1.Psychiatry. . Also called dementia praecox. a severe mental disorder characterized by some, but not necessarily all, of the following features: emotional blunting, intellectual deterioration, social isolation, disorganized speech and behavior, delusions, and hallucinations.
2.a state characterized by the coexistence of contradictory or incompatible elements.
This post is about the conflicting economic reports that are coming out daily. Many of these reports are starting to contradict one another. Today’s gem from Yahoo! Finance: the U.S. economy is the strongest it has been since 2008.
WASHINGTON (AP) — The U.S. economy is showing more strength than at any time since the Great Recession began six years ago.
Employers are hiring. Home prices, sales and construction have surged. Corporate profits and stocks have hit records. And consumers have picked up their spending.
By the middle of this year, after years of steady but sluggish improvement, the United States is expected to have finally regained all the 8.7 million jobs lost during the recession, which officially ended 4½ years ago. Many economic forecasters say the economy should grow 3 percent or more this year. That would be its best performance since 2005.
The emphasized statement is false. Those jobs are gone, and they aren’t coming back:
The article later admits this:
Much of the U.S. labor force has gone without pay increases. Millions have struggled for more than six months to find work. Others have had to accept lower-paying jobs and diminished career prospects.
The last half of the article breaks down into four sections: jobs, housing, consumer spending, and stocks.
Job growth has been remarkably steady in an uneven recovery.
The unemployment rate has plunged from 7.9 percent to 6.7 percent over the past year. That’s down from a 10 percent peak in October 2009.
First of all, a reduction in the unemployment rate ≠ an increase in employment. The author makes the above statements, and then contradicts himself:
Still, the benefits of more hiring have been muted so far, in part because much of it has been concentrated in the low-wage industries of hotels, restaurants, retailers and temp workers. Also, millions of jobless Americans have stopped looking for work. Once people without jobs stop their searches, they’re no longer counted as unemployed. As a result, the unemployment rate can fall in a way that overstates the health of the economy.
In December, for example, the unemployment rate fell from 7 percent to 6.7 percent, its lowest point in more than five years. But that was mainly because a wave of Americans stopped looking for work.
Home prices have climbed 13.7 percent over the past 12 months…
Housing prices are rising because (1) the Fed is subsidizing the mortgage market by buying billions of dollars of mortgage-backed securities every month, and (2) large investment funds like The Blackstone Group are buying up housing developments. Higher prices and higher interest rates are not signs of a healthy economy, they are signs of inflation. And inflation is bad for consumers because it reduces their real income.
The spending of consumers, which fuels about 70 percent of the economy, is starting to return to its pre-recession levels.
Historically low inflation and interest rates have kept food and clothing affordable. And according to the Gallup Organization, average daily consumer spending rose $16 to $88 last year.
An increase in consumer spending is good for the economy if it is the result of an increase in productivity and real income. An increase in spending is bad for the economy if it is the result in an increase in prices.
Here’s a question for the economists out there: how is a fivefold increase in consumer spending a good thing? And how is that even possible, given the statements above that people have either given up looking for a job or have taken a lower-paying job than they had before?
The Dow Jones industrial average enjoyed a monster 2013, climbing 28 percent. Corporate profits are at their highest share of the economy in the 66 years of tracking by the government. Shares were bolstered by a Federal Reserve bond-buying program that is now being wound down.
Wall Street is not the economy. Wall Street is a big casino, only at this casino you can’t win. The casino is rigged so that the only ones who win are Goldman Sachs, other large investment banks, hedge funds, and large institutional investors. Most people don’t even own stocks, so the increase in stock prices has not increased the wealth of the average American. Corporate profits by themselves don’t reflect a healthy economy, especially when they are the result of massive bailouts by the federal government and the Fed. Not to mention the Quantitative Easing that has been going on for almost five years.
Here are a couple of other news stories from today that contradict this idea that the economy is getting stronger:
WASHINGTON (AP) — Unemployment rates fell in four-fifths of US states in December and rose in just two, though most of the improvement stemmed from unemployed Americans giving up on their job searches.
Yet most of the drops occurred because more job-seekers gave up.
Once again, this decline in the unemployment rate is due to workers giving up, not to unemployed workers finding new jobs.
WASHINGTON (AP) — Businesses cut back sharply on their orders for long-lasting manufactured goods in December with a key category that signals business investment plans falling by the biggest amount in five months.
Orders for durable goods fell 4.3 percent in December compared with November, when orders had risen 2.6 percent, the Commerce Department reported Tuesday. The weakness was led by a big 17.5 percent drop in the volatile category of commercial aircraft.
There was widespread weakness in a number of categories including a 1.3 percent decline in demand for non-defense capital goods excluding aircraft.
Durable goods are goods that last for longer than three years. The reduction in demand for durable goods is very problematic, as it signals that businesses are not investing in capital goods. And a reduction in investment by businesses means that we will have fewer consumption goods in the future.
There is only one explanation for these diverging reports on the state of the economy: someone is lying. Anyone who is not an economist can guess who that is.
Update: Don’t take my word for it. Stephen Roach weighs in:
“Yes, there has been some progress on the road to recovery. But, as (economists) Carmen Reinhart and Ken Rogoff have long documented, post-crisis healing is typically slow and painful. Notwithstanding the Fed’s [Federal Reserve] claims that its unconventional policies have been the elixir of economic renewal in the U.S., the healing process still has years to go,” he concluded.