The Potemkin Economy

Do not be alarmed by the small cracks appearing in the economy….

The disappointing March employment report the government released on April 3 finally forced the business press to ‘fess up to the truth, best summed up in words found at the Associated Press: “For months, the U.S. economy’s strength has been flagging.”

That admission takes “too little, too late” to a whole new level.

During the past several months, business scribes and broadcasters have largely pretended that all is well, constructing and maintaining a Potemkin-like facade of a prosperous economy, even as the vast majority of hard-number economic indicators turned in performances ranging from middling to awful. To prop up their false image, they concentrated most of the commerce-related news they delivered to low-information voters and low-awareness news consumers on the job market, the economy’s one supposedly strong area, and positive consumer and corporate sentiment surveys.

After the strong economic growth seen during the second and third quarters of last year, the AP, aka the Administration’s Press, has been especially odious in insisting that the economy is still really “robust,” while coming just inches short of declaring that President Barack Obama’s economic critics should be cowering in the corner in shame. Until the employment report, the shouting only got louder as the underlying data deteriorated further.

On February 20, the wire service’s Jim Kuhnhenn admired how Obama was “taunting Republicans” over the economy. Devoid of any sense of historical irony, Kuhnhenn described an “economic recovery showing signs of taking hold” — over 5-1/2 years after the recession officially ended.

When Kuhnhenn wrote his love letter, we had already seen:

• Seasonally adjusted annualized fourth-quarter growth of 2.6 percent, barely half that reported in the previous quarter. That figure was revised down to a mediocre 2.2 percent just a week later. Given the next several items which follow, that revised figure still seems high.
• Steep November and December declines in durable goods orders totaling over 5 percent.
• Sharp consecutive drops in December and January retail sales.
• A microscopic two-month advance of less than 0.2 percent in November and December construction spending.
• December slippages in both real and current-dollar personal consumption expenditures.

Not to be outdone, five weeks later, the AP’s Martin Crutsinger composed a veritable hosanna of dishonest praise directed at Dear Leader’s economy, which he described as “sluggish,” but “one of the most durable since World War II.”

Crutsinger removed all doubt over whether he was bearing false witness when he wrote the following:

The current expansion will mark its sixth anniversary in June, meaning it will have already lasted 14 months longer than the average expansion since the end of World War II.

In referring to “months,” Crutsinger pretended that the economy has continuously expanded since the recession’s end. It hasn’t:

The previous expansions to which the AP writer referred were legitimate, because they were uninterrupted. By contrast, as seen above, the economy has contracted twice since the recession’s end. Its current winning streak is only three quarters. Therefore, despite what Crutsinger wrote, there will be no six-year anniversary to “mark” in June — and he has once again demonstrated why National Review’s Kevin Williamson was correct in calling him the nation’s “Worst Economics Writer” two years ago.

Until March’s employment report, the economy had indeed added an impressive-sounding seasonally adjusted 200,000 or more payroll jobs per month for 12 months. Though it’s a nice round number and the best such streak in 15 years, it’s still not particularly strong in historical context. More importantly, it remains far from what’s required to get discouraged and disengaged Americans on the sidelines who want to work back to work, or searching for more financially rewarding work.

As seen in the chart above, the post-recession Reagan economy of the 1980s, during which the Gipper did all of the things which Obama and his Keynesian cadre insist “don’t work,” after adjusting for the size of the workforce, more than doubled the job-creating performance seen during the Obama post-recession era.

By the time Crutsinger produced his false, fawning crud, there had been further weakening in durable goods orders and shipments, all factory orders and shipments, construction spending, and retail sales. All of this has caused economists to write down their estimates of first-quarter growth to as low as the annualized 0.1 percent seen at the Atlanta Branch of the Federal Reserve late last week. Even the incurable optimists at Moody’s are only expecting 1.1 percent.

March’s employment news was so bad that the Potemkin curtain had to be lifted. Instead of the 250,000 payroll jobs “experts” predicted — one particularly well-known analyst actually thought we would see almost 300,000, and that it would mark the beginning of several “even faster gains … in the spring”  — the government’s jobs report showed only 126,000 payroll jobs added in March accompanied by 69,000 in combined reductions to January and February. Far more damning, despite the nominally low unemployment rate of 5.5 percent, the job market’s malaise indicators got worse. The civilian workforce actually shrunk, and the labor force participation rate sank back to a 37-year low.

The cumulative effect of monthly declines have brought some year-over-year comparisons into negative territory, particularly in durable goods and total factory orders. Logically, this would seem to dictate that the producing side of the economy has given up all of the gains seen last spring and summer and reverted back to where it was last winter — or worse.

If that’s really true, first-quarter GDP, absent a strong surge in consumer spending which no one expects, seems destined to come in with a minus sign.

The only thing which seems more certain is that Marty Crutsinger and the other propagandists at the Associated Press will continue to pretend that we’re still in the midst of a six-year expansion.