In fact, upon closer review, I would argue that these latest GDP numbers--which are considered by many professional economists, including many in the Bureau of Labor Statistics and the Federal Reserve, to be among the POOREST of economic metrics if for no other reason than their inaccuracy--actually turn conventional economic thought on its head. Less than 90 days ago, when the Q3 '09 gross domestic product report was announced by our government as being 3.5%, it was revised downwards twice over the ensuing six weeks, eventually being posted in its final iteration, in late December, at 2.2%. While this was a welcome change from successive quarters of negative GDP numbers, it is widely accepted among the economic community that 2.2% GDO is insufficient to support job growth.
Around the time the significantly overstated Q3 '09 GDP numbers were published, an important article about all of this appeared in the NY Times by Louis Uchitelle, entitled: "Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor."
Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor
By LOUIS UCHITELLE
Published Online: November 8, 2009 In Print: November 9, 2009
WASHINGTON -- A widening gap between data and reality is distorting the government's picture of the country's economic health, overstating growth and productivity in ways that could affect the political debate on issues like trade, wages and job creation.
The shortcomings of the data-gathering system came through loud and clear here Friday and Saturday at a first-of-its-kind gathering of economists from academia and government determined to come up with a more accurate statistical picture.
The findings in Uchitelle's story were derived from similiar reports and related commentary from 80 "experts" attending a conference in our nation's capital sponsored by the Upjohn Institute and the National Academy of Public Administration. Among the representatives cited in the story as being in agreement that our government's statistics tended to paint too positive of a picture of reality were individuals from the Federal Reserve, the government's Bureau of Labor Statistics ("BLS"), and the Bureau of Economic Analysis ("BEA"), "...all big players in measuring economic performance."
The NY Times story focused upon the incorrect manner by which we currently calculate our gross domestic product. Particular notice was made of how inaccurate accounting for imports and offshoring, in general, falsely-yet-significantly inflated our GDP. Uchitelle told us its "...fundamental shortcoming is in the way imports are accounted for."
These major problems with GDP calculations, as Uchitelle reported it (and as many from key government organizations such as the BLS and the Fed acknowedged it, too), in turn created a domino effect with other statistics, as well. The piece is well worth a read, but I wanted to point out this brief comment at the end of it, because it sums it all up:
"What we are measuring as productivity gains may in fact be changes in trade," said William Alterman, assistant commissioner for international prices at the Bureau of Labor Statistics.
Much of the conference was devoted to an analysis of the gap between existing data and reality, and ways to close that gap.
Bold type is diarist's emphasis
INACCURATE G.D.P. STATISTICS ARE MAKING OKUN'S LAW, A TRADITIONAL ECONOMIC CONCEPT, IRRELEVANT
As mentioned above, it had been a general concept of traditional economic thought that there was direct correlation between GDP and job creation, with the 2.75%-3% range (some would say it's a little lower, in the 2%-2.5% range) being the baseline point where net job creation/gains commenced. But, the reality is that Okun's Law is more of a concept than a law. Obviously, at SOME point--whether it's 2% or 20%--improvements in GDP will indicate that a corresponding improvement in job creation is occurring. But, with this Great Recession, something very different is happening to the numbers, and to Okun's Law, itself, if for no other reason than the reality that we had significant job destruction in Q4 '09, but the GDP supposedly increased at the phenomenal rate of (fill in the BLANK here, because I'm posting this before the Q4 GDP is made public, a few hours from now).
THE MYTH THAT 4,000 JOBS WERE CREATED IN NOVEMBER
There's an additional critical note that needs to be made here as it relates to the so-called 4,000 jobs that were "created" in November, based upon an upward revision in the November BLS' employment report, earlier this month. (The original November BLS' Employment Situation Report noted 11,000 jobs lost.) Much spin was made of this 4,000-job revision but, essentially, as Calculated Risk pointed out at the time, that number's (more-than-likely) significantly inaccurate, as well, and it'll be subject to a significant downward revision into negative territory (again) at some point in the next 12 months (at the very latest, when the annual BLS' revision is provided for this period in February 2011). From Calculated Risk via my post on January 13th:
"November's 4k Job Gain Doubted Due To Latest BLS Report"
Wed Jan 13, 2010 at 04:38:11 AM EST
As we all heard last Friday, an initial revision for the month of November contained in the US Department of Labor's Bureau of Labor Statistics' (BLS) December 2009 Employment Situation Report revised the previous month's (November's) 11,000-job loss into a 4,000 -job gain. Apparently, another BLS' jobs report, yesterday's November 2009 Job Openings and Labor Turnover Summary (a/k/a "JOLTS" Summary), notes a net 164,000-job loss for that month, and consequently throws the first November revision into doubt.
As noted by Calculated Risk on Tuesday:
"BLS: Near Record Low Job Openings in November."
January 12, 2010
According to the JOLTS report, there were 4.176 million hires in November, and 4.340 million separations, or 164 thousand net jobs lost. The comparable CES report showed a gain of 4 thousand jobs in November (after revisions).
Openings near a series low can't be a positive sign. Separations have declined sharply, but hiring has not picked up. This also suggests that eventually (possibly when the March 2010 benchmark revision is announced in Feb 2011), the November net change in employment will be revised down.
So, with everyone expecting a stellar Q4 '09 GDP report this morning, the question has to be asked: "Is this what they mean when we hear mention of the new term, 'Jobless Recovery?'"
WHEN IS A "JOBLESS RECOVERY" NOT A RECOVERY?
Or, is the very concept of us even being in a real recovery now in question?
From Thursday's AP: "Jobless claims, durable goods point to weak growth."
Jobless claims, durable goods point to weak growth
CHRISTOPHER S. RUGABER
From Associated Press
January 28, 2010 2:20 PM EST
WASHINGTON (AP) -- Evidence that the economic rebound remains sluggish emerged from reports Thursday on new claims for unemployment aid and orders to U.S. factories.
Scant job creation is restraining consumer spending and holding back economic growth. And factory orders for durable goods, a barometer of the manufacturing industry, are rising too slightly to provide much fuel to the rebound.
The truth is, the primary reason why folks claiming jobless aid fell last week was because their benefits--emergency or otherwise--ran out. All one has to do is reference the rapidly-increasing state poverty lists and federal SNAP program (a/k/a food stamps) growth to understand this phenomenon.
From Mish Shedlock: "4 Week Moving Average of Initial Unemployment Claims Rises 3rd Straight Week."
4 Week Moving Average of Initial Unemployment Claims Rises 3rd Straight Week
Global Economic Analysis Blog
Thursday, January 28, 2010
In a trend that will drive both the Fed and the administration crazy if it lasts too much longer, weekly unemployment claims are moving in the wrong direction.
In the week ending Jan. 23, the advance figure for seasonally adjusted initial claims was 470,000, a decrease of 8,000 from the previous week's revised figure of 478,000. The 4-week moving average was 456,250, an increase of 9,500 from the previous week's revised average of 446,750.
Compared to March 2009 weekly claims have been drifting lower. However, hiring does not seem to be picking up. It may take a substantially lower number of weekly claims this go around before we see any drop in the unemployment rate.
From the report, there are 5,350,477 workers on emergency benefits, and another 4,669,250 workers on regular benefits. Thus 10 million people are out of a job who want to work, and that does not count the number of people who have exhausted regular and emergency benefits.
Shedlock also questions the historical validity of the 400,000-per-week new unemployment claim threshold--once widely considered to be (have been) the point between positive job creation and increasing unemployment--indicating we may have a significantly longer way to go before we see any jobs growth.
The AP Story also informs us that:
--the four week average, which smooths out volatility, rose for the second straight week to 456,250. The average had fallen for 19 straight weeks before starting to rise.
--orders to factories for manufactured goods increased only 0.3 percent in December, which was far lower than the consensus of economists, who expected a 2.0 percent advance; and for calendar year 2009, durable goods orders dropped a whopping 20.2, the largest drop since records have been kept (dating back only to 1992).
--spending on capital goods has risen at an 11 percent rate in the past three months.
The number of people continuing to claim benefits, meanwhile, dropped by 57,000 to 4.6 million. Those figures lag behind initial claims by a week. But the continuing claims don't include millions of people who have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government.
More than 5.6 million people were receiving extended benefits in the week ended Jan. 9, the latest data available. That's about 300,000 fewer than the previous week. All told, more than 10 million people are receiving unemployment assistance.
And, then there's the latest from the Chicago Fed via Calculated Risk: "Chicago Fed: Economic Activity Moved Lower in December."
Chicago Fed: Economic Activity Moved Lower in December
by CalculatedRisk on 1/28/2010 08:55:00 AM
From the Chicago Fed: Index shows economic activity moved lower in December.
Led by declines in employment-related indicators, the Chicago Fed National Activity Index decreased to -0.61 in December, down from -0.39 in November. Three of the four broad categories of indicators that make up the index moved lower, although both the production and income category and the sales, orders, and inventories category made positive contributions.
In contrast to the monthly index, the index's three-month moving average, CFNAI-MA3, increased slightly to -0.61 in December from -0.68 in November. December's CFNAI-MA3 suggests that growth in national economic activity was below its historical trend; but the level of activity remained in a range historically consistent with the early stages of a recovery following a recession.
"When the economy is coming out of a recession, the CFNAI-MA3 moves significantly into positive territory a few months after the official NBER date of the trough. Specifically, after the onset of a recession, when the index first crosses +0.20, the recession has ended according to the NBER business cycle measures. ... The critical question is: how early does the CFNAI-MA3 reveal this turning point? For four of the last five recessions, this happened within five months of the business cycle trough."
Although the CFNAI-MA3 improved slightly in December, the index is still negative. According to Chicago Fed, it is still early to call the official recession over.
Bold type is diarist's emphasis.
Krugman sums it all up today, IMHO...
"March of the Peacocks"
By PAUL KRUGMAN
New York Times
Published In Print: January 29, 2010
...The nature of America's troubles is easy to state. We're in the aftermath of a severe financial crisis, which has led to mass job destruction. The only thing that's keeping us from sliding into a second Great Depression is deficit spending. And right now we need more of that deficit spending because millions of American lives are being blighted by high unemployment, and the government should be doing everything it can to bring unemployment down.
...we're still facing years of mass unemployment. The latest projections from the Congressional Budget Office say that the average unemployment rate next year will be only slightly lower than the current, disastrous, 10 percent.
Yet there is little sentiment in Congress for any major new job-creation efforts.
So we're paralyzed in the face of mass unemployment and out-of-control health care costs. Don't blame Mr. Obama. There's only so much one man can do, even if he sits in the White House. Blame our political culture instead, a culture that rewards hypocrisy and irresponsibility rather than serious efforts to solve America's problems. And blame the filibuster, under which 41 senators can make the country ungovernable, if they choose -- and they have so chosen.
Bold type is diarist's emphasis.
Yes, looking at the Congressional Budget Office reference in Krugman's column, today, from a practical standpoint, all of the numbers and all of the spin in the world mean little (never mind the fact that the very validity of many of those numbers is now in question and much traditional economic thinking is now upside down) at least as far as Democrats' chances are concerned in November.
Hopefully, you'll consider this when you hear those "GREAT GDP NUMBERS" in a few hours. Because, as far as the average voter on Main Street is concerned, the GDP report doesn't mean a damn thing if they don't have a job.
Then again, in our Great Recession, to many economists those GDP numbers don't mean a damn thing, either.
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