Bruce Merrifield

Analysts Surprised By High-Rate of Consumer Spending

Hi James, You might consider another perspective: In 1982, the U.S. had 4.6 million large companies which accounted for about 70% of the GDP. Household Americam wealth at that time was $3 trillion. NOW....we have about 30 million businesses 98% of which have less than 100 employess. These businesses now account for about 70% of the U.S. GDP and household American Wealth has increased 94% to $56 trillion!...rising an additional $3trillion each year. (large companies by the way, now axccount for a falling 30% of the GDP).

The result of course, is that a 1% or 2% rise in so-called inflation is essentially irrelevant. It's a different picture now....

Bruce

Inflation: Are We Victims of Irrational Pessimism?

James...there is a bigger picture here, which you intuitively perceive. The bottom line is that when you invent a transistor, a fiber optic cable and a satellite, and then tie them together in the Internet, the resulting increase in productivity is many orders of magnitude greater than can be measured in the "basket of goods" currently used. Thousands of new businesses, breakthroughs in communication, transactions and operations have resulted that are not accounted for. A better measure of this historically unprecedented technology-driven phenomenon is household American wealth.

In 1980 household American wealth was $3 trillion. Now it's $56 trillion (a 94% increase) and has been rising $3 trillion each year since the recession. This new wealth far over shadows any trivial increases in "inflation" as we now mistakenly measure it. As Peter Drucker kept saying, our accounting systems are pathetically out of date....

Bruce Merrifield

US Savings Rate Based On Outdated Methods of Calculation

After over 200 years, by 1980, household American wealth totaled about $3 Trillion. Now it totals about $56 Trillion. Approximately 94% of all houshold Americam wealth has been created just since 1980, and has been continuing to rise at the rate of about $3 trillion each year. This in effect, is a macroeconomic index of both "saving" and "productivity, both of which our current Governmnent data hopelessly mis-calculate.

Bruce Merrifield

U.S. Large Caps Continue To Trail Their Small Cap Peers

This is an excellent insight, and probably only the tip of the iceberg. Wenow have some 29 million incorporated U.S. businesses (up from 4.6 million in 1982). About 27 million of these (1) have less tha 100 employees (2) account for a rising 65% of the GDP, but (3) have only about 5% that are publicly traded...so are largely invisible. This is where most of the jobs are created (since 1982 90 million jobs have been created, but we lost 45 million in downsizing and restructuring our 1.5 million large businesses...netting out at +45 million. (The American Miracle).

Small businesses with less than 100 empoyees not only create new jobs, but are the innovators that create new wealth. (About 95% of all household American wealth has been generated since 1982...now about $65 trillion, up from $3 trillion in 1982). It's no wonder that your data reflect this disparity, which is much more pervasive than is generally realizes....or can be measured by our current Government data, which largely come from about 150,000 big businesses.

I wish you would expand on your observations.

Bruce Merrifield

What is the Labor Market Telling Us?

James...If you extend your plot back to 1982, you will see that the peaks in job creatioin have steadily declined. This is because our "Payroll" data come from about 150,000 large companies, and large businesses now account for a declining 1/3rd of the U.S. GDP. On the other hand, we now have about 28 million incorporated businesses, (up from 4.6 million in 1982), of which over 95% have less than 100 employees. These now account for a rising 2/3rds of the GDP. However, only about 5% of these small businesses are publicly traded so they are largely invisible. Since 1982, we have been creating about 600,000 new small busineeses every year, together with a total of about 90 million new jobs, offsetting the loss of about 40 million jobs in continually downsizing and restructuring our big companies. In 1980, there were about 100 million jobs. Now there are about 150 million jobs. Europeans have called this the "American Miracle"

The Household data pick up some of the "invisible" jobs, but those data are not "deemed credible." As a result, the Labor Department has to issue their periodic "Oooops" reports ( a million under count in 2005, and about 600,000 in 2006).

You might want to look into the causes for this historically unprecedented explosion of new businesses and new jobs. They are fascinating...But please be assured that the American Miracle continues unabated, no matter how many General Motors get the headlines.

Bruce Merrifield

Personal Consumption vs. GDP: The Basis of Our Economy

David...now if you plot M2/FFR (Federal Funds Rate), and forward it one year, you will see that it nicely coincides with the GDP and all the others. Then if you plot inflation over these same periods, and lag it one year...it aslo coincides.

Bruce Merrifield

So Much for Goldilocks: Recessions Are Bad For Stocks, Regardless of Fed Policy

Michael, For 50 years we have had a Fed-orhestrated 4 year boom and bust cycle. The Fed "perceives" inflation, and then knee-jerk raises interest rates while simultaneously shutting down the money supply. A year later, the economy tanks and a year after that, inflation subsides. (It's a 2 year process). Then, when the Fed belatedly reverses (reduces interest rates and increases money supply) a year later the economy recovers, and a year aftter that, inflation falls.

The difference this time, is that the Fed has lost control of money supply in the global marketplace, and this has changed things forever. All they can do is keep interest rates up higher than they should be (cratering the housing market). Fortunately, about 95% of our 28 million incorporated businesses (up from 4.6 million 25 years ago) have less tha 100 employees, but now account for a rising 2/3rds of the U.S. GDP. Only about 5% are publicly traded, so they are largely invisible, but that's where most of the innovation and new job creation is going on...but our antiquated Government data don't see it. This is why Labor has to come up with their monthly "ooops" reports.

As long as you only look at our big businesses, which now account for a declining 1/3rd of the GDP, you will only see gloom and doom. Fortunately ever since 1982, we have been creating 600,000 to 800,000 new businesses every year, and 94% of all household American wealth. WE also have create some 90 million new jobs, most of them in these new companies... offsetting the loss of about 45 million jobs in downsizing our "big" companies.....European... call it the "American Miracle."

Bruce Merrifield

Anticipated GDP Slowdown: Blame it on the Weather?

You guys love to look at every day to day up or down and extrapolate that to infinity...comparable to pulling a plant up by the roots every 5 minutes to see how iti's doing! About 98% of our some 29 million incorporated businesses have less than 100 employees, but now account for 2/3rds of the U.S. GDP. The data yopu are looking at comes from only about 1% of this number, accounting for (a declining) 1/3rd of the GDP. Big companies don't innovate; big companies don't create many jobs;80% of the original Fortune 100 aren't there; and at the current rate of attrition, probably 80% of the curent list will disappear overthe next decade. Like our pathetic job data, the rest of our accounting process (as Peter Drucker kept saying) is 200 years out of date.

Bruce

Recession Expectations of Distinctly Different Groups

Hi Jeff, Did you see the Business Week article on CapEx? CapEx is way up if you include ongoing very substantial offshore investments by U.S. companies. (We are irretrievably in a global marketplace...) Also, inflation is way overstated by our current metrics which Peter Drucker kept pointing out.. are 200 years out of date. Enormous unmeasured increases in productivity have (and are continuing to result) from technology driven advances, which create thousands of new businesses that could not have existed before, but add value and quality of life that our tired little old basket of commodity goods never sees. I wish you would think about a better set of metrics, which might be generally right instead of precisely wrong.

Bruce

Inflation Confined to Rest of the World

Hi Barry, The trouble is that our inflation metrics (as Peter Drucker repeatedly pointed out) are 200 years out of date. The problem is that productivity is vastly greater than is currently measured, and therefore inflation is overstated. When you invent a transistor, a fiber optic cable and a satellite....and unexpectedly create the Internet...and then see thousands of new businesses created that never existed before, tigether with 95% of Amarican household wealth over the last 2 decades, real productivity does not show up in a basket of commodity goods. I wish you would think about a better set of metrics...
Bruce

Is the Fed's Impact Waning?

Right on folks...The Fed has manipulated the economy for 50 years with a combination of money supply and interest rates. The ratio of M2 to the Federal Funds Rate (M2/FFR), is a useful monetary index. When this ratio falls, a year later the economy tanks and a year after that inflation falls. When the economy tanks, the Fed belatedly reverses the index, and a year later the economy begins to recover etc. This has given us our 4 year boom and bust cycle for the last 50 years....until now. The global marketplace has now taken away the Fed's control of money supply.

Fortunately, the U.S. has developed a depth and breadth of academic and industrial infrastructure in recent decades, for which history has no precedent, and which no other nation will replicate in any reasonable time. This phenomenon has generated some 25 million new small businesses since 1982, some 90 million new jobs (offsetting 45 million lost by big companies in doewnsizing and restructuring...a net of +45 million jobs)....and about 94% of all household American wealth (now $56 trillion, up from $3 trillion in 1982). Europeans call this the American Miracle, rewultin in an inflow of about $800 trillion in capital last year for investments. The U.S. has been contributing about 30% of the growth in the World Gross Product every Year (46% in 2006).

Basically, the Fed has become increasingly irrelevant in this global marketplace, but retains a psychological hangover, which still scares people. The Emperor has no clothes?

Bruce

An Historical Look At Bear Market Contractions

John...your guesses are probably correct, but perhaps not all that relevant. The S&P 500 and the Dow no longer are accurate indices of te U.S. economy. They represent only about a declining third of the U.S. GDP. We now have some 29 million incorporated U.S. businesses, (up from 4.6 million in 1982). Over 95 % of these have less than 100 employees, but now account for a rising two thirds of the GDP. This is the real economy where most of the 90 million new jobs have been created since 1982 (more than offsetting 45 million jobs lost over the same period through downsizing and restructuring many famous corporate names).

Only about 5% of these small businesses are publicly traded, and tend to be pretty invisible, but this also is where much of the innovation is occurring, together with the generation of enormous household wealth. (Since 1982, American household wealth has increased about 95% from $3 trillion back then to $56 trillion now, and continuing to rise about $3 trillion each year!)

Unfortunately, as Peter Drucker kept pointing out, our accounting systems are 200 years out of date, and no longer accurately reflect the real economy. Most of our job and other data come from about 8.000 large comapanies, many of which are not growing and may not even be around in 15 years.

Bruce

Philly Fed, Americans Concerned About Economy

Only about 5% of our 29 million U.S. incorporated businesses are publicly traded, and these now account for only about a declining 1/3rd of the U.S. GDP. The other 95% are largely invisible, but account for arising 2/3rd of the GDP. The Fed and most economists do have adequate data to judge the economy. Most of te 8 miillion new jobs created since mid 2003 were generated by small businesses with less than 100 employees, which accounts for the montly "oops reports."

The primary failing in the Government data we produce involves measurement of inflation, which as Peter Drucker kept pointing out is 200 years out of date. When you couple a transistor with a fiber optic cable and a satellite...and create the Internet, the productivity increases are orders of magnitude greater than can be measured by looking at modest price rises in a bunch of commodities "adusted" for perceptions of increased value added (productivity). A less precise but probably much more accurate measure would be the increase in consumer household wealth which since 1982, has increased about 94% from about $3 trillion to an astonishing $56 trillion today. With bad data, the Fed has been running us into unnecessary downturns and recessions for many decades.

Beware of the Data Underlying the Economy

THe primary reason that our "Payroll" data are misleading, is that they come from about 8000 big companies, many of which are not growing and others are downsizing...we hear about those every day! However, we have about 29 MILLION incorporated U.S. businesses, up from 4.6 million in 1982. Over 95% of these have less than 100 employees. But since 1982, we have been generariong about 600,000 to 800,000 new small businesses every year (about 25 million since 1982). This is where most of the new (uncounted) jobs are being produced...and why we have our monthly "oops report" corrections. Small businesses now account for a rising 2/3rd of thge U.S. GDP....large companies account for a declining 1/3rd of the GDP. Our Government data are decades out of sync with the real economy...
Bruce

U.S. GDP Growth to Drop to 2.3% -- Panel

As Peter Drucker kept saying, our accounting systems are 200 years out of date. Currently, we have about 28 million incorporated U.S. businessess. Over 95% of these have less than 100 employess, but they now account for a "rising" two thirds of the U.S. GDP. Only about 5% of them are publicly traded, so by and large, they tend to be invisible....and our accounting systems almost completely miss them. Our accounting systems probably do fairly accurately measure the remaining 5% of big companies with more than 500 employees, which now account for a declining one third of the GDP. (Most of the U.S. Department of Commerce BEA data come from about 8,000 big companies, many of which are downsizing and restructuring).

The large percentage of our 8 million new jobs created since mid 2003, were created by these invisible small businesses. (Since 1982, we have been generating 600.000 to 800,000 new small businesses every year...23 million since 1982). Europeans call this the "American Miracle." This is where most of the innovations as well as job creation is occurring, and this also is why the job data are revised upward every month...the "oops reports." As a result, the issues of "the collapse of housing and of sub-prime mortgages" have been so overstated.

Most of the gloom and doom reports tend to see only about 1/3rd of the economy, and therefore, they "understate" the true strength of the economy.