Post by unlawflcombatnt on Aug 29, 2006 19:11:03 GMT -6
The following story is a summary of our current economic situation by MBG info services
"TOP STORY
Borrowing Even Slow Growth
GDP growth spiked from the 1.8% rate in '05-q4 to 5.6% Q1 and then returned to just a 2.5% rate in Q2. Q4 growth was due to accumulation of unsold inventory but Q1 AND Q2 growth came mostly from households rapidly spending down savings.
The spike in Q1 was also built on a jump in business and government spending that couldn't last. But even the weak growth in Q2 was due to a rare improvement in the trade deficit and an inventory buildup. Household dis-savings in Q2 was the worst quarterly rate on record -- even worse than during the Gulf storms last year -- and seems to have worsened through the quarter.
The BLS report of a sharp decline in real compensation for even the "average" worker over the past year is evidence of severe stress in households. Debt and debt-service payments are already at the worst levels on record with interest rates rising, job growth and asset appreciation slowing sharply.
As the Current Accounts deficits now soar by over -$2.3 billion per day -- -$1.6 million each MINUTE -- global outsourcing and net imports are a record -6% drag on real GDP -- paid for by adding the same level of new foreign debt and asset sales. The acquisition of IBM's PC unit by China's Haier last spring covered just 20 hours of US financing needs.
As a share of GDP, the economic drag from trade is now 2.3 times worse than ever reached during the "competitiveness crisis" of the mid-1980s. This, despite the fact that 2006 will be the seventh consecutive year that US GDP growth was slower than world growth.
The loss of production to net imports goes a long way to explaining sluggish job growth and declining incomes. Beyond any precedent,only 1.6 million private-sector jobs have been added over the past five and one-half years -- all of them "non-supervisory" and in industries with little or not outsourcing or import competition. 55 months after the start of the current cyclical recovery, private sector workers are still being paid for just 4.5% more total hours worked than when the recession ended. Hours-worked in Manufacturing have declined by -5.8%, the first time hours have ever declined for more than two months into a recovery.
Four consecutive years of tax cuts gave a temporary bounce to growth in disposable income and (after-tax) profits. But after tax income is still not keeping up with the steady growth of spending.
Household debt has now spiked to 123.6% of annual disposable income, and debt service obligations in the past five years remain far higher than ever before -- even with still near record low interest rates. Consumer confidence has rebounded from the steep drop after the Gulf Coast storms but remain vulnerable to high and rising gas prices.
After the past five years of tax cuts, war, Defense and Homeland Security-related increases drove Federal government spending growth and widening deficits. Aside from Social Security surplus, already obligated, the gross Federal debt (which first reached $1 trillion at the end of 1981) has raced past $8.2 trillion and is growing almost as fast as nominal GDP.
Home construction and prices are cooling and the equity market rebound remain modest. There is now grave danger that Middle East turmoil and other factors may keep oil prices in the $70-$80/barrel range or higher. The Federal Reserve is raising interest rates despite the deflationary effect of overall wages partially to stabilize the dollar that is being undermined by the record trade deficit. Rising short term rates have been the trade-off to keep long rates low, maintaining the refinancing, housing and vehicle boom that has powered the economy for the past five years.
Unprecedented current foreign and domestic debts require that new spending along the Gulf Coast either be offset by cuts elsewhere or by even more borrowing. Either way, it leaves the US and the world economy vulnerable to any further substantial external or political shock. With current household dis-savings and job growth prospects still struggling, a sharp slowdown later in the year remains a real possibility.
The Federal Reserve, the IMF and other policymakers have finally begun talking about coordinated reform of trade and economic policy to manage global imbalances but so far there has been little action. The next global downturn could come very soon and it is unlikely to produce a more productive set of policies."
"TOP STORY
Borrowing Even Slow Growth
GDP growth spiked from the 1.8% rate in '05-q4 to 5.6% Q1 and then returned to just a 2.5% rate in Q2. Q4 growth was due to accumulation of unsold inventory but Q1 AND Q2 growth came mostly from households rapidly spending down savings.
The spike in Q1 was also built on a jump in business and government spending that couldn't last. But even the weak growth in Q2 was due to a rare improvement in the trade deficit and an inventory buildup. Household dis-savings in Q2 was the worst quarterly rate on record -- even worse than during the Gulf storms last year -- and seems to have worsened through the quarter.
The BLS report of a sharp decline in real compensation for even the "average" worker over the past year is evidence of severe stress in households. Debt and debt-service payments are already at the worst levels on record with interest rates rising, job growth and asset appreciation slowing sharply.
As the Current Accounts deficits now soar by over -$2.3 billion per day -- -$1.6 million each MINUTE -- global outsourcing and net imports are a record -6% drag on real GDP -- paid for by adding the same level of new foreign debt and asset sales. The acquisition of IBM's PC unit by China's Haier last spring covered just 20 hours of US financing needs.
As a share of GDP, the economic drag from trade is now 2.3 times worse than ever reached during the "competitiveness crisis" of the mid-1980s. This, despite the fact that 2006 will be the seventh consecutive year that US GDP growth was slower than world growth.
The loss of production to net imports goes a long way to explaining sluggish job growth and declining incomes. Beyond any precedent,only 1.6 million private-sector jobs have been added over the past five and one-half years -- all of them "non-supervisory" and in industries with little or not outsourcing or import competition. 55 months after the start of the current cyclical recovery, private sector workers are still being paid for just 4.5% more total hours worked than when the recession ended. Hours-worked in Manufacturing have declined by -5.8%, the first time hours have ever declined for more than two months into a recovery.
Four consecutive years of tax cuts gave a temporary bounce to growth in disposable income and (after-tax) profits. But after tax income is still not keeping up with the steady growth of spending.
Household debt has now spiked to 123.6% of annual disposable income, and debt service obligations in the past five years remain far higher than ever before -- even with still near record low interest rates. Consumer confidence has rebounded from the steep drop after the Gulf Coast storms but remain vulnerable to high and rising gas prices.
After the past five years of tax cuts, war, Defense and Homeland Security-related increases drove Federal government spending growth and widening deficits. Aside from Social Security surplus, already obligated, the gross Federal debt (which first reached $1 trillion at the end of 1981) has raced past $8.2 trillion and is growing almost as fast as nominal GDP.
Home construction and prices are cooling and the equity market rebound remain modest. There is now grave danger that Middle East turmoil and other factors may keep oil prices in the $70-$80/barrel range or higher. The Federal Reserve is raising interest rates despite the deflationary effect of overall wages partially to stabilize the dollar that is being undermined by the record trade deficit. Rising short term rates have been the trade-off to keep long rates low, maintaining the refinancing, housing and vehicle boom that has powered the economy for the past five years.
Unprecedented current foreign and domestic debts require that new spending along the Gulf Coast either be offset by cuts elsewhere or by even more borrowing. Either way, it leaves the US and the world economy vulnerable to any further substantial external or political shock. With current household dis-savings and job growth prospects still struggling, a sharp slowdown later in the year remains a real possibility.
The Federal Reserve, the IMF and other policymakers have finally begun talking about coordinated reform of trade and economic policy to manage global imbalances but so far there has been little action. The next global downturn could come very soon and it is unlikely to produce a more productive set of policies."