Tuesday, October 5, 2010

Recession Statistics: October 2010

We look again at the Recession Stats from the St. Louis FED and provide some commentary.

1. GDP and Its Components

First, the GDP is showing slow and somewhat troubling recovery. This is the gross measure of recovery Note that although not at the bottom of previous recessions it is near the bottom.

The GDP first component is Consumption and it is at the bottom. People are not buying and in turn the economy is not growing. We have shown just recently the increase in savings but also the unemployment is acting as a significant drag as well. We do not anticipate any change here at all.

Investment in property, plant and equipment has increased and this may be a sign of improvement. Yet we also suspect that there is a fundamental change in the economy occurring. Productivity has increased, manufacturing is more automated, and labor intensive elements have been outsourced. This applies across the bard throughout the full chain of manufacturing including professional jobs like engineers.

Strangely Government consumption is on par. This is despite the massive flow of money into the system via the Stimulus package which clearly has been a total failure by any metric.

Export growth has been positive. Yet as shown below imports are a drag, and this is due to the lack of consumer demand.

2. Detailed Metrics

Let us first look at employment. This we show below. This I believe details the inherent structural change occurring. The demand for labor is down, increased productivity, reduced global demand, increased automation and the ability to globally out-source is making this change. Also is the loss of true long term technical talent to China and ultimately India will drive the strength of the US into the gutter! Perhaps the Government should be more attuned to keeping Chinese and Indian PhDs in science and engineering rather than motivating farm laborers to get GEDs. This is truly the strategic issue.

The income numbers reflect this change as well.

With a failure to grow employment we have a failure to grow income and thus demand lags at record low levels, reflected in the consumption component of the GDP.

Strangely industrial production is up, and combined with exports that explains the recovery in part. We show that below:

Finally retail sales has somewhat rebounded meaning that those with jobs are buying but at a modest rate.

Thus the recession is slowly ebbing but it is leaving behind many structural problems which the Administration has not addressed. The science and technology education issue is critical. Schools have created academic economic bubble with more deans and associate deans than ever before. I wrote a year or so ago about the Elizabeth Warren suggestion that we just allow the rampant inflation of tuition but solve the problem by having the Government pay for it and then take from the economy the students whose tuition is paid for and have them work for the Government in some make work program. Clearly Warren has no understanding of economics and business. I guess the White House is a good haven.

You see we need good technical talent and we need them at a young age and with the ability and desire to take risks, not be burdened with tuition and loan fees, and especially not with spending useless and costly time on some Government Great Leap Forward program. Warren seems to have no understanding of what creates value, it is the risk taking entrepreneur and especially the one in high tech.