Written by Steven Hansen
It comes as no surprise to me that many believe we are in a recession. Joe Sixpack’s portion of the economy sucks (e.g. not good, for those who are uncertain what “sucks” means).
The metric used to gauge economic growth by APP (Academics, Pundits and Politicos) is GDP (Gross Domestic Product). It includes elements which have no direct relationship to Joe. GDP is a metric to understand the economy of the 0.01%, or the country as a whole. Joe lives in a world of income, expenditure and net worth. If Joe sees growth in his world, then his economy is growing.
Joe’s world is contracting – literally. Joe’s world is in a recession. Instead of looking at aggregate growth, the way to view Joe’s world is to look at per capita growth, and specifically at the money flows that involve Joe directly.
The graph below shows April 2012 per capita disposable income 0f $37,711 (current dollars) indexed to the buying power of the dollar. Joe’s world is operating at the same levels as five years ago. This is Joe’s REAL income growth – and it shows Joe’s real income is shrinking.
Taking the data in the above graph, and comparing growth year-over-year with GDP – I argue that Joe’s world has been shrinking since mid 2011 – just as the establishment was telling Joe the economy is growing.
And Joe’s assets suck. Joe’s primary asset is his house. Although pundits (including me) are telling you the housing market has bottomed, there is a big difference between a “bottom” and a “recovered” market. Joe on average is worth half as much as he was before the Great Recession.
My view continues to be that the economy overall is in a depression at least since the beginning of 2008. A depression per Wikipedia:
Considered by some economists to be a rare and extreme form of recession, a depression is characterized by its length; by abnormally large increases in unemployment; falls in the availability of credit, often due to some kind of banking or financial crisis; shrinking output as buyers dry up and suppliers cut back on production and investment; large number of bankruptcies including sovereign debt defaults; significantly reduced amounts of trade and commerce, especially international; as well as highly volatile relative currency value fluctuations, most often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression that are not normally a part of a recession.
Economic metrics should be based on what the average Joe is experiencing – shrinking buying power and assets contracting in value. GDP is the wrong tool to look at Joe’s world.
Other Economic News this Week:
The Econintersect economic forecast for June 2012 shows continues to show moderate growth – although marginally weaker. There was degradation both in our government pulse point,and in some of our transport related pulse points. There are no recession flags showing in any of the indicators Econintersect follows which have been shown to be economically intuitive.
ECRI has called a recession. Their data looks ahead at least 6 months and the bottom line for them is that a recession is a certainty. The size and depth is unknown but the recession start has been revised to hit around mid-year 2012.
The ECRI WLI index value has been jumping around due to backward revision – and this week it has solidly entered negative territory. The index is indicating the economy six month from today will be slightly worse than it is today.
Initial unemployment claims increased from 377,000 (reported last week) to 386,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here). The real gauge – the 4 week moving average – rose from 377,750 (reported last week) to 382,000. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.
Data released this week which contained economically intuitive components (forward looking) were rail movements (which is still indicating a moderate expansion if one ignores coal) and Industrial Production’s manufacturing sub-index (which shows slower growth). Econintersect does not see any other data release this week as particularly intuitive in understanding future economic conditions.
Weekly Economic Release Scorecard:
Preliminary June 2012 Michigan Consumer Sentiment
Empire State Survey June 2012
Industrial Production May 2012
Obese: To Be or Not to Be
Muni Bond Disclosure Problems for JP Morgan?
May 2012 CPI Continues to Moderate, Core Inflation Again Unchanged
Hedging Against a Downturn
Nations: Decisions Under Stress
Can America Capitalize on Natural Gas?
Business Inventories Look Good In April 2012
Inflation is Disappearing in May 2012 Producer Price Index
Retail Sales Were Good May 2012
Germany: Deferred Consumption Lost?
Week in Review: 11 June 2012
Can America Capitalize on Natural Gas?
Deflation Underway? Export and Import Prices Contract in May 2012
Looking Globally: Investments for Later
Globalization and Minsky
Eurozone: Modern Day ‘Merchant of Venice’
The Complicated U.S. Employment Picture
ETFs for Whatever Oil Price Moves Occur
Could Deflation Come to China?
May 2012 Rail Movements: Data Shows the Economy Is Healthy
The Week Ahead: Where’s the Leadership?
What is U.S. Treasury’s Largest Asset?
Gloomers and Doomers Still Twittering About Employment: So Why Does U.S. Exports Jobs?
Trefis Highlights: Week Ending 8 June 2012
Global Manufacturing Growth Shudders Towards A Halt
Will USA Import the European Recession?
Cooperative Banking in the Age of Enlightenment
News Releases this Week:
Bhide and Papagianis: To Save Money Market Funds, Kill Them
New York Fed Loans to Maiden Lane Repaid
Week Ending 09June2012: Rail Growth Moderates If Coal Excluded
Nutritional New Offering by Burger King
Info Graphic: Jobs for New Grads
Japan: Machinery Orders Show Surprise Surge
Germany: Export and Import Numbers Declined in April 2012
May 2012 Small Business Index Remains Weak and Essentially Unchanged
Upside Down Home Equity Positions Now Driving Housing Market
New York Bank Indicted for Mortgage Fraud
There is No Systemic Mortgage Fraud and We Have the Proof
Spanish Banks Get $125 Billion
Livingston\ Survey: Bucks Sentiment and Sees Better 2012 Growth
China: Economic Numbers Weaken, Inflation Slows. Does Deflation Await?
Pakistan Detains U.S. Diplomats
Phishing is So Easy Even Hamsters Do It
Bankruptcies this Week: Allied Systems Holdings, Northstar Aerospace’s U.S. subsidiaries [Northstar Aerospace (USA), Northstar Aerospace (Chicago), Derlan USA and D-Velco Manufacturing of Arizona]