What Recession? The Economy is Awesome

What Recession? The Economy is Awesome


If you follow the Republican presidential campaign, you have undoubtedly noticed that the candidates are trying to sell you a story about how horrible the economy is and why you need to elect them to fix it. I think they are dead wrong, the economy is great. Here’s why.

Corporate Profits

One measure of economic health is corporate profits. If you look at recent earnings releases for S&P 500 stocks, you will see mostly good news. Companies are not just making money, they are achieving record profits. Even General Motors, one of the companies that almost did not survive the Bush recession, just posted a record $7.6 billion profit.

If you don’t know what record profits means, here is a quick business lesson. Companies have multiple financial statements that explain their financial health. The income statement explains the company’s revenue and expenses during a period of time. If they earned more than they spent, they had a profit. If they have bigger profits than ever before, they are doing really well. If lots of companies are doing really well, the economy must be good.

Employment

The most current unemployment rate in the United States is about 8.3% according to the United States Bureau of Labor Statistics. That means about 92% of people who want a job have a job. That’s not so bad.

True, things are not as rosy as the low 4% unemployment rate in 2000, but according to the macroeconomic theory called the ‚Äúnatural rate of unemployment,‚ÄĚ that might have been deceivingly low or an anomaly. Compared with other developed countries, particularly around Europe, an 8% unemployment rate is average.

Another telling sign is that the unemployment rate varies by education. Someone without a high school diploma is facing a 13% unemployment rate while people with a college degree only have a 4% unemployment rate. Just because some people are not educated and can’t find a job does not mean the economy is bad, does it? It means they need to go back to school to compete in a global economy.

Financial Markets

Yesterday, the Dow Jones Industrial Average, a top indicator of financial market health, reached the highest level since 2008. The Dow went over 13,000 points. That is a good sign. My personal portfolio noticed the great market conditions as well.

Small business lending is a leading indicator of new and growing businesses. The most recent SBA loan reports look pretty good.

Existing home sales have been up for the last three months. Helped by low home prices and low loan rates, people are buying homes. In fact, I bought my first home in the last few months. I know three other people in their 20s that bought a new home for the first time in the last few months as well.

Things Are Not That Gloomy

Simply put, the economy is not as bad as people are saying. Yes, it is not the high flying dot com boom. Yes, many manufacturing jobs have moved out of the United States, but they are not going to come back. It is time that we look at the new world of employment for people with strong education backgrounds.

I have friends getting raises and new jobs all the time. That is not because no one is hiring. I have friends buying homes and getting bonuses. We are making lots of money in the stock market. We are able to go to restaurants and bars. It takes hard work, but people are doing well.

What do you think? How is the economy doing for you? Please share your thoughts in the comments.

Comments

  1. says

    It’s easy for GM to post record profits when the government gives them a unique rulebook that makes it almost impossible not to.

    8.3% unemployment is also deceptively low, since it no longer counts those who have timed out of the unemployement system.

    The only effective positive influence the government has on business is to get out of the way.   A booming economy happens in spite of government interference, not because of.

    • says

      -Regardless of the rulebook, having a record after over 100 years in business is due to a lot more than government intervention. It has to do with selling lots of cars, a sign that people are more confident in economic activity.

      -That is true, I read another report from Gallup that only 91% of people that want jobs have them, not 92% as the government reported

      -I disagree. With no government intervention, our domestic auto and agriculture industries would be or would have been completely destroyed. That would have cost thousands (if not millions) of jobs and huge GDP losses.

      • says

        -When the right answer is to allow them to go out of business after 100 years of bad decisions, but the laws are deliberately and publicly ignored to their benefit, screwing tens of thousands of investors in the process…

        When their cars catch fire and the government response was “There’s no one behind the curtain”, while their biggest competitor is fined for selling cars to people who panic and hit the gas in a brakes-are-needed emergency…

        When the government subsidizes them into absurdity so they can afford the obsolete and detrimental unions while Toyota employs thousands of workers making cheaper, more-reliable cars a few hundred miles away…

        When the majority of GM’s employees are off-shore, but touted as “domestic” strictly because the HQ is here…

        When they are allowed to take out a second loan to pay back the first loan, then proclaim their bailout loans paid in full, without being refuted by the lender…

        -According to the Congressional Budget Office, unemployment is at 15%, instead of the imaginary 8.3% getting spouted in certain speeches.
        The U-6 unemployment rate from the Department of Labor matches that stat. ¬†It includes the long-term unemployed, discouraged (“There aren’t any jobs for me, so why bother?”), under-employed, and forced part-time employees.

        If you include the long-term, discouraged unemployed, the rate jumps to over 20%. ¬† That’s people who want to work, have tried to work, and finally gave up. ¬†They quit being an official data point in 1994, because it’s easier to rig the numbers than actually do something.

        -Without government intervention, Detroit never would have been propped up as high as it was on bad economics and “I’m gonna get mine” politics. ¬†Rip the bandaid off, let the people continue to abandon the city until someone finds something productive to do there. ¬†¬†

        The jobs are already moving elsewhere. ¬† Just because it’s not Detroit and GM doesn’t means the jobs are gone or the market for cars has evaporated. ¬† It would have shifted to someone capable of doing their work more efficiently, lowering prices for everyone.

        • says

          Yes, on the surface investors got a bad deal, but if the company liquidated would they have gotten anything at all?

          I agree with your position on the competitive analysis. If they made cars that were reliable and maintained a trusted brand, they would not have been in such a bad situation in the beginning.

          The loan thing happens all the time. It is called doing business in America. Every company I have worked for paid off debt with new debt at least every once in a while.

          As far as employment numbers, I agree that the methodology is questionable. But that does not change the fact that every person I know that wants a job has a job. I have had multiple friends get recent raises and promotions and improved bonuses.

          We have undergone a fundamental shift in employment economics. Manufacturing jobs that have gone away will not return. Many white collar jobs that were eliminated will not come back. Instead, we need to focus on creating business opportunities.

  2. says

    A lot of the economic growth and profit growth has come from the fact that workers have had salary cuts and freezes, reduced or eliminated 401(k) matches, increased contribution to their health benefits.¬† These are all things that make the bottom line better for the company, but many individual workers personal ‘economy’ is stagnant as a result.¬†

    • says

      My company just increased the 401(k) contribution on January 1st. I have noticed the only places where big benefit cuts have taken place are to pensions, which are unsustainable in their current form, and to union workers that had benefits far better than the average worker.

  3. says

    “If lots of companies are doing really well, the economy must be good” – That’s simply not true. If companies, lay off all their non-essential staff, they will increase their profits, at least in the short term. This of course increases unemployment and decreases consumption. Imagine the scenario where the whole country is unemployed from two extremely rich people. One person pays the other $500 trillion for their services. Fantastic corporate earnings, terrible economy.
    Don’t get me wrong, I’m not whining. I have a good education and a good job. I have a nice pile of cash and equities so I certainly don’t feel hard done by. I just think it’s pretty callous to say the economy is not bad just because you’re not feeling it.

    Anyway, say¬†hypothetically¬†that all of those people who “need to go back to school” actually go ahead and do that. They would rack up massive debts and oversupply a market that doesn’t need them. The reason unemployment is low and pay is high amongst the skilled workforce is due to a healthy supply/demand of particular skills. If everyone has the skills, demand will fall and the unemployment will simply move to these other sectors. The only reason this education argument stands up is if you interpret it in a “you don’t have to outrun the bear, you only have to outrun your friend” kind of way. You can improve your skills to move yourself up the ladder, but the lowest ranked in terms of skills will always be unemployed in an environment where structural unemployment is a problem.

    • says

      You put forth an interesting argument on the supply/demand in the workforce, but I have another idea of what would happen if everyone were educated. We would see more entrepreneurial efforts and greater domestic competition in the global workforce.

      If it all happened at once, sure it would completely shock the system. However, if it happened slowly, it would create jobs that would lead to more growth and demand. Manufacturing is a dying industry in the US, and we need more science, math, engineering, and business focused workers to do the jobs of the future. There is huge demand for those skills today.

  4. Jenna from Adaptu says

    Thanks for the optimistic post.  My personal economy is doing well and it seems like a lot of my friends are in better places since 2008.

  5. Jeff @ Sustainable Life Blog says

    Personally, I’m doing ok, though I’d like to attribute some of it to the economy and some of it to the last 4 years i’ve spent working on my financial habits.

  6. says

    The economy is moving along just fine for us.¬† We’re doing better than ever before!¬† I think folks like to BLAME the recession/slumping economy for THEIR hardships.¬† It’s easy to play the victim and not take responsibility for your own path in life. ¬†

    • says

      You rock Julie! Way to take responsibility and define your own situation. I did the same thing and it led to great success for me.

  7. says

    Is the economy improving, yes slowly. ¬†I’m not sure GM is the perfect example since it basically got a redo sans the excessive expenses and debt it had pre-bankruptcy and the majority of its car sales were overseas. ¬†

    While the majority of companies are pushing out improved earnings and revenues, they should be, after going through major cost cutting measures over the past three years. ¬†It’s one good side effect of a recession, companies finally cut out all the unnecessary spending built up over the past decade. ¬†Which sets them up for a major bull market in the near future. ¬†Hopefully enough people know how to invest for it now instead of jumping in several years down the road when it’s almost over.¬†

  8. says

    Love what Julie said. Personally we are doing really well too, while ten years ago when we weren’t so financially responsible, we were in our own personal¬†recession and the economy was boomin’.

    • says

      I love it Niki. Be an independent economy and live the right way. It sounds like you have a great success story.

  9. says

    GM isn’t a case for economic improvement. ¬†Come on, Eric! You partisan, you! ¬†I can turnaround any company dying of a debt disease if you relieve the company of its debt. ¬†

    Corporate profits are great and the financial markets are improving. ¬†Those aren’t necessarily related to what ails the economy, however. ¬†There’s still a long way to go to say that the economy is improving – credit expansion and small business sentiment are key. ¬†Besides, the most recent data points have yet to rough higher than average gasoline prices.

    There’s still lots of weakness. ¬†Once the housing mess is finally sorted, inventory comes off the market, and homes find the equilibrium price, then I’ll scream recovery. ¬†For now, it’s too soon to call recent economic news indicative of a recovery.

    • says

      I would say GM is an example of the economy improving. It is a major turnaround story. I could put together a long list of companies with soaring profits.

      The housing market will never be what it was a few years ago. We found a fundamental flaw in the system that was created. People were buying houses the couldn’t really afford and that painted too rosy of a picture. I would argue that housing prices are more reasonable now and have settled where the should be. The bubble has popped.

  10. Jerry says

    Those unemployment numbers are always fuzzy.¬† They don’t include people not actively looking for work anymore so it never tells a true picture.¬† It leads people to think that things are not so bad and they are getting better (or so lots of people say so).¬† But, I think living within your means, making enough money to cover your expenses and save is insurance you will be prepared in case of emergency.

    • says

      I don’t feel bad for people not looking for work anymore. When I have been in between jobs, I applied to at least 5-10 per day. The jobs will not come look for you, you have to work hard to find them. And sometimes you can’t be picky.

      I agree with your thoughts on saving and spending reasonably. That makes things much better if you ever hit a rough patch.

  11. says

    The economy appears to be somewhat better than it was at this time last year. But it sure has a long way to go from here with the unemployment rate around 8.50 percent

    • says

      We were spoiled with an unemployment rate at 4%. That is an unrealistic place to be in the long run. I think we can get there again if we keep our current economic policies in place. It will just take time to get there. The US economy is like a freight train, it takes a long time to slow down and do a U-turn.