Carpe Diem

8% Jobless Rate Good? In Germany It’s 15-Yr. Low

Jan. 31 (Bloomberg)Germany’s unemployment rate fell to the lowest level in 15 years in January. The jobless rate, adjusted for seasonal swings, dropped to 8.1%, the Federal Labor Agency in Nuremberg said today.

Comment: We haven’t had an unemployment rate in the U.S. above 8% in almost a quarter century, since December of 1983 (see chart above, click to enlarge), following the longest post-WWII recession in U.S. history (16 months).

Carpe Diem

Forbes’ Inaugural List: Top 10 Most Miserable Cities

Forbes Magazine introduces the Forbes Misery Measure, based on a city’s unemployment rate, personal tax rate, commute time, weather, crime, and toxic waste proximity. The top ten “most miserable” cities, according to Forbes:

1. Detroit, MI
2. Stockton, CA
3. Flint, MI
4. New York City
5. Philadelphia, PA
6. Chicago, IL
7. Los Angeles, CA
8. Modesto, CA
9. Charlotte, NC
10. Providence, RI

Carpe Diem

24th Month of Real Disposable Income Growth

The BEA reported today that Real Disposable Income grew by 2.1% in December from a year ago, the 24th consecutive month of positive growth (see chart above).

Bottom Line: Real Disposable Income is one of the 5 economic recession-indicating variables watched by the NBER (the others are real GDP, industrial production, trade sales, and employment), and the 2.1% growth in December suggests that there is still no evidence yet that recessionary conditions are affecting the U.S. economy.

Update: Graph now goes back to 2001
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Carpe Diem

Year-to-Year Real GDP Growth Was Actually 2.5%!

WASHINGTON — The U.S. economy braked sharply last autumn, pulling growth for all of 2007 to its lowest speed in five years as the housing slump took a heavy toll.

Gross domestic product rose at a seasonally adjusted 0.6% annual rate October through December, the Commerce Department said Wednesday in the first estimate of fourth-quarter GDP. The 0.6% pace was much slower than the third-quarter’s racing 4.9% rate.

Comment: Real GDP growth in the second and third quarters of 2007 was higher than average, at 3.8% and 4.9%, respectively, and then dropped to .60% in the fourth quarter. But why does the media (see WSJ article above) focus so much on these quarter-to-quarter growth in real output? Shouldn’t we also be concerned about year-to-year growth as well?
That is, why do we focus so much on 4th quarter 2007 real GDP in comparison to 3rd quarter GDP (0.60%)? Shouldn’t we also pay attention to the growth rate in real GDP from a given quarter to the same quarter in the previous year? After all, coming off a 5% quarter like the third quarter, it’s going to be difficult to always sustain that kind of above-average growth in the next quarter, and just returning to normal growth (on an annual basis) in the following quarter might make the economy look weaker than it really is.

Comparing real GDP in the 4th quarter of 2007 to the 4th quarter of 2006 (and doing the same for all previous quarters), real output grew at 2.5% in the 4th quarter of 2007 (see chart above), much higher than the .60% growth rate calculated from the previous quarter. Of course, the year-to-year measurement also brings second and third quarter growth down sharply to only 1.9% (vs. 3.8%), and 2.8% (vs. 4.9%). Quarter-to-quarter growth rates are always going to be more volatile than the smoothed annual rates from the same quarter in the previous year.

Buried in today’s BEA report, we find this: “During 2007 (that is, measured from the fourth quarter of 2006 to the fourth quarter of 2007), real GDP increased 2.5%. Real GDP increased 2.6% during 2006.”

Isn’t this another possible indication that the economy is NOT in a recession? Notice that the graph in 2007 looks nothing like the graph in 2001, during the last recession (shaded area).