Check the numbers, not the headlines


This morning’s Globe and Mail features an article describing comments made yesterday by the head of the International Monetary Fund, Christine Lagarde.

Lagarde was warning that the United States could slip into recession if it doesn’t solve its fiscal cliff waiting at the beginning of January 2013. This is a hold-over from the 2011 debt ceiling crisis, where Congress finally increased the US Government’s ability to borrow and pile up more official national debt in exchange for an extension to the Bush era tax cuts through 2012 and a set of program cuts to take effect in 2013.

The lame duck Congress that returns after the US election on November 6 will be the body that has to deal with this question, and win or lose President Obama will be the one in the White House the day the cliff is hit if they don’t.

So why are we running through this now, here, at Personal Due Diligence?

Well, if you’d been paying attention to the numbers published by the US Government, you’d know that Lagarde was blowing smoke. The US is headed for another round of recession whether the fiscal cliff is dealt with, or not.

You find that in the producer indices published by the Philadelphia and Richmond Federal Reserve Banks, for instance. For four months they’ve been showing declining activity, no pricing power, reduced shipping of materials and finished goods, and a host of other indicators that show a slowing economy.

Then there’s the unemployment numbers. Officially, that’s a good news story: after four years of unemployment above 8% the last two readings finally fell below that number.

But that’s only those collecting claims. Reach the end of your claim, and you’re no longer unemployed according to the statistics. That doesn’t mean, of course, that you actually have work.

Even at the current 7.8% official number, that’s over 12,000,000 Americans not working. That’s a drag that explains some of the producer numbers that are being reported.

Those that have rolled off without finding work might well explain some of the rest.

The Bureau of Labor Statistics reports on job creation certainly confirm that, even with all the “seasonal adjustments”, treatment of part-time work as equal to full-time work, and the like that goes into those numbers, the United States hasn’t produced net new jobs even fast enough to match the entry of new people into the labour force. That’s a demographic matter, tightly coupled to school leavings — just as those starting to collect retirements (applications for Social Security) is a reasonable proxy for those leaving the labour force.

If you can’t deliver new jobs fast enough to handle pickup of students (and certainly post-graduate unemployment remains stubbornly high: ask any barista about how their friends are doing!) then you’re certainly not picking up the long-term unemployed.

The last piece of the gap is in the number that isn’t there. Supposedly there’s no inflation going on, according to the consumer price index.

But two big items aren’t counted in the CPI: food, and fuel. There’s no shortage of photos of $5.00/gallon gasoline coming out of the US today. Food prices are also up 30% or more (living in Toronto, you can see ads for grocery stores in Buffalo, NY on television easily: American prices are lower than Canadian ones, but both have gone up about the same amount this year).

So what’s the bottom line today? Once again, the headlines aren’t where the news is. If you haven’t planned for a recession in 2013, you haven’t been paying attention.

For that is now baked into the numbers beyond any doubt, regardless of what anyone does.

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