It comes as no surprise to me that many believe we are in a recession. Joe Sixpack's portion of the economy sucks (e.g. not good, for those who are uncertain what "sucks" means).
The metric used to gauge economic growth by APP (Academics, Pundits and Politicos) is GDP (Gross Domestic Product). It includes elements which have no direct relationship to Joe. GDP is a metric to understand the economy of the 0.01%, or the country as a whole. Joe lives in a world of income, expenditure and net worth. If Joe sees growth in his world, then his economy is growing.
Joe's world is contracting - literally. Instead of looking at aggregate growth, the way to view Joe's world is to look at per capita growth, and specifically at the money flows that involve Joe directly.
The graph below shows April 2012 per capita disposable income 0f $37,711 (current dollars) indexed to the buying power of the dollar. Joe's world is operating at the same levels as five years ago. This is Joe's REAL income growth - and it shows Joe's real income is shrinking.
Taking the data in the above graph, and comparing growth year-over-year with GDP - I argue that Joe's world has been shrinking since mid 2011 - just as the establishment was telling Joe the economy is growing.
And Joe's assets suck. Joe's primary asset is his house. Although pundits (including me) are telling you the housing market has bottomed, there is a big difference between a "bottom" and a "recovered" market. Joe on average is worth half as much as he was before the Great Recession.
This view is validated by consumer sentiment which remains at recession levels.
Further it is likely the economy overall is in a depression at least since the beginning of 2008. A depression per Wikipedia:
Considered by some economists to be a rare and extreme form of recession, a depression is characterized by its length; by abnormally large increases in unemployment; falls in the availability of credit, often due to some kind of banking or financial crisis; shrinking output as buyers dry up and suppliers cut back on production and investment; large number of bankruptcies including sovereign debt defaults; significantly reduced amounts of trade and commerce, especially international; as well as highly volatile relative currency value fluctuations, most often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression that are not normally a part of a recession.
Economic metrics should be based on what the average Joe is experiencing - shrinking buying power and assets contracting in value. GDP is the wrong tool to look at Joe's world.
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