US GDP Figures Go Negative
Posted by Steve Markowitz on May 29, 2015
The New York Times reported that the US Commerce Department has revised downward the country’s first quarter Gross Domestic Product (GDP) from a paltry plus 0.2% to a minus 0.7%. Downward revisions have become too common in recent years and bring into question the science behind the government’s numbers.
In an attempt to soften the bad news the government and some economists blame the winter weather and other one-time factors for the decline. However, given history and the trajectory of the GDP figures in recent quarters these explanations are not credible.
Some of the causes of the economic slowdown are obvious. The significantly increased value of the US dollar hurts exports by American companies. In addition, the energy market has become an important part of the US economy with the increased oil and gas production. Depressed prices have curtailed exploration and other activities in this market.
Digging deeper into the figures indicate more systemic reasons behind the slowdown. For example the Times reported that while personal consumption, a key ingredient in the US economy, increased by nearly 4.5 half percent in late 2014, it has since dropped down to less than 2%. GDP growth was near 5% in mid-2014, but has gone negative in last quarter.
Economists generally agree that GDP must grow by a minimum of 3% annually to have a reasonably healthy economy. The latest figures make this unlikely for 2015, the second consecutive year with less than 3% growth. History and current trends indicate that a recession is a strong possibility.
The latest GDP figures bring into question another governmental statistic, the unemployment rate, which is reported to be currently less than 5.5%. This figure is bogus as the government does not count those that are unemployed, but have stopped looking for employment. Preposterous!
The government’s reaction to the 2008 financial meltdown started during the Bush Administration with bailouts and the TARP Program. Obama’s economic programs have since included more bailouts and record deficits in order to implement stimulus spending programs. During both administrations the Federal Reserve fostered historically low interest rates. Given the anemic recovery of the past seven years and the current economic data it is clear that these policies have failed. It is now reasonable to question whether the policies themselves have hindered economic growth.
One accepted definition of insanity is repeating actions, but expecting different results. That is precisely what the US government and Federal Reserve are doing for economic policy. The Obama Administration suggests still more governmental spending and the Federal Reserve continues to promote low interest rates. Both must now accept responsibility for the ongoing economic malaise.