four-year low.
That’s really nothing to cheer. Before the recession, weekly unemployment
claims were consistently below 300,000.
Last month, the economy added 120,000 net new jobs. At that rate, it would
take 42 months to get back to the level we were at before the recession.
That’s three-and-a-half years!
Click here to
read the rest.
Michael J. Panzner
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