The problem with our president is that it's really hard for him to see the rest of the country while he’s vacationing on farthest extremes at Martha’s Vineyard or at the other end of the 5,100 miles it takes to get to Hawaii. And when he’s not vacationing at those extremes, he’s yapping it up at the other extreme with folks who can afford $35,800 for a presidential fundraising event.
For people willing to plunk down that kind of cash, things in the US-of-A are probably going swimmingly.
For the rest of us? Not so much.
There’s a big freakin’ hole in our economy that’s not just theoretical, but actual. And the arugula prices at Whole Foods are obscuring Obama’s view of the missing part of our economy.
On the 7th of January we wrote about how the unemployment numbers have been skewed downward because 4.4 million workers who would normally be counted as a part of the workforce have been dropped from the labor pool due to lower workforce participation rates. Those rates have plummeted since Obama became president, reaching levels that we have not seen in any recession since the 1980s.
In the meantime, economically illiterate reporters have been spreading the good news that unemployment is down to 8.5 percent, despite other indicators that the economy is either stalled or slowing.
Obama celebrated the decline by saying: “"We're making progress. We're moving in the right direction," according to the New York Daily News.
Um, no, we’re not.
Initial unemployment claims recently showed an increase that surprised economists even after adjusting for seasonal factors. While the advance number of 399,000 initial claims is down from the prior year by about 38,000 jobs, initial claims tend to later be revised upward under this administration, especially when the number is so close to the psychologically important 400,000-claim level that characterizes a weak economy.
Additionally, despite much trumpeted Christmas sales strength, business inventories are lower than expected, meaning that businesses wanted to hold cash rather than invest in products ready to sell. Generally that means they don’t think consumers are buying. Buttressing that belief, retail sales came in under forecast, hitting only 50 percent of the mark set by economists at .1 percent growth. Even worse, if one subtracts out auto sales, retail sales shrank by .2 percent versus a forecast of .3 percent growth; this in December, the most wonderful time of the year for retailers.
Off by 500 basis points? Wow. Can’t wait to see what the other 11 months hold.
“Economists surveyed by Dow Jones Newswires had forecast a 0.2% increase in December retail sales from the previous month,” reported Down Jones Newswires. “But excluding autos, retail sales fell 0.2%, marking the first decline in that category since May 2010. Economists surveyed by Dow Jones Newswires had forecast a 0.3% rise in sales excluding autos.”
Underlying the weakness in the economy is a smaller workforce that can not produce what a bigger workforce can. Duh. Does a Harvard degree make you that much smarter than the rest of us that you can’t understand that a smaller workforce means a smaller economy?
Those 4.4 million missing workers aren’t contributing to GDP, taxes or entitlement obligations. Just in wages alone, it represents a loss to the economy of about $180 billion. In terms of GDP, it’s like subtracting the state of Ohio’s estimated $471 billion of GDP from the national total or 3 percent of the US economy. And unlike unemployed workers, the losses from the workforce are much more permanent because they represent people who have given up hope of ever finding a job.
If workforce participation rates had stayed at their average for the last 25 years, GDP would be 3 percent higher if unemployment truly is 8.5 percent. It’s pretty basic math. As it stands Obama has subtracted 3 percent from GDP in the hope that no one will notice that the number of productive workers we have in the country has shrunk, with real unemployment now at 11.5 percent.
Obama and the Democrats have allowed this to happen for political considerations.
Obama’s policies have sought to provide short-term, dependent-creating panaceas for declining employment rather than long-term employment opportunities.
Whether it’s extended unemployment benefits via federal loans, increased enrollment in welfare programs like SNAP, or temporary jobs assistance through federal subsidies to state government employees, Obama’s policies have encouraged workers to drop out of the workforce and become dependent on federal spending because that buys him votes.
In fact, if you wanted to increase dependency on the federal government while claiming the jobs recession is over, you couldn’t write a better playbook than Professor Obama has come up with.
But as we have said in the past, Obama’s stagecraft can take you only so far.
Americans are a bottom-line people.
They likely have missed the $471 billion that Obama has removed from GDP, no matter what the headlines say.
They miss it when their spouse loses a job; they miss it in decreased wage earnings; they miss it in fewer shopping trips for necessities; they miss it in property values that are two-thirds of what they used to be; they miss it when teachers and police and firefighters can’t get raises.
That’s the part of America that a president’s likely to miss while vacationing in Martha’s Vineyard and Hawaii. Or attending a fundraiser in Chicago at $35,800 per couple- couples, by the way, who earned their money benefiting from pro-growth GOP policies that have kept our economy afloat for twenty-five years despite being weighted down by the increasing size of government.
The wonder isn't that the economy is broken. The wonder is that it took so long to break.
But as the workforce numbers show, Americans have reached a breaking point not seen since the late 1970s.
And if Obama’s missing that now, he’ll likely be missing from the workforce in 2013.
PS- For more on this you should read Political Calculations piece today on unemployment numbers. PC says that volatility in unemployment could foreshadow change of direction. For my money, I'd bet on higher unemployment. Also catch Mike Shedlock's piece on the decline in core retail sales.
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