US economic growth myth slammed by Richmond Fed president Jeffrey Lacker, GDP growth continues at 2 percent, Consumer spending moderate trend, Businesses reticent to hire and invest
“11.4%: What the U.S. unemployment rate would be if labor force participation were back to January 2008 levels.” …James Pethokoukis, American Enterprise Institute, June 2013
“Nearly half of U.S. companies are reluctant to hire full-time employees because of the ACA. One in five firms indicates they are likely to hire fewer employees, and another one in 10 may lay off current employees in response to the law.
Other firms will shift toward part-time workers. More than 40 percent of CFOs say their companies will consider switching some jobs to less than 30 hours per week or targeting part-time workers for future employment.”…Duke University Fuqua School of Business December 11, 2013
“Freedom is the freedom to say that two plus two make four. If that is granted, all else follows.”…George Orwell, “1984″
From Zero Hedge February 4, 2014.
“Fed’s Lacker Slams Permabulls, Pours Cold Water On The US “Growth Story””
“Unlike the other Fed presidents who are all too happy to lie in order to instill some confidence in a centrally-planned economy and market, not realizing that by doing so they hurt their own credibility, non-voting member Jeffrey Lacker and president of the Richmond Fed has a different approach – telling the truth. Which is why we read his just released speech this morning with interest since once again, it contains far more truth and honesty than anything else the FOMC releases. Sure enough, it has enough fire and brimstone to put even fringe bloggers to shame.
First, just as we have been warning for the past two quarters, all US growth was on the back of inventory – a trend which everyone now realizes is unsustainable. So does Lacker:
Economists’ hopes have been bolstered of late by a recent string of data releases indicating that 2013 ended on a positive note. Second-half growth in real GDP — our broadest measure of overall economic activity — was stronger than we’ve seen in quite some time. While that figure was boosted significantly by inventory accumulation that is unlikely to persist, there was some evidence of momentum that might carry forward.
That evidence, however, is on the back of a consumer who may or may not be back and spending freely once more. To Lacker, it is “may not”:
… It’s no surprise that credit is no longer available on the same terms. And it’s no surprise that consumers have been paying off debt and building up savings in order to restore some sense of balance to their household finances. These developments appear to have contributed to a persistent cautiousness in household spending. Over the last three years, real consumer spending has increased at an annual rate of 2.1 percent. Although consumption grew rapidly at the end of last year, we have seen similar surges since the last recession, only to see spending return to a more moderate trend. Consumer spending trends are likely to depend on whether the dramatic events of the last few years are only a temporary disturbance to household sentiment or if they instead represent a more persistent shift in attitudes about borrowing and saving. At this point, I am inclined toward the latter view.
Next, Lacker slams the permabulls and their perpetual optimism that an improvement is just around the corner:
Many forecasters are citing the recent surge as support for projections of sustained growth at around 3 percent starting later this year. It’s worth pointing out, however, that this has been true at virtually every point in this expansion. In other words, ever since the recovery began, most forecasters have been expecting the economy to pick up speed in the next couple of quarters with the easing of headwinds that have been temporarily restraining growth. My own forecasts (at least initially) followed this script as well.
Despite these perennial hopes, the actual results have been more modest. Real GDP grew by 2.0 percent in 2011, 2.0 percent in 2012 and 1.8 percent for the first half of 2013. This record of relatively steady but modestly paced expansion, despite forecasts of an imminent increase in growth, helps motivate the more cautious economic outlook that I will share with you today.
Hoping that this is finally the year in which that long overdue CapEx spending will finally take place (and which is being halted by none other than the Fed as we explained nearly two years ago)? Don’t.
Businesses also appear to be quite reticent to hire and invest. A widely followed index of small business optimism fell sharply during the recession and has only partially recovered since then. Interestingly, when small business owners were asked in the latest survey about the single most important problem they face, 20 percent answered “government regulations and red tape.” This observation accords with reports we’ve been hearing from many business contacts for several years now.They’ve seen a substantial increase in the pace of regulatory change and a substantial increase in uncertainty about the shape of new regulations. Both are said to discourage new hiring and investment commitments.”