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The US economy shrank at an annualized rate of 2.9 percent in Q1

washingtonpost.com

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Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#41

Post by pessimizer »

michaelbuckbee wrote: post #33
sillysaurus3 wrote: post #31

Earlier quoted context omitted.

That unemployment graph is rather breathtaking, both because it illustrates how impactful the '08 crash was, and how little we've recovered since then. Is there any chance that the graph could be misleading, or should it be believed at face value that one in four people are unemployed?

One potentially misleading aspect of the chart is that it covers only 25-54 year olds and one result of the downturn was that older workers have remained in their jobs longer, delayed retirement, etc.

Edit added above. I chose prime-age because baby boomers.

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#42

Post by endersshadow »

sillysaurus3 wrote: post #31
pessimizer wrote: post #25

A stock market recovery is not a "recovery." Prime-age employment: http://data.bls.gov/timeseries/LNS12300060 Median wealth, and the median wealth of various segments: http://finance.yahoo.com/blogs/daily-ticker/for-most-familie... Median income: http://advisorperspectives.com/dshort/updates/Median-Househo... Wealthy people cannot drive consumption, because they spend a far smaller part of their income on it. edit: I…

That unemployment graph is rather breathtaking, both because it illustrates how impactful the '08 crash was, and how little we've recovered since then. Is there any chance that the graph could be misleading, or should it be believed at face value that one in four people are unemployed?

This is an employment to population ratio, so 1 in 4 people, ages 25-54 do not work. That does not mean that they are unemployed! Unemployed people are those looking for work that don't have employment. Plenty of people voluntarily leave the "labor force" (employed + unemployed people), such as stay-at-home parents, trust fund kids, or independently wealthy and retired folks.

That said, "unemployment" is a very tough figure to calculate (as are most macroeconomic figures), and there's a lot of pseudo-controversy about what the numbers mean. Wiki does a good job summarizing how the BLS calculates unemployment [1].

[1]: https://en.wikipedia.org/wiki/Unemployment#United_States_Bur...

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#43

Post by cs702 »

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008.

When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business.

Before the financial crisis, consumers borrowed aggressively to finance consumption, like drunken sailors... but unlike the financial sector, they never got a bailout. They were forced by the circumstances to follow Steve Martin's advice from Saturday Night Live: "don't buy stuff you cannot afford."[2]

Are we really that surprised that many consumers are reluctant to borrow and/or spend like before the crisis?

--

Edits: modified first paragraph to convey what I actually meant to say, in response to ctl's comment. The original paragraph was poorly written. (Thanks for pointing out the inconsistency, ctl!)

--

[1] http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp...

[2] https://screen.yahoo.com/dont-buy-stuff-000000884.html

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#44

Post by homotopy »

dllthomas wrote: post #35
sillysaurus3 wrote: post #31

Earlier quoted context omitted.

That unemployment graph is rather breathtaking, both because it illustrates how impactful the '08 crash was, and how little we've recovered since then. Is there any chance that the graph could be misleading, or should it be believed at face value that one in four people are unemployed?

I think this includes people who are not working by choice (wealthy and idle, stay-at-home parent, student, &c).

It indeed does, the graph is of Labor Force Participation rate among ages 25 to 54, so that is the portion of people that age that are working over the total people that age eligible to work. Now the unemployment numbers(U3) that you hear on the TV do not include these people typically, that is the discourages workers and those that are underemployed, it only includes people that are actively looking for a job.

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#45

Post by DangerousPie »

sillysaurus3 wrote: post #31
pessimizer wrote: post #25

A stock market recovery is not a "recovery." Prime-age employment: http://data.bls.gov/timeseries/LNS12300060 Median wealth, and the median wealth of various segments: http://finance.yahoo.com/blogs/daily-ticker/for-most-familie... Median income: http://advisorperspectives.com/dshort/updates/Median-Househo... Wealthy people cannot drive consumption, because they spend a far smaller part of their income on it. edit: I…

That unemployment graph is rather breathtaking, both because it illustrates how impactful the '08 crash was, and how little we've recovered since then. Is there any chance that the graph could be misleading, or should it be believed at face value that one in four people are unemployed?

Very misleading Y axis. Here is the same plot with a proper axis: http://i.imgur.com/k4ClDSF.png

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#46

Post by bengali3 »

rayiner wrote: post #20
memossy wrote: post #15

The most interesting component of this was the healthcare drag in the revisions taking it down from the initial ones. While a large element of this was the affordable care act, it is also notable that healthcare inflation went negative for the first time in 20 odd years last quarter (education did too, but thats another story). Given the US currently spends twice the amount of other countries on its health care as a…

The healthcare example is a very good illustration of why the GDP calculation is susceptible to the broken window fallacy: http://en.wikipedia.org/wiki/Parable_of_the_broken_window . The root of the problem is that GDP doesn't measure changes in capital stock. For example, after Fukushima, Japan's GDP ticked up slightly because of the expenditures from disaster recovery. Obviously it's absurd to conclude that Fukushi…

Interesting point regarding the parable, thank you for sharing.

If GDP does included anything stock, would that really be accurate? Not an expert, but isn't stock priced on the future value of something (ie dependent upon future sales forecasts). since GDP is backward looking, i don't think it should be counted? stock could be used as a predictor of future GDP since the stock is trying to put a value to future sales.

Also, wouldnt that also double count certain sales? ie each iPhone sold would increase goods sold as well as the companies stock price?

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#47

Post by executor14 »

cs702 wrote: post #43

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borr…

Actual TLDR:

Spending was muted because of the harsh winter. Recent economic indicators have been very positive so expectations are for a significant rebound for Q2.

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#48

Post by pessimizer »

nostrademons wrote: post #40
sillysaurus3 wrote: post #31

Earlier quoted context omitted.

That unemployment graph is rather breathtaking, both because it illustrates how impactful the '08 crash was, and how little we've recovered since then. Is there any chance that the graph could be misleading, or should it be believed at face value that one in four people are unemployed?

The graph doesn't start at 0 on the Y-axis. It would be a lot less striking if the scale ran from 0-100 instead of the cherrypicked 74-81 scale. Also, this is labor force participation, not unemployment. If you carried this back to the 1950s, it would be around 60%, because most women didn't work back then. http://research.stlouisfed.org/fred2/series/CIVPART

Are you really accusing the Bureau of Labor Statistics of cherry-picking the scale, or do you mean to use a different word?

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#49

Post by crazy1van »

cs702 wrote: post #43

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borr…

> Are we really that surprised that many consumers are reluctant to borrow and/or spend like before the crisis?

Seems like it is not only unsurprising but also a good thing. People learned a lesson about spending recklessly and some economists would claim that's a bad thing. GDP is not the end-all, be-all metric of a healthy economy.

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#50

Post by rayiner »

bengali3 wrote: post #46
rayiner wrote: post #20

Earlier quoted context omitted.

The healthcare example is a very good illustration of why the GDP calculation is susceptible to the broken window fallacy: http://en.wikipedia.org/wiki/Parable_of_the_broken_window . The root of the problem is that GDP doesn't measure changes in capital stock. For example, after Fukushima, Japan's GDP ticked up slightly because of the expenditures from disaster recovery. Obviously it's absurd to conclude that Fukushi…

Interesting point regarding the parable, thank you for sharing. If GDP does included anything stock, would that really be accurate? Not an expert, but isn't stock priced on the future value of something (ie dependent upon future sales forecasts). since GDP is backward looking, i don't think it should be counted? stock could be used as a predictor of future GDP since the stock is trying to put a value to future sales.…

In this context, "capital stock" just refers to the accumulated wealth of the country, not shares of a corporation. It's the value of existing bridges, oil reserves, factories, etc. In the sense I'm using it, I'd even include human health (i.e. human capital).
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