This week Personal Consumption data was released showing weak (but above expectations) growth.
Since 2000 to the end of 4Q2012:
- Population grew 12.0%;
- Inflation grew 31.9% (using GDP deflator);
- Unadjusted GDP grew 63.4%;
- Unadjusted Personal Consumption Expenditures grew 68.3%;
- Unadjusted Corporate Profits grew 241%.
I like to test data by looking at inflation adjusted per capita data. Since 2000:
- GDP has risen 10.5% per capita;
- Personal Consumption Expenditures has risen 13.8% per capita;
- Corporate Profits after taxes have risen 130% per capita.
Is this good and what is the point? If you know the rules you can play the game. This data is telling you the only "growth" sector of the economy is corporate America - and as an investor, this is the place to be.
Second, it tell you that 20% of GDP growth since 2000 has been driven by corporate PROFITS. When two widgets are sold to consumers at $1 each at zero profit, $2 is added to GDP. When one widget is sold to consumers at $2 (with $1 dollar profit), $2 is added to GDP.
The reality is that a growing element of GDP growth is financial growth for those invested in corporate America - not "growth" for Main Street. As a service economy, the only way I know to measure growth is employment - population ratios and mean income. Employment - population ratio simply tells what percentage of the population is working. Median income removes the distortion of the 0.1% showing the income of Joe Sixpack. Median income is not a real time data series but does have historical information which shows Joe is doing poorly. This tells you the Main Street economy is not really growing.
Whatever your prejudice:
- trickle down money from the business sector is not reaching Main Street;
- trickle down money from government is not helping Main Street grow.
The USA economy is geared towards Main Street consumption (which has been stagnant since 2000) - but has been partially covered up by growing corporate profits' influence on GDP. This author is far from being against growing corporate profits. But I am for the growth of Joe Sixpack, and real growth of the USA consumption based economy.
Some believe the evil empire is the banking system which is creating significant profits for an sector that was on the ropes only a short time ago. It is not in the public interest to have a sector profit from money flows as they are taxing the economy because of their existence. From Washington's Blog posting at GEI Analysis:
Before concluding that higher bank profits leads to a ponzi economy and a depression, the economist Steve Keen has shown -
"a sustainable level of bank profits appears to be about 1% of GDP."
Unless we shrink the financial sector, we will continue to have economic instability.
Many hold a belief that government austerity will fix the economy over time. I am not a believer that austerity should be the only tool in the toolbox. Austerity will take a further toll on Joe Sixpack, and the last thing the economy needs at this point is further damage to Joe.
My weekly economic review is in my instablog.