Lying or Misunderstanding “the Numbers”

If you look at the US jobs numbers – the drop in the unemployment rate and the availability of new jobs – and add it to the sky-rocketing stock market, you would have to conclude that not only is our economy in good shape, but we seem to be on the verge of a new expansion of economic opportunity. Compared to Western Europe, we seem to be flying! But then why would the Commerce Department tell us that the first quarter of 2014 showed the biggest contraction (2.9%) in gross domestic product since 2009 (when it fell 5.4%)? Bad weather? Bad numbers? Why are government economists downgrading their growth statistics? What’s going on here?

Even if we overlook those who have simply given up looking for work or mere part-timers who want more, and thus are not included in the unemployment statistics, why are we getting more jobs and less overall growth? If you’re a one percenter, no worries… well a few worries, because economic growth cannot sustain, according to economists at the International Monetary Fund, in countries with severely polarized income inequality. If you make all your money from overseas efforts, no problem, but if you rely on consumer spending in the United States, start sweating.

With fewer than 500 individual Americans owning collectively more wealth than the entire bottom half of our entire economic population spectrum (noting that 60% of Americans own an aggregate of 2.3% of our nation’s wealth), with a constant and steady contraction of the middle class, a more-than-a-decade of uninterrupted decline in the buying power and discretionary income for average Americans, with a fall in the number of college applications and admissions as college costs soar, the United States has precisely the kind of income-inequality growth-killing economy that the IMF has warned us about.

Interest rates have been held low, spurring corporate growth and rapid escalation in real estate prices, but the Fed cannot keep the lid on those rates forever. And when they rise… how exactly does corporate America continue expansion and real estate prices hold when there is a severe contraction in the ability of Americans to spend the money necessary to support our rather fragile growth assumptions? The quality of the new jobs, the new re-set on pay levels, the demise of unions, the opportunity for advancement, the decline in qualified college grads for the hot STEM (science, tech, engineering and math) jobs and the export of an increasing number of skilled service jobs overseas all add up to an overall drop in our expectations for a rosy future.

Some economists suggest that the numbers we had assumed on healthcare spending, lower than originally projected earlier in the year, are the culprit. “In May, the Bureau of Economic Analysis of the Commerce Department, which produces the G.D.P. figures, estimated that in the first quarter such spending rose at an annual rate of 9.7 percent before adjusting for inflation. That would have been the largest quarterly increase in 13 years… But the revised estimate released in June said that spending on health care services fell at an annual rate of 0.9 percent. Instead of the largest increase in more than a decade, it was the first decline in nearly half a century, since the third quarter of 1965. That one change accounted for most of the decline in the estimate for overall first-quarter G.D.P.” New York Times, July 10^th.

So let’s assume for a moment that these healthcare statistics are indeed the cause for the contraction in GDP numbers. Should we breathe a big sigh of relief or ask a few more questions? Why is the entire economy so determined by one particular market segment? Is it worse because the that particular market is rather significantly impacted by government spending – on Medicaid, Medicare and Affordable Care Act subsidies – which Congress appears dedicated to cut further? Are the jobs in that healthcare illusory “growth” segment average solid middle class dollars? NO! Are growth statistics really that fragile? YES! Are the data that go into government forecasts really that susceptible to inaccuracy? YES!

In the end, Americans are trusting their gut that all is not well with the economy, that our economy has been re-set such that for average Americans there is no expectation that we will return to the halcyon days of past growth and that future generations will live at a lower standard of living than recent past generations. And that “gut” appears to be a more accurate indicator of reality than government statistics.

I’m Peter Dekom, and while the re-set is deeply troubling, that we have done virtually nothing to address income inequality that is dragging the entire economy down is even more troubling!