Ranking Harvard Economist Martin Feldstein has warned that the government’s appraisal of economic growth is always wrong- and he isn’t just talking about the current administration.
The U.S. economy has been notably stagnant over the last year and has grown even less than was previously reported in the last quarter on baseline government outlays. There has also been a greater depletion of inventories, bringing a sluggish first-half performance to a close propped up almost entirely by consumer activity, Bloomberg reported.
The GDP, the total value of all US goods and services rendered, rose at a tepid 1.1% annualized rate. This is down from the initial of 1.2% estimate, according to Commerce Department data published a few weeks ago. Household spending, the economy’s greatest asset, was revised as higher in the area of used-car sales- not exactly a bull indicator in the market.
“We have been relying on numbers that are not reliable,” he told Fox News. Feldstein once served as the Regan administration’s chief economic advisor. He says that economists have yet to figure out a functional way to fine tune the tracking of innovative goods and new services.
“The services sector represents the bulk of the problem,” Feldstein said. “They don’t have a real way to work out the production value of new products or services.”
One example he’s cited refers to some of the most commonly used anti-cholesterol drugs. If total sales of the drug rise and there is no change in the basic price of a single unit, in such an instance the White House marks it down as a boost to the GDP. But they do not account for the value that these drugs provide in the prolongation of patient’s lives.
So the numbers for the quarter are probably more favorable than the recent 1.1% second quarter growth. Feldstein wasn’t specific about ways in which the effect of such a lack in reporting could cover real growth- as such factors are likely to be vague and complex. Nevertheless, there are real factors that can probably- but not measurably- boost the economy which is not being accounted for by the government.
Feldstein adds, that while the number may be nebulous- it is certainly significant enough to talk about.
The economy’s reported, and widely accepted failure to develop a significant sustained pickup has emboldened Federal Reserve policy makers to begin proposing drastic interest rate hikes likely to take effect before the end of the year.
Janet Yellen, the Fed Chairwoman, and influential economist has notably been encouraging the Fed to do just that. Despite the fact that there’s little to gain but camaraderie, only a few have pledged their support.
The kind of culture this creates could be part of the explanation for not only why the White House has a bad habit of publishing bad information on the economy, but also why so many high-powered speculators can get any traction at all for their spurious claims and ideas.
Yet, economists are projecting a rebound in the third quarter which will be driven mostly by household purchases and more consumer stockpiling. The report revealed that personal incomes were revised significantly higher. This should be a strong indication that consumers have the confidence and the resources to continue spending.
While one could argue that the wisdom of the consumer may be flawed- the biggest reason to think so is that they are getting bad information from Washington. However, if consumers were listening to Washington’s economic reports- it’s hard to see how they could be so confident.
By appearances, consumers are doing exactly the opposite of what the White House’s figures would apparently advise. As always, consumer confidence levels remains the preferred indicator for investors and economists of every persuasion.
“The most meaningful area of strength is consumer spending,” said David Sloan, a senior economist for 4cast Inc. in New York. He told Bloomberg that, “the general consensus is that the US economy is expected to do better in the third quarter.”
The only remaining republican contender for the presidency, Donald Trump, has been working to drive home to the voters his message that not only can the economy do better, but that there are ways to make absolutely certain that it will.
Just a few weeks ago, he pointed the finger at President Barack Obama and the Democratic candidate Hillary Clinton for policies that they threw their weight behind that have produced what Trump calls “the most disappointing so-called recovery since the Great Depression.”
Regards,
Ethan Warrick
Editor
Wealth Authority
