Peter Schiff
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A good doctor will not simply make a diagnosis based on measurements. The symptoms and complaints expressed by the patient are at least as important in making a determination as the data provided by diagnostic tools. When the data says one thing and the symptoms continuously say another, it makes sense to question the reliability of the instruments. This would be particularly true if the instruments are furnished by a party with a stake in a favorable diagnosis, say an insurance company on the hook for treatment costs. The same holds true for the U.S. economy. Although our government-supplied data suggests we are experiencing low inflation and modest economic growth, the economy shows symptoms of low growth, rising prices, and diminishing purchasing power.

In my latest commentary I discussed how the Big Mac Index (The Economist Magazine's 30 year data set on Big Mac prices) provided strong anecdotal evidence that inflation in the United States is higher than official figures. More information has come in since then that tells me the same thing: that Americans are downsizing their lives as their incomes fail to keep pace with rising prices. These symptoms are at odds with the widespread belief in an accelerating recovery that has resulted in braggadocio in Washington and euphoria on Wall Street.

Earlier this week Tyson Foods, one of the nation's largest providers of packaged meat products, announced that although their top line sales revenue increased by almost 2% (roughly in line with U.S. GDP growth), operating margins collapsed by almost 50%, leading to a 43% decline in profit. Consumer shifts away from relatively higher priced/higher margin beef and pork products to lower cost/lower margin chicken products were to blame. Tyson also noted that cost conscious consumers shifted away from higher margin packaged chicken products to fresh meat cuts, thereby sacrificing convenience for cost.

According to government statisticians, the Tyson announcement would reveal modest growth and low inflation. After all, revenue at the company grew and spending on their products had increased modestly. But rising prices were obscured by consumers purchasing lower quality products. Not only are consumers avoiding the beef and pork that they otherwise may have preferred, but they are opting out of the convenience of prepared foods. This behavior is symptomatic of diminished consumer purchasing power. This is known as getting poorer.

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Peter Schiff

An expert on money, economic theory, and international investing, Peter is a highly recommended broker by many leading financial newsletters and investment advisory services. He is also a contributing commentator for Newsweek International and served as an economic advisor to the 2008 Ron Paul presidential campaign.