Refutation of Economic Illusion

Richard (Rick) Mills
Ahead of the Herd

Page 1 of 3

As a general rule, the most successful man in life is the man who has the best information

Illusions trick us into perceiving something different than what actually exists and the mainstream media is very good at creating them. Currently they have the herd convinced there is an economic recovery underway.

We all need to understand that to have a real, and sustainable recovery for an economy that relies on consumer spending for 70 percent of its activity we need to have a jobs recovery.

Okun’s Law holds that an economy, it’s GDP, must grow above its potential to reduce the unemployment rate. Year-on-year economic growth of two percent above the trend (considered to be 2–3 percent) is needed to lower unemployment by one point.

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A third downgrade of U.S. economic growth for the first quarter 2013 showed the country’s GDP grew at just a 1.8 percent annualized pace.

Bloomberg and IHS Global Insight estimate the U.S. economy will grow by 1.6 percent this year.

Industrial production was unchanged in May, the second straight weak monthly report. Capacity utilization – a measure of how fully the nation’s mines, factories and utilities are deploying their resources – fell to 77.6 percent, well below the average of 80.2 percent experienced from 1972-2012.

The Commerce Department revised growth in private investment to 7.4 percent in the first quarter, down from its original estimate of 12.3 percent.

Imports were originally reported as growing by 5.4 percent but the revised number is now 0.4 percent.

Sequestration – what remains of the ‘fiscal cliff’ after the U.S. Congress passed the American Taxpayer Relief Act – could trim economic growth in 2013 by 0.6 percentage points by cutting $85 billion worth of Federal government spending this year. Over its ten year life sequestration will cut $600 billion of government spending from the economy.

“The drop in growth rate is not temporary, but over the span of at least 10 years in which the sequestration will take effect. And its impact will be more strongly felt in later years, once the fiscal sequestration translates through its negative multiplier effects.” Benjarong Suwankiri, ‘After Fiscal Cliff, Sequestration’ nationmultimedia.com

Hourly pay for U.S. nonfarm workers fell a record 3.8 percent annualized in the first quarter, the largest decline since records started being kept in 1947. This record first quarter decline was on top of the 2012 third weakest annual increase in hourly pay since 1947. Hourly worker pay rose only 1.9 percent in 2012, barely keeping up with the 1.8 percent gain in the fudged downward and much maligned consumer price index.

The growth rate of consumer spending was revised downward to 2.6 percent annualized in the first quarter from an earlier estimate of 3.4 percent.

The labor force participation rate is the percentage of working-age persons in an economy who:

• Are employed
• Are unemployed but looking for a job