Yip Yap Times

New York Times Breathlessly Reports: The Economy Is Taking A Dive

I’ll keep my thoughts on the "cooling economy" short and sweet since I know you’re anxious to get to the polls armed with this information.

The New York Times: With a theatric wag of the head and a practiced darkened brow, the New York Times reported the hopeless inevitability of the coming recession: “The latest information about the economy leaves no question that it has slowed down by just about every measure — housing and manufacturing, retail sales and job growth, and others.”

The inconvenient truth: Former Federal Reserve Chairman Alan Greenspan said today that home sales and prices may continue to slide for some time, but the broader U.S. economy appears poised for a rebound. "It looks as though the worst is behind us" in terms of the effect of the housing slump on economic growth, the retired Fed chief told financial advisers at a conference in Washington organized by a division of Charles Schwab & Co.

The New York Times: "Even the recent increase in compensation is generally believed to be a sign of coming layoffs, not a harbinger of wage inflation," yip yapped the Times.

The inconvenient truth: The Labor Department reported that wages have increased at quadruple the rate of worker productivity. Labor productivity increased at 1.6% while wages jumped 4.9% second quarter 2006. Far from being a sign of coming layoffs, these numbers reveal quite a tight labor market. To wit: the Bureau of Labor Statistics reported in October that 92,000 new jobs were added and the unemployment rate declined to 4.4%. This is the lowest rate since 2001 and even lower than the comparable period of the 1990’s expansion when the rate dropped to 4.6%. But wait! 92,000 is not the 125,000 new jobs predicted by Wall Street, shrieked the Democrats. Yet, the same Democrats failed to even whisper that the totals for the two previous months were revised upward by 139,000.

The New York Times: "As for the recent improvement in the unemployment rate, sorry to say, it’s an aberration. The job market won’t turn up in any meaningful way when the overall direction of the economy is down," insists the Times despite all facts to the contrary.

The inconvenient...OK you get the point: The slowdown in new housing construction and auto sales reduced jobs in manufacturing and construction, but gains in the service sector have taken up the slack. Non-farm payrolls have increased by 470,000 in the last three months and by 1.9 million this past year. Far from an economic contraction, the increase in wages over productivity brings inflationary pressure. Inflation means more money chasing the existing goods, hence forcing prices higher. Low levels of inflation such as we have now, are indicative of a strong, growing economy, not a threatened one.

The New York Times: “Most Americans are ill prepared for an economic deceleration, even if it ends in a soft landing. When economic basics like income and insurance coverage are taken into account, most working families are no better off now than they were when the economic expansion began in late 2001. They have been held back, primarily, by lousy pay. In 26 of the past 30 months, wages for most of the work force have failed to outpace inflation, even as corporate profits have hit historical highs.”

It’s a weirdly inconsistent editorial position for the Times to admit to an economic expansion in 2001 since that was the start of the Bush tax cuts. I guess the economy expanded as much as the Times needed to "prove" that working families, and who isn’t working except the limousine liberals at the Times, are no better off five years later, especially with the key mid-term elections. Getting back to the point, the tight labor market in the U.S. has historically yielded rising wages and incomes. And, according to labor statistics as reported by the Wall Street Journal, average hourly earnings have been rising at a 4% annual rate for the past six months. With the price of oil and gasoline falling, real purchasing power will probably increase. Real wages have climbed by 2.4% over the last 12 months, outpacing inflation. So even with the recent decline in new home sales that reduced the GDP by 1% in the third quarter, the strong job and wage growth strongly suggests that the economy is continuing to grow. And even the New York Times might not want to be so quick to condemn, even if only by implication, corporate profits. After all, its corporate profits that motivate corporations to expand and create new jobs.

posted by Lisa @ 1:28 PM