Last Friday (January 27) the US Bureau of Economic Analysis announced its advance estimate that in the last quarter of 2011 the economy grew at an annual rate of 2.8% in real inflation-adjusted terms, an increase from the annual rate of growth in the third quarter.
Good news, right?
Wrong. If you want to know what is really happening, you must turn to John Williams at shadowstats.com.
What the presstitute media did not tell us is that almost the entire gain In GDP growth was due to “involuntary inventory build-up,” that is, more goods were produced than were sold.
Net of the unsold goods, the annualized real growth rate was eight-tenths of one percent.
And even that tiny growth rate is an exaggeration, because it is deflated with a measure of inflation that understates inflation. The US government’s measure of inflation no longer measures a constant standard of living. Instead, the government’s inflation measure relies on substitution of cheaper goods for those that rise in price. In other words, the government holds the measure of inflation down by measuring a declining standard of living. This permits our rulers to divert cost-of-living-adjustments that should be paid to Social Security recipients to wars of aggression, police state, and banker bailouts.
When the methodology that measures a constant standard of living is used to deflate nominal GDP, the result is a shrinking US economy. It becomes clear that the US economy has had no recovery and has now been in deep recession for four years despite the proclamation by the National Bureau of Economic Research of a recovery based on the rigged official numbers.
A government can always produce the illusion of economic growth by underestimating the rate of inflation. There is no question that a substitution-based measure of inflation understates the inflation that people experience. More proof that there has been no economic recovery is available from those data series that are unaffected by inflation. If the economy were in fact recovering, these date series would be picking up. Instead, they are flat or declining, as John Williams demonstrates.
For example, according to the government’s own data, payroll employment in December 2011 is less than in 2001. Meanwhile, there has been a decade of population growth. The presstitute media calls the alleged economic recovery a “jobless recovery,” which is a contradiction in terms. There can be no recovery without a growth in employment and consumer income.
Real average weekly earnings (deflated by the government’s CPI-W) have never recovered their 1973 peak. Real median household income (deflated by the government’s CPI-U) has not recovered its 2001 peak and is below the 1969 level. If earnings were deflated by the original methodology instead of by the new substitution-based methodology, the picture would be bleaker.
Consumer confidence shows no recovery and is far below the level of a decade ago.
How does an economy recover without a recovery in consumer confidence?
Housing starts have remained flat since 2009 and are below their previous peak.
Retail sales are below the index level of January 2000.
Industrial production remains below the index level of January 2000.
To repeat, the only indicator of economic recovery is the GDP deflated with an understated measure of inflation.
The US economy cannot recover, because the US economy depends on consumer expenditures for more than 70% of its activity. The offshoring of middle class jobs has stopped the rise in middle class income and caused a drop in consumer spending power.
The Federal Reserve under Alan Greenspan compensated for the absence of US consumer income growth with a policy of easy credit and a policy of driving up home prices with low interest rates. This policy allowed people to refinance their homes and to spend the inflated equity in their homes that Greenspan’s policy created.
In other words, an increase in consumer indebtedness and dissavings drove the economy in the place of the missing growth in consumer incomes.
Today, consumers are too indebted to borrow, and banks are too insolvent to lend. Therefore, there is no possibility of further debt expansion as a substitute for real income growth. An offshored economy is a dead and exhausted economy.
The consequences of a dead economy when the government is wasting trillions of dollars in wars of naked aggression and in bailouts of fraudulent financial institutions is a government budget that can only be financed by printing money.
The consequence of printing money when jobs have been moved offshore is an inflationary depression. This catastrophe could begin to unfold this year or in 2013. If Europe’s problems worsen, flight into dollars could delay sharp rises in US inflation until 2014.
The emperor has no clothes, and sooner or later this will be recognized.
The economy did horribly in the last three months of 2011.
I know that’s not what you’ve been hearing.
During this past Christmas season you were first told that consumers were dying to get to the malls and shop. That turned out to be true — for a couple of days at least, while stores were desperately discounting everything they had.
Then you were told that manufacturers were having a bang-up month and that automakers were selling cars like it was the old days.
And Apple — who could forget Apple? — was selling iAnythings like they were some sort of lifesaving device and every American was in the hospital emergency room.
Last Friday the Commerce Department released its tally of business conditions in October, November and December. And it was, well, quite disappointing if you actually know what to look at.
The headline number you saw on the evening news that night and in the newspapers on Saturday was this: the nation’s gross domestic product rose at a 2.8 percent annual rate in the 2011 fourth quarter, which was better than the 1.8 percent growth in the July-September period.
In the first place, 2.8 percent isn’t a good rate of growth for any year.
Take out your calculator, divide 2.8 percent by the four quarters of the year, and you’ll see that fourth-quarter growth — even if you take these numbers at face value — was just 0.7 percent.
Tepid. Lukewarm. Disappointing. Not what should be happening four years into a recession (oh, right, that’s supposed to be over) after the Federal Reserve has used all its tricks and our elected officials have bankrupted the country.
But it gets worse.
(If you start coughing up blood while reading this column I suggest you dial 911. Remember, I’m just the skeptical messenger trying to set things straight, so don’t take it out on me.)
And that meager 2.8 percent annual growth really isn’t what it seems to be.
That’s because 75 percent of that 2.8 percent growth involved businesses restocking inventories. Who says? The Department’s Bureau of Economic Analysis, which released this data.
So people like you and me weren’t really buying all that stuff in the last months of 2011. It was businesses buying stuff and putting it on their shelves in hopes that people would soon come along and buy it from them.
Inventories will only build up so much before companies say “no more.” So these restockings are not considered a particularly good thing when the ultimate buyer — the consumer — is still uncooperative.
But that wasn’t the only scary thing in the GDP report. In fact, it wasn’t even the most important thing.
In order to get to that 2.8 percent growth the Commerce Department used a very unrealistic level of inflation in its calculations.
Let me explain: The government comes up with a figure on how much it thinks the economy grew, or shrunk. Friday’s figure was a first estimate for the fourth quarter, so most of the numbers used in the calculation are only guesstimates anyway. (But that’s for a different story.)
The government then takes that growth figure, subtracts the rate of inflation and comes up with the real growth it reports in its press release.
So, in other words, if inflation is rising it reduces the rate of actual, after inflation, growth — which is the figure that Washington reports.
In Friday’s number the government used 0.4 percent as the rate of inflation. Zero. Point. Four. Percent.
In which country is inflation that low? Certainly not in America. Absolutely not in the last four months of 2011.
The consumer price index, which is put out by the US Census Bureau, had prices up 3 percent for the year.
And the rate of inflation used in calculating the third-quarter 2011 GDP was 2.6 percent; in the first and second quarters, combined, the rate was 2.5 percent; it was 1.9 percent in the fourth quarter of 2010.
So how does the Zero-Point-Four-Freakin’ percent sound now?
That’s how Commerce got to the not-very-inspiring 2.8 percent growth it reported last Friday.
Let me put this another way in case you are missing my outrage.
If the inflation figure used in last Friday’s GDP figure had just remained the same as the 2.6 percent rate from the third quarter, Washington would have had to report fourth-quarter annualized growth of just 0.6 percent.
(Calculation: Inflation was lowered by 2.2 percentage points. So subtract 2.2 percent from the 2.8 percent growth to get 0.6 percent.)
And that’s an annualized rate. So divide the 0.6 percent by four quarters and the economy expanded at an itsy-bitsy, teeny-weeny 0.15 percent in the fourth quarter.
On Friday, the Labor Department will issue its employment report for January.
Wall Street had better get out the Depends.