Appearance vs. Reality

Maybe if the good news about the U.S. economy gets repeated often enough, appearance will become reality.

We’re not there yet.

The official word from the U.S. Bureau of Labor Statistics is that the unemployment rate has been cut nearly in half, from a double-digit 10% in October 2009 to just 5.5% today.  As the chart shows, unemployment has been steadily falling and, given today’s improving economy it should continue to fall.  So all is good, right?

Not really.  Even CNBC, which is not exactly an anti-government media outlet, has caught on that the U-3 rate is bogus.

CNBC wrote that, “A number of economists look past the ‘main’ unemployment rate to a different figure the Bureau of Labor Statistics calls ‘U-6,’ which it defines as ‘total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers.’ ”

In other words, the U-6 rate is what any sane individual would consider to be the real unemployment rate.

The U-6 rate peaked at 17.1% in April 2010 and by March had fallen to 10.9%, the first time it has been below 11% since Aug. 2008.  So while unemployment has been falling, the U.S. still has double-digit unemployment.  How European!

Another Record Smashed

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Inflation Is Too Low? Tell That To American Consumers.

We’ve explained in the past how the federal government puts a yellow smiley face on its unemployment figures by excluding Americans who have given up looking for work and including part-time workers as if they are fully employed.

Similarly, the Congressional Budget Office estimates the cost of a tax increase or tax reduction under the assumption that the increase will have no impact on taxpayer behavior – so tax cuts have no economic benefit and tax increases produce revenue without harming the economy.CPI

So we shouldn’t be surprised that the Consumer Price Index (CPI), which measures inflation, rigs the numbers by excluding increases in the cost of food and energy.

The Federal Reserve Board’s $3.5 trillion in bond buying failed to boost inflation to the target rate of 2%, but the Fed could have accomplished its goal without buying a single bond.  All it had to do was change the method used for calculating CPI.

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The Unnoticed Recovery

It seems that every day we hear about a stronger economy with real jobs, a recovered housing market and renewed manufacturing strength being just ahead.

We hear about it.  We just don’t see it.

The economy’s been growing for four years now, yet its growth has been so stunted, most of the country still thinks we’re in a recession.  The McClatchy-Marist Poll this week found that 54% of adult Americans think the U.S. in still in a recession, while only 38% think it’s not.

In an economy with a 7.6% unemployment rate (but really more than 14%), any sign of improvement is good news, so we can be thankful that the number of people who think we’re still in a recession is down from 63% in March and 75% in 2011.

Only 29% of those surveyed think their family finances will improve in the coming year, while 19% think they will worsen.  More than half think they will remain the same.

Lee M. Miringoff, Director of The Marist College Institute for Public Opinion, treats the poll results as good news and notes that “President Obama plans to refocus his second term agenda on the economy.”

Well, that should save the day.  Except that a separate poll finds that Americans have little faith in their political leaders.

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Another Clunker

It’s like “Cash for Clunkers,” only for consumers.

You may remember that brilliant piece of Congressional economic planning, where an effort was made to boost auto sales by creating an incentive for consumers to trade in their old, environmentally suspect clunkers for new, higher mileage models.

“Cash for Clunkers” did, indeed, boost auto sales. Until the program stopped, at which time sales plummeted. Side effects included rising auto prices, a $3 billion cost to taxpayers and a negative impact on the environment, since many of the 690,000 vehicles traded in were shredded, not recycled.

Today’s equivalent is the tax increase that took place Jan. 1 to avoid the fiscal cliff.

Exuberance was abundant when economic data for December showed a rise in personal savings. Yet the exuberance turned out to be irrational; much like the initial glee over rising sales during “Cash for Clunkers.”

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Housing Recovery Continues … Sort Of

For the economy to recover, the housing market must recover.  When consumers can barely pay their mortgages, they’re unlikely to spend money on other things – and when consumers don’t spend money, the economy stagnates.

There have been signs of recovery in the housing market in recent months, as we’ve reported, and now there’s more good news:

  •  The Case-Shiller Index, a composite of statistics from 20 cities, showed that housing prices rose 4.3% from October 2011 through October 2012.
  • It appears that housing prices will see their first gain for the year since 2006.
  • The National Association of Realtors’ Pending Home Sales Index is at its highest level in five years and has risen for 18 consecutive months.  At the end of October, it was at 104.8, up 13.2% from a year earlier.

While these are positive trends, statistics can be misleading.  Many current buyers are investors, who are purchasing homes to rent out, not to resell.  If investors believed that housing prices were going to continue rising, they would buy and resell.

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