At the Associated Press, in a Friday morning writeup, the wire service's headline writers and reporter Martin Crutsinger demonstrated extraordinary auditory powers.
The headline writers somehow heard the entire U.S. economy start the year off "with a bang." Meanwhile, Crutsinger, continuing to earn his designated title of "worst economics writer" given by Kevin Williamson at National Review almost three years ago, picked up the sound of consumers who "roared back to life" in January. Those of us in the real world utterly failed to detect these things. What would we ever do without the extraordinary talents of the people at AP?
The foundation for this extrasensory extravaganza was what Crutsinger called "a double dose of good news" from the government's Bureau of Economic Analysis.
The first told us that the nation's economy grew at a revised annual rate of 1.0 percent during last year's fourth quarter, up from the 0.7 percent reported a month ago. Who would have thought that the "new nornal" standards for economic performance would move the bar so low that 1.0 percent growth would be considered "good news"?
The second dose of news from the BEA was that personal income and outlays posted genuinely strong results in January (up 0.5 percent and 0.4 percent, respectively, in real terms). That's fine, but this performance followed five collectively mediocre months, and the seasonally adjusted result was likely favorably influenced by relatively mild winter weather after two awful previous Januarys. Only the Associated Press, aka the Administration's Press, could take one solid month of data in one report and transform it into proof that entire economy started off the year "with a bang," and that "consumers roared back to life."
But that's what the wire service did:
US ECONOMY ENDS 2015 ON BETTER NOTE, STARTS 2016 WITH A BANG
The U.S. economy got a double dose of good news Friday. Economic growth in the final three months of 2015 didn't slow as much as previously estimated, and consumers roared back to life in January, spending at the fastest clip in eight months.
The Commerce Department said that consumer spending increased 0.5 percent last month, the best showing since May and far higher than the tiny 0.1 percent gain in December. Economists are expecting stronger consumer spending, which accounts for two-thirds of economic activity, to lift overall economic growth in the new year after a fourth-quarter slowdown.
There he goes again.
Consumer spending does not account "for two-thirds of economic activity." It is the end result of all of the economic activity that came before it. Tracking consumer spending is a necessary element of tracking the size of the economy, only because any attempt to track it from the ground up by measuring the actual output of all individual goods and services would be prohibitively costly and still likely inaccurate, even after herculean efforts to get it right.
Depending on who is making this "two-thirds of economic activity" claim, it's a fundamental misunderstanding or a deliberate misstatement. The focuse on spending explains why Keynesian economics fails to create long-term, sustainable growth without significant collateral damage.
Keynesians believe they can grow the economy by convincing people — and companies, and governments — to spend more. So governments guided by Keynesianism enact all kinds of measures to "stimulate" that spending by running deficits, increasing transfer payments, and the like. That can work in the very short-term if it's perceived as sustainable. The problem is that it's not seen that way any more, because governments around the world have essentially run out of other people's money. As a result, producers and service providers don't respond by investing in more productive or service-providing capacity, which is what really drives long-term sustainable growth.
Thus, whatever reported economic growth Keynesian policies can squeeze out of an economy — not necessarily genuine growth, as noted earlier — is purchased at a horrible cost. In this nation's case, it's seen in trillions of dollars in deficit spening during the past eight years; an even larger increase in the national debt; many corporate balance sheets that are a wreck, leaving them very vulnerable to a downturn; and record consumer debt, including over $1 trillion in student loans few believe will ever be fully repaid.
Here are a few things the rest of us in the real world heard about January. They clearly did not have sounds resembling what the AP's headline writers and Crutsinger claim to have heard:
- Despite the topline seasonally adjusted figure of 151,000 jobs added, the reality is that the economy actual job loses of 2.989 million in January represented the third-worst total ever. Only January 2008 and January 2009 were worse.
- The Institute for Supply Management's Manufacturing index stayed in contraction for the third straight month. Most other regional manufacturing indices were more deeply in contraction that the ISM's national report.
- Seasonally adjusted housing starts and building permits issued also declined in January.
- Seasonally adjusted retail sales increased by 0.2 percent, the underlying raw (i.e., not seasonally adjusted) data was awful, and arguably should have led to a significant seasonally adjusted decrease.
- New-home sales fell by a seasonally adjusted 9.2 percent in January, at a level below that seen in January 2015.
- The situation in durable goods improved in January, but related shipments were still lower than they were 12 months earlier.
- As reported today, pending home sales, despite relatively decent January weather, fell by a seasonally adjusted 2.5 percent. The raw figures here also showed a year-over-year January decline. The press and the National Association of Realtors actually tried to claim that bad weather was an impediment this year.
Finally, if the economy is off to such a "bang-up" start this year, why is the first-quarter GDP growth estimate at Moody's, run by incurably optimistic economist Mark Zandi, only predicting annualized growth of 1.6 percent? (Note: The graph at the link shows 1.6 percent, indicating that the narrative, which predicts 1.2 percent, hasn't been updated.) That's far below predictions of 2.3 percent and 2.5 percent the AP's Crutsinger carried in his dispatch.
Cross-posted at BizzyBlog.com.