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What is wrong with the US economy?

  1. Sep 3, 2006 #1

    GENIERE

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    Nothing!

    From the pen of First Trust Advisors Chief Economist, Brian Wesbury re: the 2006 economy:

    “…Many are also in denial about the underlying strength of the US economy. While some economic data has been weaker than expected, underneath the headlines, the economy remains robust. The housing market has fallen precipitously, but in reality has only returned to the trend that was in place for a decade before the Fed cut interest rates to absurdly low levels between 2002 and 2004. Housing is normalizing, not collapsing. Moreover, initial claims remain low and "core" durable goods orders are still rising at double-digit rates…”

    “…This week's economic data is going to be hard for the pessimists to explain. Second quarter real GDP growth will be revised upwardly, consumption data will reflect 3.5% to 4.0% real growth in the third quarter, purchasing managers survey's will reflect continued expansion, and the August employment report is highly likely to accelerate from recent months. In the face of this data, denying a continued recovery will be harder than ever…”

    "…Productivity bounces around from quarter to quarter, but nonfinancial corporate-sector productivity is up 4% at an annual rate in the past five years. This is why the economy is so resilient…."

    A little more from the same source:

    - Corporate profits are at an all-time high share of GDP

    - Commercial and industrial loans are up at an annual rate of 15.3% so far this year, a level of growth not seen since the go-go Nineties.

    - Excluding transportation, new orders for durable goods are up 9.6% at an annual rate in the first five months of 2006 while unfilled orders are up 12.8%.

    - Private nonresidential construction is up 12.7% in the past year, and lodging construction (hotels) has surged 51%. All of this is offsetting the slowdown in housing starts.

    -Industrial production jumped 0.8% in June: The U.S. manufacturing sector has never produced more "stuff."

    Chris Edwards writing for the Cato Insitute:

    “The nation's strong economic growth is creating a tax-revenue boom for the states. State tax revenues jumped 8.7 percent in 2004 and about 8 percent in 2005. About three-quarters of state governments had tax-revenue growth of 6 percent or more in 2005.”

    Pamela M. Prah, Stateline.org Staff Writer

    “…State tax collections rebounded from a slight downturn in late 2005 and saw solid growth in the first three months of 2006, according to a new report that shows 16 states with double-digit revenue growth...”

    Edmond Andrews, New York Times, July 9, 2006

    “… An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year …”

    The NYT and liberals may think the tax revenue increases were unexpected but we ‘pubs’ remember and learn from history. Three presidents have delivered tax cuts since WW2, Johnson, Reagan, and Bush. Economic booms and increased tax revenues followed all cuts


    ...
     
  2. jcsd
  3. Sep 17, 2006 #2
    If you live in California, (like me) this is what is wrong.

    http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2006/09/03/BUG45KT0JB1.DTL&type=printable

    The super majority of the wealth from the economic growth is going to corporations.

    Then of course there is the big picture.
     
  4. Sep 17, 2006 #3

    russ_watters

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    'I'm not getting richer fast enough!!'

    Do you hear yourself?

    And SFGate does it again - mismatching statistics to give a prettier appearance of a disparity, even better they cited a study by a special interest group and they picked timeframes specifically to show the worst possible picture.

    Good post though, Geniere - I'm surprised I missed it before, but then good news tends to get ignored around here...
     
    Last edited by a moderator: Sep 18, 2006
  5. Sep 17, 2006 #4

    Gokul43201

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    ...also posts without any links to source material.
     
  6. Sep 18, 2006 #5

    russ_watters

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  7. Sep 18, 2006 #6

    Gokul43201

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    Thanks Russ.

    I'm not inclined to have to Google up the sources that someone else has posted from (especially, when all they have to do is highlight, CTRL+C, CTRL+V or similar :rolleyes:). And I'm not inclined to going simply by choice soundbites selected from a bigger passage.
     
    Last edited: Sep 18, 2006
  8. Sep 18, 2006 #7

    Astronuc

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    Skyhunter simply pointed out that the 'good news' is not the whole story. The downside was omitted - and thus the conclusion that 'nothing' is wrong is a fallacy.

    What's wrong - for one, the US economy is highly leveraged. The aggregate debt is increasing. What happens when even the interest can't be paid?
     
    Last edited by a moderator: Sep 18, 2006
  9. Sep 18, 2006 #8

    Evo

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    Geniere, you MUST provide links to your sources.
     
  10. Sep 18, 2006 #9

    Evo

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    I agree with Astronuc, you cannot only look at one side of the coin. You have to weigh the negatives against the positives.
     
  11. Sep 18, 2006 #10
    Financial Markets Cause too much Volitility in U.S. Economy

    My primary concern with the U.S. economy is with the powerful influence today that the financial markets have on consumer pricing, supply, and demand for goods.

    Historically, the financial markets have driven growth and new business startups with capital. But more recently, the enormous size of the markets and pressure within to generate robust growth, has created a leverage effect and a "hijacking" of U.S. industry segments. Case in point is the comodities market and the run up of oil and gasoline prices over the last year. The run up in pricing was NOT supported by high demand vs. short supply. Rather, underperforming equities markets and real estate prices led institutional investors to place huge amounts of money in oil - which unilaterally inflated the price of oil products by 30-50 percent.

    A similar run up occurred in real estate prices, as investors poured money into real estate in the face of flat equities markets and artificially low interest rates on mortgage loans (including 120% loans). Now, real estate prices are trying to FIND their true values, and tough times likely lie ahead for many who simply own a home to live in, rather than use to generate income.

    The longer term negative impact of today's huge financial markets on pricing and the economy should be viewed in terms of "opportunity costs." i.e. Did the big run up in oil prices help/hurt the economy? Did the big run up in real estate prices help/hurt the economy?
     
  12. Sep 18, 2006 #11

    russ_watters

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    The downside is manufactured and the conclusion that something is wrong is flawed.
    None of the above discusses the debt issue, but the debt issue is a complicated one. There are several good reasons for concluding that the US does not have a debt problem though:

    -Aggregate debt is not what determines if you can afford to make payments: debt [payments] to income ratio is. And banks have put a lot of effort into calculating the debt-to-income ratio their debtors can afford. Yes, the ratio has gone up in recent years, and no it can't go up forever, but that alone doesn't make it a problem.
    -The same principle applies to the US national debt: "highly leveraged" is not clearly defined. The US is much less in debt than, say, France, based on debt ratio. And more to the point - while I agree that reducing the national debt will allow the economy to grow faster, the economy is, in fact, growing at a decent rate and the increase in debt over the last 20 years hasn't stopped it.

    The bottom line is that no, of course the economy isn't perfect (yeah, that was an exaggeration, but hey - this is a politics forum!), but the economic data is pretty overwealmingly positive right now. And intentionally miselading analysis (the SFGate article) doesn't change that. The OP is likely in response to the liberal politicians, pundits, and posters that are trying to pound the idea into the American consciousness that the economy is doing poorly. We have several active threads about it, and SFGate articles have popped up before (there was a recent one about how people can't afford housing because it is too expensive - how do you think it got expensive? :rolleyes: ). And it just plain isn't true.
     
    Last edited: Sep 18, 2006
  13. Sep 18, 2006 #12

    Gokul43201

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    As does Wesbury:

    Incidentally, the source for this statement (not among Russ' links) is here: http://www.ftportfolios.com/Retail/research/viewresearcharticle.aspx?id=113

    However, including transportation, new orders for durable goods are down 7.2% at an annual rate in the first five months of 2006.

    Source: http://www.census.gov/briefrm/esbr/www/esbr021.html
     
  14. Sep 18, 2006 #13

    russ_watters

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    No, Gokul. Transportation is virtually always left out of that statistic (or shown both ways as a caveat) precisely because it is so volatile month-to-month. We have that discussion just about every month (at least every month they decrease - when they increase, it doesn't get discussed)...

    [edit: oh, and I'm not sure what you have there, but your statistics don't match your link....]
     
    Last edited: Sep 18, 2006
  15. Sep 18, 2006 #14

    Bystander

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    "Wall Street indices predicted nine out of the last five recessions!"
    Paul Samuelson

    "Economics has never been a science - and it is even less now than a few years ago."
    Paul Samuelson
     
  16. Sep 18, 2006 #15

    selfAdjoint

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    So is your point that, selon Samuelson, neither the practical investors nor the ivory-tower scholars has a clue? I think many of us would agree, but where does that leave us? With a bunch of interested parties cherry picking statistics, like this thread?
     
  17. Sep 18, 2006 #16

    Gokul43201

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    Okay, that's true. But then, if you want a good indicator of business spending, shouldn't you speak of non-defense spending on durable goods (less transportation)?

    Checked the link. It's the one I calculated from. Maybe I calculated wrong?

    Here's my formula:
    Annualized change in first 5 months of 2006 = (12/5)*(value at end of may, 2006 - value at end of dec,2005)/(value at end of dec, 2005)
     
  18. Sep 18, 2006 #17

    selfAdjoint

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    BTW has anyone seen this? Absent health care, the economy would be more lackluster than it is.

    Of course as several people have said, if you chop off the upper tail of any distribution the remainder looks lower. But it sure does look like the weird US health care system, well-known for having the highest dollar-per-benefit cost in the advanced world, is what is making the job numbers look bearable.
     
  19. Sep 18, 2006 #18
    The labor data is a bit striking! If the health care sector, which is in trouble in of itself, is driving most of the job growth, then what does that say about the U.S. economy and job creation when (HC) takes the setback that is 20 years overdue?

    HC has been funded by double-digit price increases, unabated for 30 years. I attended a biotech breakfast last week that touted the new consumer in HC, but it errupted into heated debate when "free market" issues were asked. A few months ago, I had lunch with former Secretary HHS Tommy Thompson. His talk was about how Medicare is headed for collapse by 2014, and likely radical changes in private payor care sooner.

    Can you say, Opportunity Cost!
     
  20. Sep 18, 2006 #19

    Bystander

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    Pretty much --- Jimmy Carter caught hell for "double digit inflation" during his administration --- tract housing was ten bucks a square foot then, and it's around a hundred-fifty now --- motor vehicles cost five or six times what they did then --- food's five to ten times --- inflation rate didn't drop, the definition changed. Same thing can be seen in other "economic indicators," meaning that we're all clueless as far as knowing, or even being able to find out what's happening.
     
  21. Sep 18, 2006 #20
    Health care has become our new corporate dynasty. It is someting that eveyone needs and they can charge whatever the traffic (consumer) will bear.
    Some of the CEO's now in health care were formerly in other areas of the economy that downsized or disappeared.

    There are many reasons for the increase in cost. One of them is the $20 billion per year spent on pharmaceutical advertising. Someone has to pay for all of those erectile dysfunction commercials on TV. And that someone is the general public.

    As for the GDP, even the cost of that nasty little toe nail fungus commercial goes on the positive side. Government spending also goes on the positive side. For that matter the cost of fighting all of this summers wildfires bumps up the GDP.:rolleyes:
     
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