Good News?

The headline story on Drudge this morning was about the reported 5.7% increase in GDP this morning. If it were real, that would be very good, and an important improvement in the economy.

Unfortunately, its a statistical gimmick more than anything else.

All but 2.2% of the improvement was because inventories have stopped declining so fast.

"About 60 percent of the fourth quarter's growth resulted from a sharp slowdown in the reduction of inventories as firms began to rebuild stockpiles depleted by the recession."

The best of it was a large increase (from a very low level) in exports, but that was tempered by a decrease in the growth of consumer spending.

The elephant in the room, of course, is employment and wages. My view has always been that there is no real economic recovery without employment improving. So far that is not on the horizon.

Megan McArdle, over at The Atlantic, says it pretty well:

"But man cannot live by GDP alone. I'd argue that the better measure of whether the economy has returned to health is employement--at least, that's when the improvement starts to translate into improvements in peoples' real lives. Prolonged unemployment is one of the most crippling things that can afflict people in the modern world."

Ed Yardeni in an article at the Washington Post, commented before the numbers came out:

"A lot of it is the arithmetic of inventories," said Yardeni, who is expecting a 6.5 percent jump in the GDP number. "Even if there is a very strong number for the fourth quarter, if it's [all because of] inventories, it will raise real questions about the strength of the economy in 2010."

There will be more reaction to the GDP release. I will try to keep updating this post as more comes out.

UPDATE:

The Wall Street Journal has reported on wages for 2009:

"Wage and benefit costs, both before and after adjusting for inflation, grew more slowly 2009 than any year since the U.S. government began tracking data in 1982 as double-digit unemployment weakened workers’ ability to command higher pay.

"Over the past 12 months, the cost of wages and benefits for workers other than those employed by the federal government rose 1.5%, according to the Labor Department’s employment cost index. Over the same period, consumer prices rose 2.7%."

There can be no recovery in the economy until good paying jobs come back.

UPDATE 2:

The Economic Policy Institute points out that the measure of demand from US households and businesses is still decelerating:

"A measure of the strength of demand coming from U.S.-based households and businesses (final sales to domestic purchasers, a measure that excludes export growth and includes import growth) grew at only a 1.7% rate in the quarter, actually decelerating from the third quarter growth rate of 2.3%. In fact, this quarter saw the largest divergence since 1987 between the overall GDP growth figure and the growth rate of domestic demand. In short, nothing about today’s report should lead to upward revisions in forecasts for economic growth over the next year, which generally hover around the 3% mark. This projected pace of growth would likely not even drive the unemployment rate below 10% by the end of 2010."

It appears that some parts of the economy may have some improvement, but its not yet reaching Main Street.

UPDATE 3:

Mish Shedlock finishes off the day with:

"Digging beneath the surface there is nothing to cheer about in the GDP numbers. Moreover, this weakness is in the face of the largest stimulus measures the world has ever seen, not just in the US, but globally. Money supply in China is growing at 30% and housing bubbles are likely to pop in Australia, Canada, and the UK. Problems in Greece, Spain, and Iceland continue to mount."

And:

"GDP is a mirage of sand blowing in the wind. So is global growth. It is a mistake to believe government spending can possibly provide a solid foundation for a lasting recovery."

It should also be noted that the huge pop in the commercial real estate bubble that is impending cannot support a recovery absent another huge bailout of the banks by the taxpayers.

I will repeat my view: There will not be a real recovery without jobs. Anything else will be smoke and mirrors.

The State of the United States

No, not the speech, although I will get to it later, perhaps.

The state of our country is not good. We are mired in a deep recession with high and growing unemployent, and only the huge institutions that were bailed out by the government are showing profits. Main Street still suffers.

We are in a situation caused by a huge expansion of credit wherein large financial institutions, both private and semi-public engaged in wild speculation, creating a bubble in real estate, and then the bubble popped.

This had the effect of destroying much of the capital of the financial institutions, but also the capital of the general public.

With the bubble gone, the US Government under George W. Bush stepped in to socialize the huge losses of the financial institutions, but not, of course, the huge losses that had been imposed upon the general public. (I call this the Golden Rule) In fact, the general public will end up paying for the financial institutions' losses as well as their own.

Hope and Change gets elected and promptly nationalizes General Motors and to some extent, Chrysler.

Relief for the general public? Hardly.

Next is a huge "stimulous" bill that goes primarily to large Democratic political constituencies, adds nearly a trillion to the deficit, and accomplishes nothing but add further burdens on the general public.

We then get a Cap and Trade Bill that is rushed through the House without being read. This bill would add hundreds of billions to the costs of energy....to be ultimately paid by whom? You got it. The general public.

With the first of these matters a movement began to form: The Tea Parties. The public was awakening. But the politicians ignored them or put them down as extremists. Who were the partiers? The general public.

After Cap and Trade passed the House, the Pelosi crowd began to attempt to socialize our country's medical care. Behind closed doors.

It was if the Iron Curtain was rebuilt right there in Washington, D.C. Everything was done behind closed doors. In secrecy. Few know what kind of deals were made to buy "support" for the bill, but what is known is that it was terribly unfair to.........the general public.

A similar bill is now pending in the Senate, where the majority party is still trying to push it through, in spite of the opposition of....the general public.

So here we are after one year of Hope and Change. We have no hope, and only a change for the worse.

Elections in Virginia and Massachusetts have given the general public a chance to be heard, but from the State of the Union speech last night, it is clear that the lessons have been lost by the politicians in our government.

Maybe they should all watch and listen to the ad that newly elected Senator Scott Brown ran during the campaign in Massachusetts. It is one of the very best I have heard in my over fifty years in politics.

You can find it here. If you do nothing else, go to this ad.

The public will get little, if any, relief from the policies spoken of by the President last night.

But we can get relief in November when we have the opportunity to throw all the rascals out. There is Hope, after all.

Who will lead the revolution?