U.S. economic data proved to be a dichotomous rose again this week with a combination of both rosy and thorny news. While consumer confidence jumped the most since the recession from 78.3 in February to 82.3 in March after consumer spending was up 0.3 percent in February, the IBD/TIPP Poll shows that 65 percent of Americans (53 percent of Democrats, 77 percent of Republicans and 68 percent of Independents) feel America’s rose is losing its bloom.
Earlier this week Markit Economics preliminary index of U.S. manufacturing decreased to 55.5 in March from 57.1 in February. Though less than last month, a reading above 50 suggests expansion and manufacturing has been a silver lining in an otherwise light gainsboro gray colored cloud. Later this week, revisions to fourth quarter GDP estimates were released and improved by 0.2 percent to 2.6 percent from previous revisions. In more razzmatazz rose colored news, initial jobless claims for state benefits dropped 10,000 to a seasonally adjusted 311,000 from last week.
The marriage between home prices and home sales over the last few months has been as amicable as the Paltrow-Martin marriage over the last few years. Contracts to buy previously owned homes fell in February to a two and a half year low, after single-family home prices rose 0.8 percent in January. This is followed by a fall in new homes sales by 3.3 percent in February. Hopefully housing isn’t experiencing preverbal irreconcilable differences and spring reveals budding green shoots.
The mixed bag of economic data and Kim and Kanye’s Vogue cover aren’t the only things driving people crazy lately. The contrast between what the media says and how people feel about the economy is raising questions. As we’ve said for months and as Janet Yellen embraced last week, the official unemployment rate is as bogus as most Malaysian airplane theories and better units of measurement are required.
Another highly watched number that falls short of necessity is Gross Domestic Product (GDP). GDP only measures the final output of products and services and doesn’t take into account all the work it takes to create a final product or service. Hamburgers don’t make themselves at most restaurants. Because of this the Bureau of Economic Analysis within the Commerce Department has created Gross Output as a new measure of the economy. Gross Output will measure all the steps to create a final product or service.
What most of these measures attempt to do is tell us how Americans are working and, quite honestly, Americans aren’t working, at least not enough. Former economic advisor to President Obama, Alan Krueger called long-term unemployment “the most serious problem” of our nation’s economy, but even those who are working don’t have the best jobs and many are getting their hours reduced to avoid Affordable Care Act requirements. Even those with decent full-time jobs aren’t happy. CareerBuilder released findings from a study that showed 77 percent of all full-time workers want to tell their boss to shove it. We can relate.
This is just one of the ways business isn’t feeling the love these days, but much of that is businesses’ own fault. A real life example of being penny wise and pound foolish is playing out in American business as U.S. corporate profits slowed to 2 percent in the fourth quarter of 2013 furthering a decline from the second to the third quarter of 3.5 percent to 2.4 percent respectively.
This is partly attributable to business not investing in itself or the American people. Midway through the week core capital-goods orders were reported to have dropped for the fourth time in six months. As David Rosenberg of Gluskin Sheff said so eloquently, “In other words, not once have nonfinancial companies put more into the real economy than they have collected in internally-generated net revenues.” This view is picking up steam and more people are calling for corporate executives to remember that they are not the only belles of the ball.
This is why we called for a change in the U.S.’ approach to fixing the economy. A perpetually easy monetary policy will eventually catch up with us, as nothing is free. Even Keynes agreed that Keynesian economics wasn’t right all of the time. There’s reason to believe the Obama-Bernanke fiscal policy has caused this to be the worst recessionary recovery in our nation’s history and there’s no evidence to suggest this will change. The Fed and the economy are about as friendly as Miley Cyrus and Sinead O’Conner.
It may be a jagged little pill to swallow, but Democrats may have to stop throwing shad to supply-side economics for a while. At this rate of economic improvement and truthy unemployment figures, the U.S. won’t see an official unemployment rate of 5.5 percent, or “full-employment”, until 2024. Unfortunately, the “era of easy money is [likely] not over”.
As #MoneyConscious Mash Up shared last week, Americans are spending more money on cars than they can afford. Buyers are taking out bigger loans with longer terms and smaller down payments. American’s willingness to strap themselves like Aunt Edna to the rooftop is only putting the cost of new cars further out of reach. If you must buy a newer car, get a quality used car, have a down payment and limit your term to 36 months.
The willingness of Americans to contort themselves into any sadistic position bankers demand leads to products such as designer loans that eventually hurt the borrower, the economy and ruins what was otherwise a good and enduring system. Demand some R-E-S-P-E-C-T.
Americans need to expect more from colleges, too. Colleges are sitting on treasure troves of cash while tuition is on a rocket ship heading for the dim pink planet Biden. Excessive student loans, especially for advanced degrees, are widening the wealth gap and setting graduates back decades from achieving traditional, age-based financial and life goals. This is but one of the many problems we can come up with, and not just unfairness, the growing disparity in America.
Never fear, though. Graduates can always use creative options such as this to keep household expenses down and use the savings to pay off student loans. Not only will a pedal powered generator reduce energy costs, but it will keep graduates out of the doctor’s office, which may be a good thing as the Affordable Care Act keeps getting delayed.
Before signing their life away to student loan lenders, all high school students and not just 25 year olds should see this chart and Table 2 here to do a cost-benefit analysis of attending college. There are other options, many of which aren’t nearly has punitive. If all else fails, however, they can always become a Starbucks bouncer. Starbucks has a good healthcare plan.
Come back every Friday for another light hearted review of economic news in the Debt Free Guys’ #MoneyConscious Mash Up.