Government Spending Inflates GDP Report

Friday, October 26th, 2012 and is filed under Blog, Debt, Economy

The Bureau of Economic Analysis published its report for 3rd quarter GDP and found that the economy is growing at a mediocre 2.0% rate, a slight improvement of the 1.3% growth in the 2nd quarter. Had we not experienced such a deep recession, this number would not concern us. However, in order to recover from such a deep recession we need consistent growth of 4% and some quarters of 5-6% growth.

During the Reagan recovery, there were some quarters when we were growing by 8-9%. Overall, the economy has grown by an average of 1.77% in 2012. Overall, since 2009, the economy has grown by the slowest rate of any recovery in the post-World War II period.

Moreover, the 2% number does not tell the whole story. As is the case with any economic report, you must drill down into the numbers. GDP is comprised of four components, one of which doesn’t belong in the equation – government expenditures. Here is the breakdown of the GDP report:

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Obama’s Legacy: Prices Up; Income Down

Thursday, October 25th, 2012 and is filed under Blog, Economy, Obamacare, Taxes

Barack Obama’s pitch for a second term is singularly built upon blaming his predecessor for the malaise.  However, the irony is that he is slated to leave office and saddle the next president with his legacy; higher consumer prices and lower income.

Here is what consumers will confront over the next 6-12 months, according to a new analysis by Moody’s Analytics cited by Reuters:

Another area of concern for consumers is food prices. Rises in the prices of corn and soybeans and other field crops as a result of drought this year in the U.S. Midwest are expected to feed through into food prices late this year and in early 2013.

U.S. soybean prices jumped 40 percent over the summer, while wheat shot up about 50 percent. Prices have eased a bit since then, but the increases are expected to filter down to consumers.

“We are starting to see evidence of food prices moving up so that’s definitely going to be a drag on disposable incomes,” said Hoyt of Moody’s Analytics.

The U.S. Department of Agriculture sees food price increases of 3.5 percent to 4.0 percent next year, greater than this year.

Hoyt says that could cut 0.2 percentage point from economic growth over the winter, when food prices could peak.

Reflecting the strain on many budgets, U.S. shoppers plan to spend an average of about $750 on gifts, decorations and other holiday items this season, only 1.2 percent more than a year ago, according to a recent survey published by the National Retail Federation.

That would be the smallest increase since 2008-2009, when holiday sales fell 1.8 percent during the financial meltdown.

“You could argue that we are still at recession levels on a lot of the consumer indicators,” said Jeffrey Cleveland, a senior economist at investments manager Payden & Rygel in Los Angeles. “I don’t expect the consumer to be a powerhouse.”

Another big extra outlay will be in healthcare premiums, which on average are costing employees more than $2,200 in 2012, according to Aon Hewitt, a human resource consulting firm.

Average health care premiums are forecast to jump by 6.3 percent in 2013, according to Aon Hewitt

Over the last five years, employees’ share of healthcare costs will have increased more than 50 percent, it said.

On top of everything else, the cost of a college education is being felt more keenly by many Americans.

Tuition costs for the 2012-13 academic year rose again but federal grant aid and tax benefits did not increase in the previous year – the most recent for which data is available – according to a report published on Wednesday by the College Board Advocacy & Policy Center.

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The Debt: One Thing Obama did Build

Tuesday, October 23rd, 2012 and is filed under Blog, Debt, Economy, Taxes

Now that we’re just two weeks away from the election, and hopefully on the precipice of defeating Obama, it’s worthwhile to reexamine the numbers pertaining to Obama’s accumulation of debt.  Here are all the latest numbers as of today:

  • Total Gross Federal Debt = $16.196 trillion (10/19/12).  That’s a $5.57 trillion increase from when he was inaugurated.
  • The public share of the debt is $11.347 trillion, which is a $5.04 trillion increase.  It took from our country’s founding until August 2007 to accrue $5.04 trillion in public debt.
  • Share of Debt per taxpayer (based on 81,890,189 tax returns filed in 2009) – $197,775.
  • As CNS’s Terence Jeffrey reported this week, total debt held by foreign creditors is $5.43 trillion. That is $47,494.93 per household, an increase of about $19,841.64 per household since Obama took office.
  • China owns $1.164 trillion of our debtEvery taxpayer owes China $14,214
  • From June 2009 to June 2012, inflation-adjusted median household income fell 4.8 percent, to $50,964.

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More Fuzzy Math on Jobs Numbers

Thursday, October 11th, 2012 and is filed under Blog, Economy, News

Last week, we pointed out that the decline in the unemployment rate reflected data from an obviously defective household survey from the BLS.  I never really suspected any malice in the report, just a statistical anomaly.  However, today the BLS just released the weekly jobless claims, and I’m not sure what to conclude.  Jobless claims tumbled to 339k from roughly 370k.  At first, I didn’t think much of it; I thought it was just one good week.  The I came across this observation from Tyler Durden at Zero Hedge:

This is just getting stupid. After expectations of a rebound in initial claims from 367K last week (naturally revised higher to 369K), to 370K (with the lowest of all sellside expectations at 355K), the past week mysteriously, yet so very unsurprisingly in the aftermath of the fudged BLS unemployment number, saw claims tumble to a number that is so ridiculous not even CNBC’s Steve Liesman bothered defending it, or 339K. Ironically, not even the Labor Department is defending it: it said that “one large state didn’t report some quarterly figures.” Great, but what was reported was a headline grabbing number that is just stunning for reelection purposes. This was the lowest number since 2008.

Remember, this is not some conspiracy theory.  The BLS is actually drawing attention to itself by pointing out that there is missing data from some unspecified “large state.”  I can guarantee you that it’s not a job growing state like Texas.

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Radio Interview on Contradictory Jobs Numbers

Sunday, October 7th, 2012 and is filed under Blog, Economy

Over the weekend, we taped a segment for the NRA News radio on Sirius discussing the statistical improbabilities and contradictions of this month’s jobs report.

To download the audio of our segment, click here and go to the October 5 show.  We’re on the last segment at the 2:36 hour mark.


Why Today’s BLS Jobs Numbers Make No Sense

Friday, October 5th, 2012 and is filed under Blog, Economy

Every month, we try to break down the monthly employment report from the BLS and analyze it in plain English.  Today’s report of September employment is so bizarre that it’s hard to comprehend, much less give over.

The BLS puts out two surveys:  1)the establishment survey, which shows the growth in non-farm payroll jobs (as well as a breakdown by specific industry), surveys businesses and 2) the household survey, which measures broad census data, such as total number of employment-age population, size of the labor force, the U3 unemployment rate, and total number of employed and unemployed, surveys individual households.  It’s always hard to get a precise picture of the employment situation because you need to conflate data from both surveys; however, the surveys usually complement one another in a coherent fashion.

That is not the case with today’s report.

To begin with, we must recognize that we are coasting along near the bottom of the employment nadir – a steep trench that was created by the 2008-2009 recession.  Unlike every other recession, including the one in the early 80s, this one was not followed by a steep climb out of the trench.  We’re not even creating enough jobs per month to keep up with the population growth, much less recover the millions of jobs lost in the recession.

Yet, despite the fact that we’ve added less than 150k jobs during most months of the recovery, and less than 100k during many of them, the U3 rate has steadily declined.  This all made sense because there was an unprecedented shrinkage of the labor force – a symptom of a permanently lethargic economy.   Paradoxically, this led to a steady decline in the unemployment rate as the universe of the job market shrunk.  It’s not that the BLS was purposely making Obama look better.  You just needed to look beyond the U3 number to understand how the unemployment rate dropped.

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Food Prices at 6 Month High

Thursday, October 4th, 2012 and is filed under Economy, News

What happens when the current president refuses to suspend the mandate that has turned 44% of our corn crop into inefficacious fuel?  Food prices, particularly for meat and dairy, have begun to rise again.  (Via Bloomberg)

World food prices rose in September to the highest in six months as dairy and meat producers passed on higher feed costs to consumers, the United Nations’ Food & Agriculture Organization said.

An index of 55 food items tracked by the FAO rose to 215.8 points from a restated 212.8 points in August, the Rome-based agency reported on its website today. Dairy costs jumped the most in more than two years.

Ethanol is just one ingredient in the government-induced food crisis.  Wait until QE3 begins to inflate commodity prices.

Last night CNN said that Romney’s claim about food prices going up is misleading.  They might want to fact check their fact checker.  Or maybe they should just ask any American consumer who shops regularly at grocery stores.

This is yet one more example of how progressive interventions in the economy have regressive effects on the most vulnerable among us – those whom liberals purport to endear.

Obama’s ‘Recovery’ is Worse Than Recession

Thursday, September 27th, 2012 and is filed under Blog, Economy

Here we go again.  GDP growth for Q2 of this year has been revised down to 1.3% from 1.7%.  Our GDP now stands at $15.585 trillion, while our debt (including intragovernmental liabilities that must be dealt with) is $16.022 trillion.  Durable goods orders have dropped 13.2% in August, the largest dip since January 2009.  Orders for July were revised down.

Folks, this is not endemic of a recession.  It’s worse than that.  This is a sickly recovery.

The problem here is not the recession that Obama complains he inherited.  We are no longer losing jobs and GDP is no longer contracting.  The problem is the recovery.  In fact, we began recovering jobs and GDP during the spring of 2009.  So yes, the business cycle tends to endure, irrespective of who is in the White House.  There was a very deep recession at the end of Bush’s term, and that recession ended in 2009.  The same way Obama cannot be blamed for the initial recession in 2008, he cannot take credit for the immediate end of the recession so early in his term.

What is unprecedented and what is Obama’s fault is the ensuing lack of recovery.  We have never had a recession in which we did not emerge from it in a stronger position.  This recession is analogous to a 1,000-foot ditch.  We stopped falling deeper into the hole in June 2009.  However, instead of digging out of the hole, we are permanently coasting near the bottom of that trench.  Hence, the protracted stagnation is much worse than the abrupt recession.  It is this stagnation that Obama owns as a result of his intervention into every sector of the economy.  The over 80 million hours of Obamacare rules and regulations that businesses must comply with is just one example of why the economy will never recover.

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A Missed Opportunity on Housing Policy

Monday, September 24th, 2012 and is filed under Blog, Elections

There’s nothing that exemplifies the deleterious effects of government intervention into the private sector than the housing market.  Bill Clinton’s National Homeownership Strategy did to the housing sector what Obamacare will do for the healthcare sector.  His administration created entire offices and programs dedicated to forcing banks to underwrite risky mortgages under the dubious goal of universal home ownership.  Concurrently, Fannie Mae and Freddie Mac bought up the lion’s share of the subprime mortgage securities and fueled the toxic asset bubble.  The bubble popped, bringing down the entire economy with it.

Investor’s Business Daily explains it like this:

When bankers resisted being saddled with so many additional risky loans, Clinton tapped Fannie Mae and Freddie Mac to take them off their books, while freeing bankers to originate more of the political loans. He directed HUD to hike Fannie’s and Freddie’s goals for underwriting affordable loans, which remained in force throughout the 2000s.

When the mortgage giants pushed back, complaining it would be hard to meet the higher targets, Clinton pushed them to load up on subprime loans.

He also authorized Fannie and Freddie for the first time to buy subprime securities to earn credits against the HUD goals. The mortgage giants jumped at the chance, since it allowed them to meet the onerous new goals.

A 2005 HUD report attributed the explosion in subprime securities between 2001 and 2004 to HUD’s tougher goals, along with tougher CRA enforcement. Between 2004 and 2006, the mortgage giants bought $613 billion, or 20%, of the private-market securities created to meet their demand under HUD rules.

For good measure, Clinton late in his second term installed several of his cronies, including Franklin Raines, on the inside of Fannie and Freddie. They in turn bought loans from Countrywide and other subprime lenders, who signed “fair lending” contracts with HUD obligating them to meet lending quotas.

Thus the government created a feeding frenzy for subprime loans by putting Fannie and Freddie and private lenders in competition through quota systems enforced by HUD and Treasury.

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We’re #18 in Economic Freedom

Friday, September 21st, 2012 and is filed under Blog, Economy

Every year, the Fraser Institute, a Canadian free-market think tank, publishes an economic freedom index for all developed and some developing countries.  The index is determined by 42 variables that fit into 5 broad categories; (1) size of government; (2) legal system and property rights; (3) sound money; (4) freedom to trade internationally; and (5) regulation.

So where do we stand in the 2012 Economic Freedom Index?  The beacon of freedom for the world currently stands at #18 in the index.  We are running behind nations like Mauritius, Estonia, Bahrain, Finland, and Chile!  In the sub-category of “size of government,” we rank #61.

Here is the relevant paragraph from the executive summary:

The United States, long considered the standard bearer for economic freedom among large industrial nations, has experienced a substantial decline in economic freedom during the past decade. From 1980 to 2000, the United States was generally rated the third freest economy in the world, ranking behind only Hong Kong and Singapore. After increasing steadily during the period from 1980 to 2000, the chainlinked EFW rating of the United States fell from 8.65 in 2000 to 8.21 in 2005 and 7.70 in 2010. The chain-linked ranking of the United States has fallen precipitously from second in 2000 to eighth in 2005 and 19th in 2010 (unadjusted ranking of 18th).

And what are the consequences of being less free?

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