By Bill Wilson
You know things are bad when the government has to engage in blatant manipulation of economic data just to get to an overall assessment of “a weak economy.” But that is exactly where we find ourselves.
The economy is $551 billion larger than previously thought, reports the Bureau of Economic Analysis in the “2013 NIPA Comprehensive Revision.”
But this found half-trillion only results from a new methodology for compiling the Gross Domestic Product (GDP) which now, with the stroke of a pen, includes expenditures by business, government, and nonprofit institutions serving households for research and development and by private enterprises for the creation of entertainment, literary, and artistic originals as fixed investment.
Despite the $551 billion boost, the nation’s debt-to-GDP ratio remains over 100 percent. The latest GDP estimate stands at $16.633 trillion, compared with the $16.738 trillion national debt.
As a result of the changes to methodology, growth in 2012 was 2.8 percent instead of the previously report 2.2 percent. Does anyone — anyone — actually believe the economy grew by nearly 3 percent last year? If so, are you interested in this bridge for sale up in New York?
Even with the fairy-tale of 2.8 percent in 2012 still ringing in our ear, the fact seep out. The first quarter of 2013 was revised downward from 1.8 to 1.1 percent. Add to that an anemic 0.1 percent in the fourth quarter of 2012, plus the weak 1.7 percent estimate for the second quarter of 2013, reports the Washington Post’s Neil Irwin and “we’ve now faced nine months of an expansion at a bit less than a 1 percent annual rate.”
Therefore, despite the revisions, the economy remains weak. No amount of numbers manipulation about “investment” to make us feel better will sell one more unit of goods and services. Growth is still too slow; unemployment is still too high at 7.6 percent.
Which is no wonder, really. Banks are sitting on over $2 trillion of excess reserves beyond what is required to be held by law, implying low demand for credit. The entirety of the Federal Reserve’s quantitative easing has remained in a vault.
After five years, the financial sector is still deleveraging from the fallout of the financial crisis, according to data compiled by the Federal Reserve. Credit outstanding for financial institutions remained virtually frozen at $13.8 trillion in the first quarter.
This in turn is holding back overall credit expansion (i.e. all debts public and private) — one of the main drivers of growth in our debt-addicted economy. So far in 2013 credit has only expanded at an annual pace of 3.9 percent. Historically, since 1945, credit has expanded at an average annual rate of 7.9 percent. So, with credit only expanding at half of what has been the norm, it is easy to see that the economy is in far worse shape than the happy-talk propagandists of the Federal Reserve would have us all believe.
Unless credit growth and the corresponding expansion in economic activity turns around robustly in the near future, the economy will remain in choppy waters. As it stands, this is the weakest recovery on record since the Great Depression.
As Washington Post’s Irwin puts it, the 1.7 percent GDP expansion reported in the second quarter “isn’t good in the environment we’re in, even if it is a little better than economists though the number would be. It isn’t even mediocre. It’s terrible. It’s a sign of the diminished economic expectations that economy-watchers have set for themselves that it’s anything to crow about at all.”
But, on the humorous if not the bright side, the Obama Administration can claim credit for the first Mho-shaped recovery in American history. Mho is the reciprocal of the Ohm unit of measurement, implying that growth today is a fraction of what it ought to be. We can call it the slow-Mho recovery for short.
Bill Wilson is a member of the board of directors of Americans for Limited Government.
