Friday, May 29, 2015

Is a Solid Economic Recovery Underway? ... Not Really ... The 'New Normal' Sucks

Housing starts are up modestly over last year. Compared to the peak several years ago, however, they are still about 50% lower.

Interest rates are at essentially zero and yet no substantial private sector investment is forthcoming.

Oil prices have dropped 50% in the past several months, but still the consumer is cautious about spending this purported 'windfall.'

And now we learn that the U.S. economy didn't grow at all in the first calendar quarter of 2015. It actually shrank by 0.7%, according to this morning's revised GDP report. See U.S. economy shrinks by 0.7% in first quarter. {And, yes, my fellow amateur grammarians, the correct spelling is shrank and not shrunk, despite the commonly used 'Honey, I shrunk the kids misspelling.'}

And by the way, our economy probably won't grow by 3% in the second calendar quarter either. For the first six months, it looks like more of the same --- very slow growth. What else is new?

So shrink, shrank and shrunk all apply to U.S. economic growth lately and for several more months to come. It ain't good, however we choose to spell it, and whichever tense we choose to use.

Here's my 'crystal ball' economic take on all this. The U.S. economy is getting better, albeit ever so slowly. But it definitely has a very long way to go before anything resembling what we used to call normal returns. In fact, we may be entering a new and lower version of normal where our sights will have to be reset at a much lower level than historically.

Debt levels are huge, government is taking over more of the economy and global competition is real. However, our fractured and ineffective politicians don't seem to be focused on any of that. Instead we're concerned about immigration, climate change, free college, public sector pensions, the official unemployment rate (which understates our ongoing economic woes), when the Fed will raise interest rates and other such matters.

Emphasizing private sector growth leading to the solid economic growth we need apparently isn't even on the nation's radar screen.

The median household is still worse off now than before the recession has the troubling but realistic view of the U.S. economy's non-recovering economic recovery:
"The good news: household income is starting to show some movement.

The bad news: most families are still worse off than they were before the Great Recession.

That’s according to the latest data from Sentier Research, which derives the results from government figures. They found that median annual household income rose 0.6% in April to $54,578. That’s 3% higher than the same month of 2014, and 6.2% higher than Aug. 2011.

However, median income is still 2.9% worse than before the onset of the recession in Dec. 2007.
“Our time series charts clearly illustrate that although the economic recovery officially began in June 2009, the recovery in household income did not begin to emerge until after August 2011,” said Gordon Green of Sentier Research in a statement.

The income is presented before tax but adjusted for inflation.

The data fits with the upward trend in measures of consumer confidence, but also with surveys that still show unease about the broader economy.

A separate Federal Reserve survey released Wednesday showed there was just a 3 percentage point rise, from 62% in 2013 to 65% in 2014, in the number of adults who consider their families to be doing “okay” or living “comfortably.” There was an 8 percentage point gain, from 21% to 29%, in those who expected their income to be higher in a year.

That survey also found that retirement was just a dream for many households — 38% said they either won’t retire or plan to keep working as long as possible."

Summing Up

Facts are facts, whether we like to hear about them or not.

And believe it or not, Hillary Clinton, Barack Obama, Janet Yellen, Bruce Rauner, Chris Christie, Jeb Bush and even the Pope can't change what is.  They can and do, however, help us to avoid reality by not discussing it openly these days.

When will things improve? Well, they are improving.

But when will they return to what we commonly refer to as normal? That's not likely to happen for a long time, and perhaps for a very long time at that.

Sooner or later we'll relearn the simple truth that rowing our own boat is easier and even more fun that depending on the government gurus to row it for us or tell us how to row it for ourselves.

Until then, they'll continue to talk a good game, but they won't even be talking about the real game.

Politics sucks. Sadly, that's my take.

Thanks. Bob.

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