Saturday, April 30, 2022

Major Economic Confusion

 Anybody confused by recent economic reports is not alone. The BEA has just reported a totally unexpected decline in real GDP for the first quarter of a 1.4% annual rate.  At the same time layoffs have reached a half century low and employment continues to rise.  How can we have an apparently beginning recession with the hottest job market in decades?

Probably this has to do with the sources of the reported decline, which may yet get revised upwards.  Consumption and investment have continued to grow.  There is a small decline of government with the end of the stimulus and a small decline in exports, half of that being in petroleum products that tend to have not lots of labor input.  There is s somewhat larger decline in inventories, which does not necessarily imply a job loss.  Indeed, that is likely to lead to rising inventories pushing growth up in the second quarter. The largest part of the decline, clearly responsible for the net negative figure, is imports. While these can lead to a decline in employment if they displace consumption, they have not done so yet, so not leading to unemployment. This looks like how we can have this anomalous result.

As it is, basically nobody is forecasting that second quarter will be a net negative, which would give us the old textbook definition of a recession.  Inventories are likely to turn around in particular.  Exports of petroleum products are likely to rise with the surge of LNG going abroad now.  The decline of government stimulus is over. If recession comes it will have to be a decline in consumption with consumer sentiment declining or maybe a decline in residential investment, this quite possible as mortgage rates rise.  

This data is certainly confusing, and certainly contributing to the sharp drop of the stock market yesterday after a week of mostly declines already, But there is evidence that the public was already pretty confused previously, some of this reflecting clearly politically biased reporting. So, even though GDP grew at 5.7% last year, the highest rate since "Morning in America" 1984, and job growth was the largest ever for the first year of a presidency, fully 29% of the population recently declared that we have been seeing job losses, with only 31% somehow aware that we have seen job gains, with many declaring the economy "bad," although that is explained by the public listing inflation as their biggest concern. But how people can turn stories about "worker shortages" into job losses is beyond me.

I also observe that people worried about "worker shortages" are also likely to be worked up about blocking illegal immigration, so consistent.

Barkley Rosser

1 comment:

Sandwichman said...

What if rest is the core of a human economy and productive work is necessary but peripheral? How would so-called economic reports register a qualitative improvement and quantitative expansion of the "remembering the Sabbath"?

Of course, I am wrong because the assumption has already been made that work and production is what matters and based on that assumption, THERE IS NO ALTERNATIVE. But if there was an alternative and rest was really what mattered, with work, so to speak, enabling and enriching rest then the kinds of reports that present an increase in production as an improvement would be very misleading.

To say that they are misleading is not to suggest that one can simply tack a minus sign on the numbers and that will give us a meaningful reading. Every now and then the topic comes up about how inadequate the economic aggregates that we have are at measuring what really counts. Then when the dust settles, we all go back to talking about the GDP as if it is the ultimate thermometer of prosperity.

No wonder Fox News, MAGA and Q have such an easy time attracting a crowd. The mainstream is rotten to the core and doesn't want to change. If the society that we live in is founded on lies, why not embrace the lies you prefer instead of the officially mandated ones?