Justin Wolfers at the NYTimes The Upshot is trying not to take the new GDP numbers too seriously:
An economic report issued this morning provides a good example of the hazards facing election forecasters. The Bureau of Economic Analysisreported that in the first quarter of this year, Gross Domestic Product, a broad indicator of the health of the economy, shrank at an annual rate of 1 percent. Even worse, an alternative and more accurate measure, called Gross Domestic Income, shrank at an annual rate of 2.3 percent. If that persisted, we’d call it a sharp recession.
But no one is using the R-word. Nor should they. Markets have taken the news in their stride, and few economists have changed their view that the economy is growing and will continue to through 2014. Likewise, consumers remain confident about their economic prospects. Their confidence rests partly on other indicators that suggested far better growth throughout the quarter, such as nonfarm payrolls, which grew by 569,000 over the same period.
And the economy motored along after that bad quarter ended, with employment growing strongly and unemployment falling in April, and new claims for unemployment insurance falling through May. Importantly, we know that the weakness in G.D.P. is partly due to one-off factors — it snowed heavily, keeping many of us indoors, rather than out making and buying stuff — and it partly reflects influences, like the inventory cycle, that don’t have an enduring effect.
In any case, G.D.P. data are known to be noisy, and subject to a lot of later revision — so much so that the difference between the first and the final reading of G.D.P. growth is typically 1.3 percentage points. For all we know, the recent measured decline in output may be revised away.
But many election forecasters rely on quite mechanical models, linking their forecasts to a single economic indicator. The worst of these models assert that a single quarter’s G.D.P. growth is sufficient; others average G.D.P. growth over several quarters, but they still put a lot of weight on very recent data. Because these computer models read the data so literally, they overreact to statistical noise. If the election were to be held next month, they would have no choice but to interpret this morning’s data as evidence of a recession, leading them to forecast a huge swing against the president’s party.
Oh, Lord, we can’t have that. “We must protect Obama at all costs” has been the operative slogan since 2008. Let’s all pretend that he’s a genius, playing 11 dimensional chess and his speeches are the bomb-diggity. (I just learned that phrase from number 1 child and I intend to use it all the time now).
Wolfers needs to get out more. I meet very few people who are prospering and I meet a LOT of people these days in my part time job. From what I can see, we are all pinching pennies. The reason the economy is sucking is not all weather related, unless you see working people as crops that need to be periodically harvested for the last teensy bits of disposable income they have. I swear that every industry has a meeting with some Wharton graduate giving a presentation where the numbers have been run to predict the threshold of the pain point where the consumer will be forced to fork over their hard earned dollars for gas, salad, auto insurance, health insurance, tuition, rent/mortgage. It’s all been carefully modeled. And each industry thinks it’s the most important one that the consumer can not live without. We all have to have food and insurance and a place to live, amirite? Where else are they going to go?
But income is part of a closed system these days. It can’t be created out of nothing. Every penny is accountable to the shareholder. And if there is no money going into the system, it’s difficult to see how the economy continues to expand. The contraction is real and it’s coming from the top. The money is being hoarded or spent on the biggest yachts in the world.
The Great Recession or the Little Depression has dragged on too long but a person like Wolfers or Paul Krugman or some smart ass Democratic operative might not know it. It’s dragged on and people are diving into the corners of their nests for a few eggs that are left, if there are any. But this hasn’t stopped the MBAs and marketing dudes from creating new and improved ways of getting those last remaining dollars first.
So, color me unsurprised if the numbers that Wolfers finds so easily dismissible right now turn out to have real impact in November. The economic contraction is real. Whatever expansion was in the works may be getting strangled by the effects of the endless winter and the impact of the Obamacare individual mandate. If you see your part time hours getting cut, you might not be quite so confident as a consumer. Every item in a store starts to look like a moment of pain requiring a careful calculation of how many hours of work are required to buy it.
Wolfers can’t even use the R-word but I can. It’s called a recession. If I were a Democrat running a campaign, I’d be worried.
Apartmenttherapy has been doing a series of posts lately on the realities of living on a strict budget. The posts on food shopping have generated quite a bit of controversy with some readers in what sounds like the Obama contingent scolding poorer readers for not buying the best organic foodstuffs from Whole Foods. It’s gotten ugly at times. Even the “calming the waters” post from Cheryl Sternman Rule at The Kitchn affiliate makes a lot of assumptions that would only occur to someone at the top of Maslow’s pyramid of needs. It’s a tragedy that we’re even having food fights like this. Maybe Justin Wolfers should hang out in some of the blogs I visit regularly.
As for me, I have discovered Aldi, I buy bags of frozen chicken breasts at Trader Joe’s (because they are that good for that price), I am learning to avoid the “fuel perks! for food” scam at my local Giant Eagle and I am gardening this year. Yes, yes, the weather sucked last year and all I got was squash, which I hate. (So, I’m not planting any squash this year). Call it the triumph of hope over experience. I have a lot of yard and there’s no excuse for not turning it into a food manufacturing facility. There’s a farmer’s market in East Liberty on Saturday mornings that I will visit when I can and when I’m in Target, I will look at whatever is on sale. So there. :-pppp