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Cautious Upward Tilt to the Economy Continues

The next week or so will be dotted with many economic reports,

By Dr. Joe Webb
Published: March 1, 2012

The next week or so will be dotted with many economic reports, and most of them show continued slow and sluggish rises to the upside. This week's durable goods report was rather horrible, but it is one of the most unreliable reports issued by the government, and subject to significant revisions. On 2/29, the GDP report for Q4-2011 was revised up from +2.8% to +3.0%; it will be revised again at the end of March, and is most likely to be changed to +2.8% or +2.9% as the Bureau of Economic Analysis receives more detailed data. The GDP report had extensive revisions, but among the least reported were the changes in their inflation adjustment factors. On the data side, fixed investment, personal consumption, imports, and government expenditures were revised up, and inventories and exports were revised down. Inventory build-up was still the primary reason why GDP in Q4 had its increase over prior quarters. The inflation adjustment was rather severe. Real GDP was revised from +2.8% to +3.0%, a +0.2 revision, but the unadjusted current dollar GDP was raised from +3.2% to +3.9%, a +0.7 revision. For those who want to compare their business with the 2011 national economy, GDP rose +1.7% after inflation adjustment, and +3.9% for the year, without inflation adjustment. Economic growth in 2011 underperformed that of 2010, when the growth rates were +3.0% for real and 4.2% for current. This underscores the importance of inflation-adjusting company data to reveal true long-term financial trends inside a business. (My sleep-inducing discussion of inflation adjustment has been viewed nearly 900 times, hopefully not by the same person). What that means is that in current dollar terms, 2010 and 2011 were about the same, +4.2% and +3.9%, but the true slowdown appears only after adjusting for the loss in purchasing power. Real growth slowed by almost half, from +3.0% to +1.7%. The 3/1 personal income report showed a rise in incomes that was less than experts expected, but was a rise nonetheless. That is, however, until one looks at real disposable personal income on a per capita basis. To translate, real (inflation-adjusted) disposable personal income (income after taxes) on a per capita basis (real disposable personal income divided by the US population, to get per person figure), is still down. In Q4-2010, adjusted to 2005 dollars, it was $32,678 compared to $32,669 in Q4-2011. After the GDP growth of a full year, there was nothing to show for it. The recession started at the end of Q4-2007 when RDPI was $32,837. Proprietors' income, an indicator of the health of small business, was revised upward, but remains about -5% below its inflation-adjusted level at the start of the recession. On a current dollar basis, it is up +2.8%. As usual, all government data are subject to revision (which always reminded me of the cereal box admonition, “contents may have settled during shipping”). Weekly jobless claims have been improving every week, and are now below the 360,000 level. There is no unemployment report until next Friday, 3/9. We won't know whether initial jobless claims are getting better is because there's no one left to layoff or because job prospects are improving for months. Next week's unemployment report will be the first after the statistical quagmire of the January data and the Bureau of Labor Statistics greater than usual population adjustment. I expect the unemployment rate to be down to 7.5% by the end of the year, with most of the change due to the continuing shrinking of the labor force. The Institute for Supply Management's manufacturing index released on 3/1 was still indicating growth of the manufacturing sector, but the growth rate retreated somewhat. Last month's index was 54.1, but it fell back to 52.4. Most of the key components of the index declined but still show growth.  The inflation component increased from 55.5 to 61.5. The non-manufacturing index will be published on Monday, 3/5. # # #

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink.com's Economics and Research Center.

What do you think? Please send feedback to Dr. Joe by emailing him at drjoe@whattheythink.com.

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