Douglas Castle Explains the Economic "Boom" in the US.
Dear Friends:
As a rule, I enjoy poking fun at the news, and people's interpretation of what it means. Especially when I read something like what follows in the New York Times:
Breaking News Alert
The New York TimesFri, January 29, 2010 -- 8:48 AM ET
-----
U.S. Economy Grew at Annual Rate of 5.7% in Fourth Quarter, More Than Expected
The United States economy grew at its fastest pace in over
six years at the end of 2009, but a sluggish job market is
still souring economists on the sustainability of the
recovery.
Gross domestic product expanded at an annual rate of 5.7
percent in the fourth quarter, well above analysts'
expectations. It had grown at an annualized rate of 2.2
percent in the previous quarter.
Read More:
http://www.nytimes.com/2010/01/30/business/economy/30econ.html?emc=na
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Folks... it sounds good, but what it might actually mean is that:
1. Businesses had run so low on stores of inventory, and that inventory prices (because of depressed demand) had actually fallen, so some businesses bought some things -- it's better than having empty showrooms and shelves.
2. Some business profit margins actually did grow (at least temporarily) because they had cut down on their costs -- often, by firing loads of "dispensible" employees. They might have lowered their cost profiles by tossing out some employees. Sadly, this contributes to growing unemployment, decreases disposable personal income, and diminishes consumerism, which ultimately destroys sales. It is rather like throwing the walls into the fireplace to heat the house - temporary.
3. Statistics are funny. Note that if my sales of last year were $50.0 million, and this year they were $52.5 million, my sales grew at a rate of 5% during the year. But what if (ooooooooooh.....) my sales had dropped to $25.0 million last year (and they had previously been at a pre-recession level of $50.0 million), and they had grown to $27.5million this year? That would appear to be an increase of 10%. Yet, despite the increase, my sales hadn't grown even close to earlier levels. In statistics, the smaller the selected starting number, the easier it is to evidence "growth."
In the words of a great American philosopher, "and that's all I've got to say about that."
Think about the implications behind the percentages, folks. And if you are just a tad mistrustful, think of the motives behind the sources presenting those statistics.
Global Futurists - I do not see a recovery in the United States economy for quite some time to come. I wish that I felt differently.
Faithfully,
Douglas Castle
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