Last week, the Bureau of Economic Analysis made a significant revision that caught many by surprise. Initially, they reported that first quarter GDP had declined at an annual rate of 0.1 percent. However, upon further assessment, this decline was discovered to be far more substantial, now standing at a staggering 1 percent.
This revision indicates a troubling reality: rather than expanding, the economy is contracting. Given its heavy reliance on debt, even a slight contraction can start to destabilize this shaky foundation. Notably, student loan and auto loan debts are poised to be at the forefront of the next financial collapse.
Despite this reality, many news outlets attributed the sluggish economic performance to weather conditions. Some even portrayed the contraction as a temporary pause before a new expansion. Opinions suggested that this downturn would artificially inflate second quarter GDP figures, allowing a more favorable narrative to emerge.
“I believe this real GDP decline, primarily due to the polar vortex, has coiled the ‘economic spring’ tighter for a potent rebound this quarter,” stated PNC Chief Economist Stuart Hoffman. “I predict real GDP growth will stabilize at around a 2.8 percent annual rate in the latter half of this year.”
Prime Workers Not Working
To understand the implications of these statistics, consider this: the initial report indicated a minimal GDP contraction of 0.1 percent, which was later revised to 1 percent. This sets a lower benchmark for the anticipated recovery in the second quarter. So, when we hear about a “strong” second quarter GDP in July, remember this context.
Regardless of how the data is manipulated to suggest a thriving economy, the undeniable truth remains that a significant number of potential workers are absent from the labor market. Consider the following:
“There are currently 61.1 million American men aged 25 to 54 in their prime working years,” stated members of the Senate Budget Committee. “An alarming 1 in 8 of these men are not engaged in the labor force, meaning they are neither employed nor actively seeking work. This is a record high since tracking began in 1955.
“Additionally, 2.9 million men are in the labor force but unemployed, indicating that they would work if job opportunities were available. Therefore, there are approximately 10.2 million individuals in this demographic without jobs in the U.S. economy today. Compared to pre-recession figures, there are nearly 3 million more men in this age group currently without work.”
What kind of economic recovery is evident when able-bodied men in their prime are not participating in the workforce? It’s a troubling scenario, one that suggests a disproportionate recovery—if it can even be termed as such.
Economic Blasphemy
For these millions of men who are not working, what are they doing instead? Some might have discovered alternative, unconventional ways to generate income. However, many are likely depending on the financial support of family members.
For a considerable portion of the population, the recession has not concluded. Moreover, despite record stock market highs, the economy appears to be on the brink of a recession within a recession. The situation could deteriorate rapidly. Federal policies that have promoted excessive household debt have encouraged many to take perilous financial risks.
“The reality is that ZIRP (zero interest rate policy) in today’s U.S. economy represents economic blasphemy,” remarked former Office of Management and Budget Director David Stockman. “Low-interest rates have historically been a dangerous lure, encouraging the middle class to accumulate debt at unsustainable rates over the past four decades.
“Now, however, households have reached peak debt levels. The only things being leveraged today are student loan balances, which are unsupported by stable income or assets, and an increasing number of subprime auto loans, where borrowers owe more than the vehicle’s worth at the point of sale.”
It’s disheartening to realize that many still haven’t learned the lessons from the previous financial crisis.
Sincerely,
MN Gordon
for Economic Prism
In conclusion, the economic landscape reveals troubling patterns beneath a facade of growth. While data may be massaged to project optimism, the stark reality is that many capable workers are sidelined, raising serious questions about the state of recovery. Without significant changes, the looming risks associated with pervasive debt could lead us down a precarious path.
