Suitably Flip

Economic Fundamentals ARE Strong

I really wish John McCain hadn't backpedaled so furiously when Barack Obama smacked him for saying the fundamentals of the U.S. economy are strong.  Despite the turmoil in the financial services sector and the debt and equity markets, the plain truth is that the economic fundamentals do remain strong.

Not rip-roaring strong, but solid, and certainly a far cry from the Depression-level crisis that Obama's wishing upon us.

Consider a snapshot of key economic conditions - specifically: real (inflation-adjusted) GDP growth, unemployment, and inflation.

GDP Growth:

In the most recent fiscal quarter (April-June 2008), output/income grew at an annualized rate of 3.3%.  That's better than the average growth rate of 3.0% observed over the last 30 years.

Unemployment:

As has been widely reported, unemployment has ticked up significantly over the last few months, and now sits at 6.1%.

As has been less widely noted, the number of jobs being lost doesn't account for the size of the increase in unemployment, suggesting that people entering the labor force for the first time (skewing heavily toward teenage minimum-wage workers) are having more trouble finding jobs than usual.  Surprising no one who paid attention in Econ 101, this pattern has emerged alongside large percentage increases in the minimum wage.

Even so, after having jumped from 4.9% to 6.1% since January, the unemployment rate is now equal to the 30-year average of 6.1%.  And that average rate has been lowered significantly thanks to the low unemployment enjoyed during the Bush years.  The 30-year average, excluding 2001-2008, clocks in at 6.4%.

Inflation:

The Consumer Price Index (CPI) rose 5.4% over the twelve months ended August 2008.  This is a bit hotter than the 30-year compound growth rate of 4.3%.  But that above-trend inflation rate is due demonstrably to the now-burst bubble in energy prices.

So-called "core inflation" (excluding food and energy prices) was just 2.4% over the last year.  That's significantly lower than the 30-year compound growth in the core rate, which also equals 4.3%.

While the core rate is an economically useful metric, people do of course feel the headline rate, which has indeed been moderately higher than normal over the last year.  Happily, that trend has not only ended, but reversed in dramatic fashion.  Wholesale oil prices peaked in mid-July and have since fallen more than 33%.  Although that doesn't translate immediately into retail prices, the effect can already be seen in month-to-month price increases.

While August's core inflation came in at an annualized rate of 2.4%, headline inflation was negative.

So...

1. Economic growth is better than average.
2. Unemployment is equal to the average.
3. Inflation was briefly worse than average, but has recently not only slowed, but stopped (a trend we can expect to continue in coming months, as tumbling wholesale oil prices continue work their way into consumer prices).

And how do we sustain and encourage further improvement among those metrics?

1. Make the Bush tax cuts permanent.
2. Eliminate the minimum wage.
3. Never utter the words "windfall profit tax" again.

Barack Obama, who seems to think a winning economic strategy consists of simply decrying current conditions with scarier hyperbole, prescribes the opposite on every count.

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Economic Fundamentals ARE Strong

I really wish John McCain hadn't backpedaled so furiously when Barack Obama smacked him for saying the fundamentals of the U.S. economy are strong.  Despite the turmoil in the financial services sector and the debt and equity markets, the plain truth is that the economic fundamentals do remain strong.

Not rip-roaring strong, but solid, and certainly a far cry from the Depression-level crisis that Obama's wishing upon us.

Consider a snapshot of key economic conditions - specifically: real (inflation-adjusted) GDP growth, unemployment, and inflation.

GDP Growth:

In the most recent fiscal quarter (April-June 2008), output/income grew at an annualized rate of 3.3%.  That's better than the average growth rate of 3.0% observed over the last 30 years.

Unemployment:

As has been widely reported, unemployment has ticked up significantly over the last few months, and now sits at 6.1%.

As has been less widely noted, the number of jobs being lost doesn't account for the size of the increase in unemployment, suggesting that people entering the labor force for the first time (skewing heavily toward teenage minimum-wage workers) are having more trouble finding jobs than usual.  Surprising no one who paid attention in Econ 101, this pattern has emerged alongside large percentage increases in the minimum wage.

Even so, after having jumped from 4.9% to 6.1% since January, the unemployment rate is now equal to the 30-year average of 6.1%.  And that average rate has been lowered significantly thanks to the low unemployment enjoyed during the Bush years.  The 30-year average, excluding 2001-2008, clocks in at 6.4%.

Inflation:

The Consumer Price Index (CPI) rose 5.4% over the twelve months ended August 2008.  This is a bit hotter than the 30-year compound growth rate of 4.3%.  But that above-trend inflation rate is due demonstrably to the now-burst bubble in energy prices.

So-called "core inflation" (excluding food and energy prices) was just 2.4% over the last year.  That's significantly lower than the 30-year compound growth in the core rate, which also equals 4.3%.

While the core rate is an economically useful metric, people do of course feel the headline rate, which has indeed been moderately higher than normal over the last year.  Happily, that trend has not only ended, but reversed in dramatic fashion.  Wholesale oil prices peaked in mid-July and have since fallen more than 33%.  Although that doesn't translate immediately into retail prices, the effect can already be seen in month-to-month price increases.

While August's core inflation came in at an annualized rate of 2.4%, headline inflation was negative.

So...

1. Economic growth is better than average.
2. Unemployment is equal to the average.
3. Inflation was briefly worse than average, but has recently not only slowed, but stopped (a trend we can expect to continue in coming months, as tumbling wholesale oil prices continue work their way into consumer prices).

And how do we sustain and encourage further improvement among those metrics?

1. Make the Bush tax cuts permanent.
2. Eliminate the minimum wage.
3. Never utter the words "windfall profit tax" again.

Barack Obama, who seems to think a winning economic strategy consists of simply decrying current conditions with scarier hyperbole, prescribes the opposite on every count.