Gross Domestic Product Falls 3.8% in 4th Quarter of 2008

The Bureau of Economic Analysis released its first estimate of change in Gross Domestic Product (GDP) for the fourth quarter of 2008. Real GDP (adjusted for inflation) fell 3.8% in the 4th quarter compared to the preceding quarter. GDP fell 0.5% in the 3rd quarter. This represents the fifth quarter during the Presidency of George W. Bush when the GDP has fallen. This is the first time we’ve experienced back-to-back quarterly declines since the presidency of George H. W. Bush.

Today’s estimate is called the “advance” estimate. In about a month, a revised “preliminary” estimate will be released, with the final number coming about a month later.

These numbers continue to indicate that the nation is experiencing its worst economic condition since 1982 during the second year of the administration of President Ronald Reagan. In late 1981 and early 1982, real GDP fell 5.0% and 6.6% in consecutive quarters. Yesterday’s initial jobless claims number also represent the worst numbers since this same period over 25 years ago.

Jobless Claims Continue To Rise

Initial jobless claims for the week ending January 24 were 588,000, up slightly from a revised 585,000 recorded last week. The four-week running average stands at 542,500. Continuing claims reached continued to rise, reaching 4,776,000. The four-week running average is 4,630,000. All of these figures represent the highest levels since 1982 during the severe recession of the Reagan administration. The complete Department of Labor press release can be found here.

The So-Called “FairTax”

A couple of years ago, I wrote a column on the so-called “FairTax” for one of our local newspapers. In it, I pointed out some of the major claims of its proponents, and then tried to point out that they are, in many cases, unfounded.

This proposal has gathered a rather small army of supporters who can certainly be called “enthusiastic”. Why they are so enthused about a proposal that does not benefit most of them is a puzzle to many. This “enthusiasm” was made clear by a letter to the editor written by one of them shortly after my previous column. Rather than simply trying to point out flaws in my reasoning, it began with a demeaning personal attack on me. I’m hoping that any replies to this piece will be focused on the facts.

So, what is this so-called “FairTax”, who is promoting it, and how are they doing so? In a nutshell, the legislation would eliminate essentially all Federal taxes and replace them all with a single tax on all new goods and all services. In essence, it is a sales tax, but would apply to services as well as goods. The proponents say that a tax rate of 23% would be sufficient to raise the same amount of revenue as do all of our current Federal taxes and the payroll taxes combined.

This number has provoked a lot of discussion. Let’s look briefly at this before proceeding. Under the plan, an item that would cost $1.30 to the consumer would, in its price, contain $0.30 of tax. They say that since 0.30/1.30 = 23%, that the tax rate is 23%. That math is correct. However, when we typically pay sales tax, we look at the price of the item BEFORE the tax is added and then add a set percentage on top of that. So, this item cost $1.00 to which $0.30 tax was added. We would call this tax rate 30%: 0.30/1.00 = 30%. This is actually just a definitional difference, but it is important because the so-called “FairTax” is often called a “national sales tax” or a “consumption tax” and these are usually computed such that the tax rate above should be viewed as 30%. Let’s not dwell on this – let’s just recognize that, depending on how it is computed, the tax rate is either 23% or 30%.

Who are the proponents of the so-called “FairTax”? Apparently, it has its origin within a group of Texas businessmen who did not like the current taxation system for a variety of reasons. They formed a group called the “Americans For Fair Taxation” and formulated the plan. It became known as the “FairTax”, and has been introduced in Congress every year since 1999 by Georgian congressman John Linder. The most vociferous proponent of the plan is, perhaps, Atlanta radio talk show host Neil Boortz. In fact, Boortz and Linder have published two books on the subject. For short, I will refer to these books by the initials of the authors “B&L”.

Several of the early candidates for President in 2008 expressed support for the so-called “FairTax”, although neither Party’s nominee did so. Among these, perhaps Mike Huckabee was the most vocal supporter. Because it is widely thought that Huckabee is already running for President in 2012, it is likely that the so-called “FairTax” will receive considerable attention over the next few years.

There are a number of claims made by this proposal’s supporters. Over the next several weeks, I’ll be looking at them in some detail. To begin this process, let’s look at what I think may be the most attractive aspect of the so-called “FairTax”. It would be the most attractive, that is, if it were true. This claim deals with the idea of “embedded” taxes and what will happen to the prices of goods and services and to the take-home pay of Americans should this plan be enacted.

From here on, I will refer to this proposal as the “FT” for short. In their initial book, B&L claimed that with the FT, the prices that people will pay for goods and services after the imposition of the tax will be essentially the same as they were before its enactment. They also claimed that everyone would get to keep 100% of their paychecks. So, quite pointedly, they claimed that prices would remain constant and everyone would get to keep their gross pay, thereby yielding an increase of, say, 25-30% in their take-home pay.

Who wouldn’t like such a scenario? I would, too, if it weren’t fantasy.

In reality, the relationship between prices and take-home pay will remain the same after the FT in put in place. Perhaps both would remain the same – perhaps both would increase by about the same amount. But the fantasy that everyone would have 25-30% more money to use on goods and services that had not increased in prices is just that – fantasy.

The claim is so far-fetched that B&L have backed off of it to some degree, even seeming to claim that they never really said it. I will take this up next, now that I have introduced this proposal to readers. You will be able to look at the quotes that I will supply and then decide for yourself what B&L said and what they meant.

Weekly Jobless Claims Match Recent High

The Department of Labor released the weekly jobless claims data this morning. The initial claims number for the week ending January 17 was 589,000. This matches the high reached four weeks ago, and represents the highest total since 1982. The four week running average remained constant at 519,250 and is down from the high reached four weeks ago. Continuing claims for the week ending January 10 rose to 4,607,000. This is slightly lower than the high reached two weeks earlier.

Jobless Claims Climb to 524,000 for Week Ending January 10, 2009

The Department of Labor (DOL) released the weekly jobless claims report this morning at 8:30am EST. Seasonally-adjusted initial jobless claims for the week ending January 10, 2009 were 524,000. Those for the preceding week were revised upward by 3,000 to 470,000. The four-week running average was 518,500, a decline of 8,000 from the previous week. This represents the fourth week in which this value declined. Seasonally-adjusted continuing claims for the week ending January 3 were 4,497,000. The four-week running average continued to climb, reaching 4,497,750.

Recently, I did an analysis of the historical pattern of jobless claims in an effort to find signals that might mean the end of the recession is at hand. The numbers for this week offer no such evidence. Go here to read this.

For the complete DOL press release, go here.

December Retail Sales Decline

Advance retail and food services sales estimates for the month of December, adjusted for seasonal and holiday-related differences, dropped considerably from month ago and year ago figures. Numbers from the U. S. Census Bureau indicated that sales were off 2.7% from November and 9.8% from December 2007. These numbers are not adjusted for inflation. Total sales for 2008 were down 0.1% from a year ago.

The data helped send the Dow Jones Industrial Average down 248 points for the day.

For the entire story, go here.

January 20, 2009 – Thank Goodness!!

Next Tuesday at 11:30am, President-elect Barack Obama will assume the Presidency of the United States of America. What a wonderful moment that will be! We cannot know for certain what the future will bring, but once again we can be hopeful that the future will be better than the past.

Our country faces the most severe economic crisis in three generations. Rather than working to solve these problems, President Bush has chosen to spend his last days in office in an attempt to polish his legacy.

For many, it is difficult to remember where we were eight years ago and what these years have meant to the average citizen of this country. Let’s take a look at some of these aspects of our national economy.

The Gross Domestic Product (GDP) is the measure of the total value of all goods and services produced in the country. During the eight years of the President Clinton, when adjusted for inflation, it grew at an annual rate of 3.6%. During the past eight years, it has grown 2.2% per year. When you factor in the fact that our population grows at about 1% per year, these figures become 2.6% vs. 1.2% in terms of the amount of goods and services produced, and therefore available to, each citizen.

Recessions, as defined by the National Bureau of Economic Research, are periods of reduced economic activity: GDP declines and unemployment rises. During the past eight years, two recessions have begun. During the eight years under President Clinton, there were no recessions. This has been a repeating pattern in recent years: of the past 11 recessions, 10 began with Republicans in the White House.

Despite what President Bush has said again and again, he did NOT inherit a country in recession. The recession of 2001 began five months after his election. It was also not caused by the attacks of 9/11: it began five months prior to that terrible day.

The years of President Bush have been particularly hard on working Americans. Although he will boast that three million jobs were created during his two terms, over 14 million jobs were needed just to keep up with our increasing population. This means that there was a “jobs deficit” of over 11 million during his Presidency. There has been a deficit in five of his eight years. In contrast, there were 23 million jobs created during President Clinton’s term in office, far more than the 13 million needed to keep up with growth in the work force. In every year of the Clinton Presidency, there were more jobs created than were needed to employ our growing population. In my lifetime, two Presidents have overseen periods of “jobs deficits”, and their names were Bush.

The Stock Market is also an indicator of economic growth, although it is not solely due to activities within our country: most large corporations do business around the world. During the past eight years, the Dow Jones Industrial Average has declined by 17%. In contrast, this value rose 229% during President Clinton’s years. The Market declined in each of President Bush’s terms. All of us are acutely aware of recent Market losses: it has dropped 40% in a little over a year. The last eight years represent the worst Stock market performance of a Presidential administration since that of President Herbert Hoover.

Perhaps of greatest consequence to the long term health of our country is the massive debt that has been accumulated during the past eight years. Today, the National Debt stands at $10.6 trillion. $4.9 trillion of that has been accumulated during the last eight years. 46% of the National Debt has been accumulated during the Presidency of George W. Bush. In fiscal year 2008, we spent $412 billion just on interest payments on our debt. Since half of that was accumulated during the past eight years, we can thank President Bush for saddling us with these interest payments. And they will be with us for years to come.

At this point, every American’s share of President Bush’s debt is over $16,000. Every year, each of us will have to pay an additional $630 in taxes just to pay interest on the debt he has accumulated. On average, we will each have to pay taxes totaling $16,000 to eliminate this debt accumulated under this President. Where will President Bush be when we have to make this sacrifice?

We can’t know what will happen during the Presidency of Barack Obama. But as we move into this next phase of our country’s history, let’s be crystal clear on what has happened over these past eight years. Economically, it has been a true disaster. Let us all hope that better days lie ahead economically, and in all of the other aspects in which this country has been tarnished of late.

Is There Any Good News in Recent Jobless Claims Numbers?

Last Thursday, the Jobless Claims numbers released by the Department of Labor were pretty grim. The weekly Initial Jobless Claims were 467,000 representing 0.35% of those workers covered by unemployment compensation (i.e., insured work force). These numbers are down a bit from those reached two weeks earlier (586,000 and 0.44%), which were the worst since 1992, late in the administration of President George H. W. Bush. The continuing unemployment claims came in at 4,611,000, the worst since 1982 during the second year of the administration of President Ronald Reagan. This number represents 3.4% of the insured work force. This is the worst since the fall of 1983, when this value had been dropping since a peak of 5.4% late in 1982.

So, the initial jobless claims have dropped for two weeks, while the continuing claims are still rising. Is there any room for optimism in these numbers? Based on recent historical patterns, is there any reason to believe that the current recession, now 14 months old, is at or nearing an end?

Let’s look at the initial claims first. Is a drop for two straight weeks indicative of the end of the recession? No. In fact, this has already happened six times in this recession. In fact, there is so much “noise” (short term up and down movement) in this number that any consistent change of even three or four weeks isn’t really a signal of anything. At the end of the recessions that have occurred since 1970, there is still a great deal of noise in the individual weekly numbers. This is why this number is often presented as a four-week running average. This has the effect of smoothing out some of this week-to-week volatility.

This four-week running average has now declined two weeks in a row. Is this good news? Not by itself – this has already happened seven times in this recession alone. In fact, we have seen four straight weeks of decline in this number early during the current recession.

What has happened historically in this value? The pattern has not been consistent. At the end of the last five recessions, the longest “runs” of consecutive weeks where the four-week running average of weekly initial claims declined were four weeks (in 2001) and six weeks (in 1970). During recent recessions, there have been runs of five, six and seven weeks that did not occur at the end of those downturns.

So, even a consistent decline in this four-week running average of initial claims doesn’t seem to provide much information about the end of recessions. Perhaps we need yet more “smoothing” of the data? Let’s look changes in this four-week running average over more than a one week period. I examined the historical patterns of the past six recessions (those since 1970) and found that only by looking at the eight-week change in four-week running average of initial claims was there a pattern at the end of recessions that was not found within them.

That was quite a mouthful! Let me explain what I did in a bit more detail. I created a data set of the four-week running average of the weekly initial jobless claims. I then looked at the change in this value each week compared to the value from a point in the past. Finally, I looked to see if there were consistent periods in which this difference was declining, and that these periods were longer at the end of recessions than at any time during but NOT at the end of recessions.

The critical time period over which to examine the change in four-week running average of initial claims turned out to be eight weeks. That is, lets’ look at the four-week running average now compared to what it was eight weeks ago. Let’s call this the 8-4 number. At the end of the last six recessions, there are consecutive periods where the 8-4 number declined at least 17 weeks in a row – the average was 21 weeks. During, but no at the end of, any of these recessions, the longest consecutive period where the 8-4 number declined was 11 weeks – usually, it occurred no more than five weeks in a row.

This means that we need to see the 8-4 number decline every week for about three or four months. So far, it has not declined even one week. To get the first decline in the 8-4 number, we’ll need to see initial jobless claims this Thursday of no greater than 483,000. Then we’ll need to see it continue to decline for three or four months.

Next, I’ll look to see what kind of “signals” might be deduced from the continuing claims numbers.

December Jobs Report Bad – Revisions, Adjustments Make It Even Worse

The Employment Situation Summary, often called the Jobs Report, was released this morning by the Department of Labor (DOL). The numbers are bad for December. However, revisions to the two preceding month’s data make it even worse.

The headline jobs number was a loss of 524,000 jobs during December. These data are from the “Establishment Survey”, officially called the Current Employment Statistics survey, which is conducted on 150,000 businesses and government agencies. Last month, the DOL reported that 533,000 jobs were lost. However, this month’s report also includes a downward revision for each of the last two months totaling an additional 154,000 jobs. So in reality, there are now 678,000 fewer jobs that were indicated by last month’s report. During 2008, nearly 2.6 million jobs were lost.

This is the worst, by far, than any year since 1975 when the currently available data set begins. As bad as these numbers sound, in reality they are even worse. As I pointed out in an earlier post, the country needed almost 1.9 million jobs just to keep abreast of the growing population. In fact, this growing population should create this number of jobs due to increased demand. So, in fact, the “job deficit” for this calendar year is nearly 4.5 million. This is more than a million worse even than the severe recession of the Reagan Presidency.

The Unemployment Rate reported this morning was 7.2%, up from a revised 6.8% last month. The initial report from last month was 6.7%, so this month’s reading is actually 0.5% worse than last month. These data are from the Household Survey, or Current Population Survey, which is conducted on 50,000 households each month.

Many have argued that this official unemployment rate is a deceptively small number as it does not count those who have given up looking for work. A number of alternative numbers have been proposed to reflect a more accurate picture of our employment situation. In an earlier post, I explained one such alternative value, which I called the Adjusted Unemployment Rate. This now stands at 9.4%, which is again the worst since 1982 during the Reagan recession.

December Jobs Report – Unemployment Rate 7.2%, 524,000 Jobs Lost

The Department of Labor released the monthly Employment Situation Summary (often called “The Jobs Report”) at 8:30 EST this morning. In December, 524,000 jobs were lost. The Unemployment Rate stands at 7.2%, up from 6.8% last month

Initial Jobless Claims – Week Ending 3 January 2009

At 8:30 EST this morning, the Department of Labor released the weekly initial jobless claims numbers, also called the unemployment initial claims. For the week ending 3 January 2009 on a seasonally-adjusted basis, there were 467,000 new claims for unemployment benefits. This was 24,000 lower than the revised number from last week, and was lower than most predictions. This represents 0.34% of the insured workforce (those eligible for unemployment compensation). That figure is down from the 0.44% reached a month ago, which was the highest since the administration of President George H. W. Bush.

Seasonally-adjusted continuing claims for the week ending 27 December 2008 came in at 4,611,000, which was 101,000 greater than a week earlier. This represents 3.4% of the insured workforce, and is the highest level since 1983 during the severe recession during the administration of President Reagan.

Initial Jobless Claims

In earlier posts, I discussed two important indicators of the national economy in terms of employment. The first was the monthly “jobs number”, or the number of jobs created/lost. The second was the unemployment rate. Both of these are presented by the Department of Labor (DOL) on the first (or sometimes the second) Friday of the month. The December numbers will come out this Friday.

Today, I want to look at the “Initial Jobless Claims”. This number is presented by the DOL each week: the report on each Thursday represents the data for the preceding calendar week. Tomorrow, we’ll get data for the week ending on 3 January. The number represents the number of persons who first file for unemployment compensation.

Clearly, this has some relation to the jobs number (inversely) and the unemployment rate (presented as a percentage). However, these pieces of data come from three separate sources. The unemployment rate comes from the “Current Population Survey”, also referred to as the “Household Survey”. It represents data collected on a monthly basis by contacting homes directly and posing questions about the employment status of those in the home, and is conducted by the Bureau of the Census on behalf of the Bureau of Labor Statistics.

The jobs number is constructed from the “Current Employment Statistics” survey, often called the “Establishment Survey”. It is also compiled by the Bureau of Labor Statistics. These data are collected by contacting businesses directly and posing questions about their employment situation.

The initial jobless claims number, actually called the “Initial Unemployment Claims”, is the most current employment information available. It is certainly important in its own right – it represents a large fraction of the actual number of Americans who have recently become unemployed. It doesn’t really reflect the actual number because many who do not have work do not apply for benefits, and many who have lost their job do not qualify for unemployment compensation. Nonetheless, it is a useful indicator. However, for comparisons across time, it can be misleading because it is important to view this number in light of the size of the current population and workforce. Therefore, the BLS also presents the number of workers covered under the unemployment compensation system. Using this as a base, the current numbers can be computed as a percentage, aiding comparisons across time.

So, where are we? Over the past couple of months, the weekly initial jobless claims have exceeded a half million every week except last week when they came in at 492,000. These data are the worst in over 25 years: they are the highest since the recession that occurred during the early years of the Reagan administration. However, when taken as a percentage of the number of insured workers, the data are now reaching levels that were seen during the administration of Bush-41. The recent peak was 0.44% observed week before last. A value of 0.54% was seen in the middle of 1992.

We have no idea whether we have seen the worst numbers in this current downturn. Tomorrow we will get more information. At that time, I’ll provide some more historical information, and some insight into whether the initial jobless claims can give us any insight into whether this recession is nearing an end.

Happy New Year!

I hope everyone had a good break over the Holidays. I’ll be posting every day going forward. I wanted to start by giving you a couple of updates on what I’m doing. First, I’ve created a blog that will be devoted to the US Senate. It’s called “Senate Numbers”, and the URL is www.senatenumbers.blogspot.com. I’ll still post some things here of a more general nature, but will do most writing on the Senate there. I’ll put a brief post here every day or two telling you what I’m posting there, and vice versa. Second, as I imagine you noticed, I switched this to a 3-column layout. I’ll be putting some current information and numbers in the left sidebar. (I thank www.threecolumnblogger.com for the code. If you are interested specifically in this layout, which is “Rounders 3”, and the code to make it 3 columns wide, instructions can be found here.)