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The real story behind the crumbling economy,
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Jobs slump... but what does it mean for your investments?
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Recession, regression, depression and other hard truths...
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Joel Bowman, reporting
from Dubai in the Persian Gulf...
Most analysts now agree (or
admit) that the US has sunk into a recession. In fact, the debate now
seems not to be regarding the timing of the recession, but the severity
of it. For many, the picture is even bleaker, with that ugly "D" word
popping up more and more in the press; Depression.
Optimists will contend that the
latest scare-mongering in the media is simply part of the natural cycle
of the markets...part of the usual highs and lows...something the
economy must "work through."
Interesting, especially given
that the number of working American's is falling by the month.
"Employers in the U.S. cut the
most workers in five years last month," reported Bloomberg yesterday, "signaling
that the economic contraction is deepening and that the Federal Reserve
will continue to lower interest rates."
Great! Few jobs AND a weaker
dollar! How can you go wrong with that?
Payrolls shrank by 83,000, the
third consecutive monthly decline and higher than forecasts, said the
Labor Department. The jobless rate crept above 5 percent to 5.1, the
highest level since September 2005, from 4.8 percent.
"A host of economists had
predicted a net job loss, but today's numbers far exceeded their
expectations," reported Addison Wiggin in yesterday's 5-Minute
Forecast. "The Bureau of Much Belabored Statistics has now reported
three consecutive months of job losses."
With bad news and sad stats
piling up quicker than wealth in a Chinese savings account, we thought
it might be instructive to take a closer look at what all the numbers
mean. Today's column is an excerpt from Addison's bestselling book,
Demise of the Dollar...and Why it's Good for Your Investments. Details
below...
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Fictitious Capitalism
By Addison Wiggin
Economists like talking about
the gross domestic product (GDP) because it is a big melting pot. But it
's misleading. All we have to do is look one by one at the parts that
make up GDP and we will see the real trends.
The way the news is reported is
itself an economic illusion. Our manufacturing base — a historical
source of good jobs and economic growth — is undergoing a multi-decade
trend that is harming our dollar's value. Starting in the late 1970s,
the trend involves the loss of manufacturing plants and jobs overseas;
and it has gotten worse during the past few years, a hidden indicator.
In past recoveries, industrial
production always led the way; it was a dependable sign to measure the
strength or weakness of the recovery. Production surged by an average of
about 18 percent in the first two years after the typical recession.
Since November 2001, though,
when the so-called current economic expansion began, industrial
production — the creation of goods and the traditional driver of the
economy —has barely moved. In fact, the total number of factory jobs
lost since the start of the most recent recession in March 2001 is 2.8
million. (We have lost a total of 3.4 million jobs since 1998.) This was
the single greatest percentage fall in the labor force in almost eight
decades since the Great Depression of the 1930s.
What has been happening to
American manufacturing can only be described with the word depression.
And yet this important trend is almost invisible if we look at overall
GDP.
This loss in industrial base is
not a temporary thing. It is a sharp downward plunge within a
longer-term trend — going south and with the dollar's spending power
soon to follow unless we turn it around.
How does the loss of
manufacturing jobs play into the true economic picture and, by
association, the dollar crisis? Putting it another way, how is the news
spun by the media?
In one headline on the topic in
2003, when the fallout from the 2001 recession was still being felt, we
read: " Jobs: The Turning Point Is Here. " What was even more
interesting in that story was a table titled " A Jobless Recovery? That
Depends." Obviously, the author wanted to convey the message that the
dismal employment picture was offset by good news elsewhere in the
economy. But in fact, the story's statistics only confirmed that the
U.S. economy is in a wrenching crisis. Today a more timely news headline
is "Making Less Than Dad, " published on May 25, 2007, on CNN. The
production side with high - paying jobs is disappearing, while the
consumption side with low - paying jobs is booming.
As the nearby chart shows, since
the end of 2001, the main job losses have occurred in the most
historically productive sectors. In manufacturing, losses have almost
doubled, while computer systems design and services have dropped nearly
80 percent.
The gains in construction,
commercial banking, and real estate were directly related to the housing
and mortgage refinancing bubble, and now, with the growing number of
foreclosures that are mounting as the fallout continues into 2008, in
two of these sectors growth comes from refinancing and not from any form
of productive activity.
Look at the phenomenal growth in
accommodation and services — 10 times the numbers just a few years ago —
and at temporary help services, which more than doubled. What does such
growth say about our real productivity? This employment record shows
just how the economy's grossly distorted spending and growth pattern is
moving. While the production side is collapsing, the consumption side is
expanding.
Our economy is changing in big,
big ways. We are moving away from goods production and toward services.
It is a development that American policy makers and economists have
hailed as a normal and natural shift in emphasis for a developed
economy. This complacent view ignores two important points, though.
First, the manufacturing sector pays the highest wages, which makes it a
no-brainer for anyone to understand — especially anyone who has lost a
manufacturing job and who now works in the retail sector. Second,
manufacturing is the source of earnings that pay for the overseas
obligations of every country.
After a slight dip in 2005 to 53
percent, the United States is now at the point where our exports are at
only 56 percent of our imports (57 percent, if you count the gold
shipped out of the country). We know that manufacturing produces more
and more goods while employing fewer and fewer people. But the American
case is different; the production of goods increasingly lags behind
growth in personal income. But so what? How does the balance of trade
affect the typical American, and how does it hurt the dollar?
We read in our media that
miraculous productivity gains have become the main driver of U.S. GDP
growth. But is this for real, or is it only a big economic hoax? We may
hear a variety of possible explanations. For example, businesses are
supposed to be able to squeeze more value out of the average worker. As
this idea boosts profits, the impending comeback of business investment
spending is taken for granted. The concept of improved productivity is
supposed to offset lost market share in a global sense.
The belief that productivity
growth is the whole deal is delusional, but as an economic principle it
is unique to American economists. In contrast, European economists
rarely mentioned the notion. They know about the importance of
productivity growth, but they view it as part of a more important trend,
capital investment.
American economists don't like
to go there, because it brings up the real problem with the relationship
between employment and the value of the dollar. As a rule, where there
is high capital investment, high productivity growth can also be taken
for granted. And by the way, capital investment also provides the
increase in demand and spending necessary to translate growing
productivity into effectively higher employment and economic growth.
Joel's Note:
Addison's work in his book, Demise of the Dollar...and Why it's Good
for Your Investments, earned him another position on the
bestsellers list and acclaim from his intrepid peers in the industry. If
you have not yet read it, we suggest you grab a copy and uncover what's
really happening to your currency, your country and ways you can protect
your investments.
Click here to order now.
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--------------------------------------------
Rude Endnote:
Finally today, one observant reader sent in this Speed Bump
comic that appeared in
yesteryday's Houston Chronicle.
One
that...ahem...note, we're off.
Until
tomorrow...
Cheers,
Joel Bowman
Rude Awakening
aussiejoel@the-rude-awakening.com |
