What is wrong with the US economy?

• News
GENIERE

Main Question or Discussion Point

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

...

Related General Discussion News on Phys.org
Skyhunter
If you live in California, (like me) this is what is wrong.

Profits soar, wages lag

Corporate income jumped from 2001 to 2004 in California, while wages,
personal income and employment barely budged.

Net corporate income - 368.9%
Median hourly wage - 13.3%
Personal income - 10.7%
Employment - 1.2%
.
Source: California Budget Project
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.

russ_watters
Mentor
'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...

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Gokul43201
Staff Emeritus
Gold Member
russ_watters said:
Good post though, Geniere - I'm surprised I missed it before, but then good news tends to get ignored around here...
...also posts without any links to source material.

russ_watters
Mentor
Maybe not the link, but the sources are all there. Google finds the links quickly enough if you want the whole articles: http://www.realclearpolitics.com/articles/2006/08/policy_and_economic_denial.html

http://www.cato.org/pub_display.php?pub_id=5437

http://www.govpro.com/SiteMap_500/strArticleId/107829/ViewArticle.asp [Broken]

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Gokul43201
Staff Emeritus
Gold Member
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 ). And I'm not inclined to going simply by choice soundbites selected from a bigger passage.

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Astronuc
Staff Emeritus
russ_watters said:
'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...
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?

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Evo
Mentor

Evo
Mentor
I agree with Astronuc, you cannot only look at one side of the coin. You have to weigh the negatives against the positives.

McGyver
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?

russ_watters
Mentor
Astronuc said:
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.
The downside is manufactured and the conclusion that something is wrong is flawed.
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?
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? ). And it just plain isn't true.

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Gokul43201
Staff Emeritus
Gold Member
russ_watters said:
And SFGate does it again - mismatching statistics to give a prettier appearance ...
As does Wesbury:

Geniere said:
"-Excluding transportation, new orders for durable goods are up 9.6% at an annual rate in the first five months of 2006"
Incidentally, the source for this statement (not among Russ' links) is here: http://www.ftportfolios.com/Retail/research/viewresearcharticle.aspx?id=113 [Broken]

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

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russ_watters
Mentor
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....]

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Bystander
Homework Helper
Gold Member
"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

Staff Emeritus
Gold Member
Dearly Missed
Bystander said:
"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

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?

Gokul43201
Staff Emeritus
Gold Member
russ_watters said:
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.
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)?

[edit: oh, and I'm not sure what you have there, but your statistics don't match your link....]
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)

Staff Emeritus
Gold Member
Dearly Missed
BTW has anyone seen http://www.businessweek.com/magazine/content/06_39/b4002001.htm?chan=top+news_top+news+index_businessweek+exclusives" [Broken]? 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.

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McGyver
BTW has anyone seen http://www.businessweek.com/magazine/content/06_39/b4002001.htm?chan=top+news_top+news+index_businessweek+exclusives" [Broken]? 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.
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!

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Bystander
Homework Helper
Gold Member
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?
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.

BTW has anyone seen http://www.businessweek.com/magazine/content/06_39/b4002001.htm?chan=top+news_top+news+index_businessweek+exclusives" [Broken]? Absent health care, the economy would be more lackluster than it is.
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. Last edited by a moderator: Astronuc Staff Emeritus Science Advisor How about this - NINE YEARS OF NEGLECT: Federal Minimum Wage Remains Unchanged for Ninth Straight Year, Falls to Lowest Level in More than Half a Century http://www.cbpp.org/8-31-06mw.htm Overall inflation - 26% Food - 23% Housing - 29% Medical care - 43% Child care and nursery school - 52% Educational books and supplies - 61% Gasoline, unleaded regular - 134% Minimum wage - 0% Household Median Income -$37,005 (1997) - $46,326 (2005) (25.2% increase 1997-2005, compared to overall inflation of 26%). HMI was$42,151 in 2000 ,thus HMI increase by $5146 (13.9% increase) from 1997-2000, and from$42,151 to $46,326, or an increase of$4,175 (9.9% increase) from 2000-2005.

Real median
Income (all households) - 1997 $37,005 http://www.census.gov/hhes/www/income/income97/in97sum.html [Broken] Income (all households) - 1998$38,885
http://www.census.gov/hhes/www/income/income98/in98sum.html [Broken]
Income (all households) - 1999 $40,816 http://www.census.gov/hhes/www/income/income99/99tablea.html [Broken] Income (all households) - 2000$42,151
http://www.census.gov/hhes/www/income/income00/inctab1.html [Broken]
Income (all households) - 2001 $42,228 http://www.census.gov/hhes/www/income/income01/inctab1.html [Broken] http://www.massbudget.org/article.php?id=177 (US median household 2001 -$42,900, dollar figures cited in this summary are in constant 2002 dollars.)
Income - 2002 $42,409 http://www.census.gov/Press-Release/www/2003/cb03-153.html [Broken] http://factfinder.census.gov/jsp/saff/SAFFInfo.jsp?_pageId=tp6_income_employment [Broken] Slightly different results from - State Science & Technology Institute (State Median Household Income, 2002-2003 - *Income in 2003 inflation-adjusted dollars.) Income (2002) - 43,057, Income (2003) - 43,564 Income - 2003$43,318
http://www.census.gov/Press-Release/www/releases/archives/income_wealth/002484.html [Broken]
Income - 2004 $44,389 http://www.census.gov/Press-Release/www/releases/archives/income_wealth/005647.html [Broken] Income - 2005$46,326
http://www.census.gov/Press-Release/www/releases/archives/income_wealth/007419.html [Broken]

Iowa (US Incomes - Median Household Income)
http://www.iowaworkforce.org/trends/medianus.html
1997 - $37,005 1998 -$38,885
1999 - $40,816 2000 -$42,148
2001 - $42,467 (2001 Inflation Adjusted Dollars) 2002 -$43,057 (2002 Inflation Adjusted Dollars)

http://www.fiscalpolicy.org/SOWNY2005Chapter2Figures.pdf

WHOSE RECOVERY?
Labor Day 2006 Finds Many Americans Not Sharing in the Growing Economy
http://www.cbpp.org/press-points.htm

POVERTY REMAINS HIGHER, AND MEDIAN INCOME FOR NON-ELDERLY IS LOWER, THAN WHEN RECESSION HIT BOTTOM:
Poor Performance Unprecedented for Four-Year Recovery Period
http://www.cbpp.org/8-29-06pov.htm

Overall median household income rose modestly in 2005 — but significantly less than normal for a year during an economic recovery — while the poverty rate remained unchanged, also an unusual development for a recovery year. For the first time on record, poverty was higher in the fourth year of an economic recovery, and median income no better, than when the last recession hit bottom and the recovery began.

http://www.cbpp.org/8-29-06pov-f1.jpg [Broken] - Commerce Department

Number of Uninsured Sets Record

Health insurance also deteriorated. The number of uninsured people climbed by 1.3 million in 2005 to 46.6 million, a record high. The percentage of people without insurance rose from 15.6 percent of the population to 15.9 percent. Both figures were substantially above the figures for the 2001 recession year, when 41.2 million people — 14.6 percent of Americans — were uninsured.

IN FIRST HALF OF 2006, WAGES AND SALARIES CAPTURED SMALLEST SHARE OF INCOME ON RECORD
Share of Income Going to Corporate Profits at
Highest Level Since 1950
http://www.cbpp.org/8-31-06inc.htm

Commerce Department data released on August 30 show that in the first half of 2006, the share of national income that went to wages and salaries was at the lowest level on record, with data going back to 1929.[1] The share of national income captured by corporate profits, in contrast, was at its highest level since 1950.

These findings reflect weak overall growth in wages and salaries — and rapid growth in corporate profits — since the current economic recovery began in November 2001. Growth in total wage and salary income was exceptionally weak during the first stage of the recovery but has picked up in the last few years and has been strong so far in 2006.[2] Even with this recent improvement, however, wages and salaries have grown more slowly during the current recovery than in all but one other recovery since the end of World War II.

HOUSE PROPOSAL TO REFORM EARMARKS EMPLOYS DOUBLE STANDARD, LARGELY EXEMPTING EARMARKS PACKAGED AS SPECIAL INTEREST TAX BREAKS
http://www.cbpp.org/9-14-06bud.htm

THE ILLUSION OF CHOICE:
Vulnerable Medicaid Beneficiaries Being Placed in
Scaled-Back “Benchmark” Benefit Packages
http://www.cbpp.org/9-14-06health.htm

EVEN WITH NEW BUDGET PROJECTIONS, BUDGET DETERIORATION FROM 2000-2006 WILL BE THE LARGEST 6-YEAR DETERIORATION IN HALF A CENTURY
http://www.cbpp.org/7-20-06bud.htm

DON’T POP THE CORKS
CBO Outlook for the Federal Budget Is Still Bleak
http://www.cbpp.org/8-17-06bud.htm

http://www.washingtonmonthly.com/archives/individual/2006_09/009459.php

Income Climbs, Poverty Stabilizes, Uninsured Rate Increases
http://www.census.gov/Press-Release/www/releases/archives/income_wealth/007419.html [Broken]
Real median household income in the United States rose by 1.1 percent (compared to an average inflation rate of 3%) between 2004 and 2005, reaching $46,326, according to a report released today by the U.S. Census Bureau. Meanwhile, the nation’s official poverty rate remained statistically unchanged at 12.6 percent. The percentage of people without health insurance coverage rose from 15.6 percent to 15.9 percent (46.6 million people). http://www.census.gov/hhes/www/income/income.html [Broken] http://inflationdata.com/inflation/Inflation_Rate/AnnualInflation.asp http://inflationdata.com/inflation/images/charts/Annual_Inflation/annual_inflation_chart.htm http://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx I have also noticed that the economic statistics have become more obfuscated since 2002 (or maybe since 2001). The formats have been changed and the comparisons are not so easily made. The bottom line is that the bottom 50% are NOT doing very well, and have actually lost ground since 1997. The upside is for those in the top two quintiles - http://www.census.gov/hhes/www/income/histinc/h01ar.html [Broken] Last edited by a moderator: Futobingoro Talk about an obfuscation of data. I bet that when Poland joined the EU, cynics spun statistics to "show" how the average quality of life in the EU was decreasing. And now we have cynics waving their arms in the air and shouting from the highest mountaintops about how the average quality of life in the US is decreasing. At the very least, a sizable portion of these observed trends are symptomatic of nothing other than an infusion of Mexico. Futobingoro said: Talk about an obfuscation of data. I bet that when Poland joined the EU, cynics spun statistics to "show" how the average quality of life in the EU was decreasing. And now we have cynics waving their arms in the air and shouting from the highest mountaintops about how the average quality of life in the US is decreasing. At the very least, a sizable portion of these observed trends are symptomatic of nothing other than an infusion of Mexico. The Ford and Chrysler workers who are about to lose their jobs may not agree with this. And have we been told numerous times by so called financial experts that the illegals are necessary to our economy. They take the jobs Americans used to have or something like that. Skyhunter russ_watters said: 'I'm not getting richer fast enough!!' Do you hear yourself? This smacks of ad hominem. Those are your words not mine. I was simply pointing out that after 4 years of strong economic growth that the only ones better off are corporations. russ_watters said: 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. Really? What special interest group? You mean those interested in helping low to moderate income workers. California Budget Project (CBP) A nonpartisan, nonprofit organization seeking fiscal reforms to benefit low and moderate income Californians. What mismatched statistics? Wages in California showed scant gains from 2001 to 2005. Hourly wages by percentile are in 2005 dollars. Year 20th Median 80th 2001$9.65 $16.55$28.68

2003 10.09 16.99 29.73
2005 10.00 17.00 30.00

Year 20th Median 80th
2001-03 4.5% 2.6%
2.6%
2003-05 -0.9 0.1 0.9
Would you care to explain why they are mismatched?

And perhaps provide the properly matched statistics.

Futobingoro
Skyhunter said:
What special interest group? You mean those interested in helping low to moderate income workers.
It matters little if it is nonprofit and nonpartisan. It still is a special interest group.

Imagine a nonprofit, nonpartisan group which advocates an "equal" flat tax rate. Wouldn't you call that a special interest group?

Labor groups can, and do, hide behind the facade of "helping low to moderate income workers." Corporate groups likewise mask their actions by putting up their "tax equality" banner.