Torturing Numbers
NEW YORK — The U.S. economy ended 2009 with the worst contraction since 1946, at the end of World War II.
But in the last quarter of that awful 2009, the economy grew at an annualized rate of 5.7 percent.
That is, if the economy had maintained the pace of recovery seen between October and December, the U.S. would have grown at an exceptionally intense pace. Instead, the economy has been filed on the same dusty shelf of history as the Great Depression.
But it's not like that. Tortured numbers will tell you anything.
In the methodology of calculating the U.S. GDP, the Commerce Department puts an appropriate weight on the companies' replenishment of stock. That is, there is an important influence on the calculation of the GDP in relation to companies keeping finished products in their warehouses.
In a highly unpredictable period, such as the 12 months preceding September 2009, these companies have reduced the maximum volume of stock in all sectors. During this time, "cash was king." Nobody wanted the warehouse products that few were willing to buy. The best way to go was to have money (and the more the better) on hand for contingencies during a time of roller coaster markets and an unpredictable economy.
If we exclude the replenishment of stocks (which has nothing to do with the final consumption level of households) from the calculation of U.S. GDP, the country's GDP grew only 2.3 percent in annualized terms in the last quarter of 2009. A small amount after 12 months on the brink of an economic depression.
Household consumption in the U.S. accounts for 70 percent of GDP growth. Without people going out to spend, the country does not grow; and people are not spending.
In the same quarter of last year, household consumption grew at an annual rate of just 2 percent, which was even lower than the previous three months (2.8 percent).
Family savings also continues to rise (it is almost 5 percent of disposable income, more than double compared to the beginning of the crisis). Fearing unemployment (at 10 percent) and eviction for nonpayment of real estate services, families are keeping the brakes on in relation to expenses.
Without families spending and businesses building up inventories, this factor will no longer influence growth very much. The 5.7 percent at the end of the year is definitely in the past.
Worse still, the public sector, which had been holding the line with billions in economic spending at the end of 2009, will be forced to cut costs due to political reasons.
Barack Obama is under pressure in this sense. "Families are tightening their belts and making tough decisions. The government should do the same," the president said [in his State of the Union address]. He is facing elections later this year, in which the majority in the Senate and House could be lost.
The same is true in states and municipalities. The city of New York, for example, announced plans to save $63 billion in the coming months. In order to help cut expenses, 1,300 police who are expected to retire this year (of a total of 32,817) will not be replaced.
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While on vacation [last month], I was in a bar in New York having lunch at about 4 pm when various people started arriving to fill out a job application. More people began to file behind them asking for a form to fill out. It was what they refer to as an "open call," when some bars and restaurants open jobs. At least two dozen people showed up.
I talked to some of them. They had been unemployed for months, or they were people looking for a second job or extra income because things have changed, or because their partner had lost their job. There was everyone from ex-office employees to former civil servants. Some had been out of the job market for more than six months.
If this is a picture of the "recovery" of the world's largest economy, it is difficult to know where the growth will be.
But in the last quarter of that awful 2009, the economy grew at an annualized rate of 5.7 percent.
That is, if the economy had maintained the pace of recovery seen between October and December, the U.S. would have grown at an exceptionally intense pace. Instead, the economy has been filed on the same dusty shelf of history as the Great Depression.
But it's not like that. Tortured numbers will tell you anything.
In the methodology of calculating the U.S. GDP, the Commerce Department puts an appropriate weight on the companies' replenishment of stock. That is, there is an important influence on the calculation of the GDP in relation to companies keeping finished products in their warehouses.
In a highly unpredictable period, such as the 12 months preceding September 2009, these companies have reduced the maximum volume of stock in all sectors. During this time, "cash was king." Nobody wanted the warehouse products that few were willing to buy. The best way to go was to have money (and the more the better) on hand for contingencies during a time of roller coaster markets and an unpredictable economy.
If we exclude the replenishment of stocks (which has nothing to do with the final consumption level of households) from the calculation of U.S. GDP, the country's GDP grew only 2.3 percent in annualized terms in the last quarter of 2009. A small amount after 12 months on the brink of an economic depression.
Household consumption in the U.S. accounts for 70 percent of GDP growth. Without people going out to spend, the country does not grow; and people are not spending.
In the same quarter of last year, household consumption grew at an annual rate of just 2 percent, which was even lower than the previous three months (2.8 percent).
Family savings also continues to rise (it is almost 5 percent of disposable income, more than double compared to the beginning of the crisis). Fearing unemployment (at 10 percent) and eviction for nonpayment of real estate services, families are keeping the brakes on in relation to expenses.
Without families spending and businesses building up inventories, this factor will no longer influence growth very much. The 5.7 percent at the end of the year is definitely in the past.
Worse still, the public sector, which had been holding the line with billions in economic spending at the end of 2009, will be forced to cut costs due to political reasons.
Barack Obama is under pressure in this sense. "Families are tightening their belts and making tough decisions. The government should do the same," the president said [in his State of the Union address]. He is facing elections later this year, in which the majority in the Senate and House could be lost.
The same is true in states and municipalities. The city of New York, for example, announced plans to save $63 billion in the coming months. In order to help cut expenses, 1,300 police who are expected to retire this year (of a total of 32,817) will not be replaced.
*
While on vacation [last month], I was in a bar in New York having lunch at about 4 pm when various people started arriving to fill out a job application. More people began to file behind them asking for a form to fill out. It was what they refer to as an "open call," when some bars and restaurants open jobs. At least two dozen people showed up.
I talked to some of them. They had been unemployed for months, or they were people looking for a second job or extra income because things have changed, or because their partner had lost their job. There was everyone from ex-office employees to former civil servants. Some had been out of the job market for more than six months.
If this is a picture of the "recovery" of the world's largest economy, it is difficult to know where the growth will be.