Who Gets the Cookies?

Estimates of GDP growth for the third quarter showed robust growth with GDP expanding at 3.8%. See William Polley and Kash at Angry Bear for details and analysis. The Washington Post report is here, NY Times here. Another report, The Employment Cost Index, also came out today and as Bloomberg notes, wage growth continues to be stagnant:

Wages increased 2.3 percent in the third quarter from the same three months last year, the smallest year-over-year rise since record-keeping began in 1981... Total U.S. labor costs rose 0.8 percent in the third quarter after a 0.7 percent rise in the previous three months.

So the economic news is not unambiguously positive from labor's perspective.

Comments

[Movie Guy]

Where are wages in comparison to inflation if measured against the full CPI? Still lagging?

Bloomberg:

"Companies reduced stockpiles at a $16.6 billion annual rate last quarter after reducing inventories at a $1.7 billion pace in the second three months of the year. The reduction, the largest since $86.7 billion in the fourth quarter of 2001, subtracted 0.55 percentage points from GDP."

"Holiday retail sales are expected to increase 5 percent from a year earlier, the smallest gain since 2002, according to a forecast by the National Retail Federation. Wal-Mart Stores Chief Executive H. Lee Scott said last month that higher gas prices may crimp spending, particularly on nonessential items."

"Spending by businesses to replenish inventories, along with government efforts to rebuild the Gulf Coast, will help make up for slower consumer demand in coming months, said economists including Stephen Stanley, at RBS Greenwich Capital in Greenwich, Connecticut."

http://quote.bloomberg.com/apps/news?pid=10000103&sid=a2Bc42y4q1e8&refer=news_index

I'll be surprised if Christmas sales at malls and stores result in growth of sales. Perhaps we will see a jump in internet shopping.

[Emmanuel]

LOL, since when did this administration care about labor? I think it's the other way around: They are trying to demoralize and destroy labor. From that standpoint, they're doing a pretty good job.

Consumer dissavings look to be the main driving force behind the economy at this point in time. It will be interesting to see what kind of abysmal savings rates the beleaguered consumer has been "achieving" next week.

Why is consumer sentiment so poor at a time when consumers have been going into a debt-laden free-for-all? My hunch is that these spendthrifts know that their dissaving ways cannot last forever. It's only a matter of time, so spend, spend, spend before the party's over. What kind of markets are these that cheer on such senseless behavior?

[anne]

Wages and benefits are the issues that really worry me. I am pleased that growth remains robust enough for the Federal Reserve to finish the cycle, and I do hope there is soon a finish, but I do not like the labor picture. This is just not a full employment economy in any way that I understand full employment beyond the monthly unemployment number. Darn.

[anne]

http://www.nytimes.com/2005/10/28/international/asia/28universities.html?ex=1288152000&en=8419c68b39fbbf82&ei=5090&partner=rssuserland&emc=rss

October 28, 2005

China Luring Foreign Scholars to Make Its Universities Great
By HOWARD W. FRENCH

SHANGHAI - When Andrew Chi-chih Yao, a Princeton professor who is recognized as one of the United States' top computer scientists, was approached by Qinghua University in Beijing last year to lead an advanced computer studies program, he did not hesitate.

It did not matter that he would be leaving one of America's top universities for one little known outside China. Or that after his birth in Shanghai, he was raised in Taiwan and spent his entire academic career in the United States. He felt he could contribute to his fast-rising homeland.

"Patriotism does have something to do with it, because I just cannot imagine going anywhere else, even if the conditions were equal," said Dr. Yao, who is 58.

China wants to transform its top universities into the world's best within a decade, and it is spending billions of dollars to woo big-name scholars like Dr. Yao and build first-class research laboratories. The effort is China's latest bid to raise its profile as a great power.

China has already pulled off one of the most remarkable expansions of education in modern times, increasing the number of undergraduates and people who hold doctoral degrees fivefold in 10 years....

[Amazing....]

[calmo]

Despite this very impressive GDP number, consumer sentiment does not align with it. They are shopping (like Emmanuel says) but they are not happy.
Is it the continuing war on terror?
Is it the continuing climb in prices at the pump?
Is it the recognition that wages are not keeping up with the cost of living?
Is it the din of a housing bubble about to pop?
Was it too many natural disasters in the last quarter?
Has the GDP number lost its snap and crackle when it comes to cheering up the consumer? How did he miss this outstanding quarter of economic performance?
It appears that 3.8% GDP growth had about as much excitement for the consumer as a cold bowl of porridge.

[save_the_rustbelt]

Maybe 80% or so of the consumers are worse off than they were a year ago, so what do they care that someone else is getting the benefit of economic growth?

Flat wages, but higher gasoline prices (now moderating somewhat)higher heating fuel prices, higher college tuition, higher grocery costs, hihger insurance, higher health care, etc., etc., etc.

We can however, go to Wal-Mart and buy cheap stuff. Since we are creating $9 an hour jobs, many will only be able to buy cheap stuff.

So who needs a middle class?

[Emmanuel]

You said it better than I did, Calmo and Rustbelt. I only have an intermediate understanding of economics, but I can tell that the baloney which the Bush administration, Wall Street, and the financial media keeps spouting isn't up to snuff when subjected to minimal amounts of critical scrutiny. The US economy isn't doing nearly as well as the GDP figure indicates, and consumers should be worried:

(1) Wealth redistribution is going the wrong way - primarily because of misguided income tax, estate tax and capital gains policies, money is going from the pockets of those with less to those with more. Add in surging energy costs which have similar redistribution effects and you can see why Joe Consumer isn't happy.

(2) Consumers are getting squeezed no matter what - do the math...falling incomes and greater expenditures doesn't sound like a recipe for cheerful consumers. Now, the happy talk people might say that the evidence shows consumers are still spending like crazy, so don't worry,

I'll offer two counterarguments, though I suspect there are many more. First, consumers might be loading up on debt now in anticipation of higher interest rates. If the Fed has telegraphed this point clearly, then it would seem to be a "logical" thing to do now to buy flat screen TVs and take out mortgages on dream homes before interest rates head north. The principle is the same as the ridiculous "Employee Discount" promotion that automakers used to shoot themselves in the feet. Consumers are bringing expenditures forward to take advantage of current favorable conditions, so why buy tomorrow when things aren't as favorable? We'll see.

Second, consumers have no real choice in many instances. At the end of the day, you still need to put food on the table, put gas in the car and all that stuff. Sure, they're able to stomach higher prices for a while, but just how much consumer dissavings can they sustain? The tougher bankruptcy laws (passed at the behest of the finance industry) have definitely lowered the pain threshold for consumers, and we're likely to see fallout in the coming months.

(3) Debt needs to be paid - this might be ridiculously obvious, but the free lunch economists seem to ignore this point altogether. Sure you can borrow a lot now at historically low interest rates, but where will you get the money to pay it off in the future while wages are stagnant and prices are rising? Dissavings can only get you so far, and that margin of safety is rapidly shrinking.

(4) GDP is an imperfect measure of economic progress - it hides the deleterious effects of debt in many instances. So, you can induce spending to the high heavens in vain pursuits like housing and unlimited consumerism, but of course it misses the earlier point. You can have your cake and eat it too at the moment, but all debts must be paid in full when tomorrow comes, and GDP doesn't account for that.