Friday, January 29, 2010

Conflicting economic news (... but more bad than good)

Economy grows at 5.7 pct pace, fastest since 2003
29 Jan 2010
WASHINGTON – The economy's faster-than-expected growth at the end of last year, fueled by companies boosting output to keep stockpiles up, is likely to weaken as consumers keep a lid on spending.

The 5.7 percent annual growth rate in the fourth quarter was the fastest pace since 2003. It marked two straight quarters of growth after four quarters of decline. Growth exceeded expectations mainly because business spending on equipment and software jumped much more than forecast.

Wages and benefits rise weak 1.5 percent in 2009
– Fri Jan 29, 2010
WASHINGTON – Wages and benefits paid to U.S. workers posted a modest gain in the fourth quarter, ending a year in which recession-battered workers saw their compensation rise by the smallest amount on records going back more than a quarter-century.
Jobless Claims Drop Less Than Hoped; Durables Climb
AP, Thursday, 28 Jan 2010
A drop in new jobless claims came in short of expectations and factory orders rose only slightly, fresh evidence the economy is recovering at a slow, uneven pace.
I note that historically it's consumer spending that drives the U.S. economy (~ 70% of GDP), so the fact that the 5.7% 4th-quarter growth rate is attributed to biz spending isn't particularly good news. Coupled with anemic wage increases for 2009 and worse-than-expected unemployment numbers, overall not good news.

BUT - of course we need to rein in Government spending to get the deficit under control!

Crash course in macroeconomics 101:
Components of GDP by expenditure
GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X - M).
Y = C + I + G + (X − M)
Here is a description of each GDP component:
- C (consumption) is normally the largest GDP component, consisting of private household expenditures in the economy. These personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services. Examples include food, rent, jewelry, gasoline, and medical expenses but does not include the purchase of new housing.

-I (investment) includes business investment in plant, equipment, inventory, and structures, and does not include exchanges of existing assets. Examples include construction of a new mine, purchase of [software], or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in Investment. In contrast to its colloquial meaning, 'Investment' in GDP does not mean purchases of financial products. Buying financial products is classed as 'saving', as opposed to investment. This avoids double-counting: if one buys shares in a company, and the company uses the money received to buy plant, equipment, etc., the amount will be counted toward GDP when the company spends the money on those things; to also count it when one gives it to the company would be to count two times an amount that only corresponds to one group of products. Buying bonds or stocks is a swapping of deeds, a transfer of claims on future production, not directly an expenditure on products.

- G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.

-X (exports) represents gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added.

-M (imports) represents gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreign supply as domestic.

[Wikipedia, Components of GDP by expenditure]
Good - businesses are investing! BUT: Consumers are broke - and they're the largest contributor to GDP.
What are our options? INCREASE Government spending!

... oh, no - that's not right.
Clearly it's time to CUT Government spending!
(I keep forgetting.)

Stop the madness!

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