Last updated on December 10th, 2014 at 12:05 pm
There is an English idiom, “don’t judge a book by its cover” that is a metaphorical phrase which means “you shouldn’t prejudge the worth or value of something by its outward appearance alone.” There has been good news about America’s economy over the past couple of months, and according to the third and final estimate of third quarter GDP by the Bureau of Economic Analysis (BEA), it appears the economy is finally starting to find solid footing to make some serious progress. However, Americans should not celebrate just yet because although the third quarter numbers are certainly encouraging, there is plenty of reason to skeptical, and concerned, that the apparent good news on the economy may be an aberration; at least for the majority of Americans.
According to the BEA, third quarter Gross Domestic Product (GDP) grew at an annualized rate of 4.1% in the third quarter that is significantly better than the 3.6% growth economists predicted in the second estimate published earlier this month. The promising numbers are the fastest growth pace in two years, and some economists believe that it is a sign the recovery is starting to build going into the new year. One of the drivers of the good report was consumer spending that grew at a higher rate (2%) than previously estimated (1.4%) this summer. The data seemed to suggest that Americans were shopping and buying despite Washington’s budget dysfunction, but the increased spending was partially fueled by higher-income Americans spending more on recreational pursuits. The bulk of the increase in consumer spending was for health care before the Affordable Care Act went into effect in October and gasoline; necessities that deprive middle income households of discretionary income to spend on other goods and services. In states that embraced the ACA, healthcare costs declined significantly and that will certainly give them more disposable income during the 4th quarter, but that is not the case in Republican states. The high gas prices are solely attributable to the oil industry selling America’s glut of fuel on the export market that contributed to higher GDP and profits for the oil industry while high fuel prices prevented consumers from spending on durable goods and services.
The lion’s share of positive growth was from companies spending to build up third-quarter inventories which accounted for about 40% of overall third-quarter growth. Companies stockpiled $115.7 billion worth of goods on warehouse shelves, but economists warned GDP will likely fall sharply in the final months of 2013 if companies are unable to sell all the goods they stockpiled. MaketWatch surveyed economists who forecast GDP will drop to 2.1% in the fourth quarter that is directly in line with predictions based on food stamp cuts, the Republican shutdown, and the sequester cuts. Real damage will hit the economy in 2014 because Congress left for their winter break without funding food stamps or extending unemployment benefits that will drive 1.3 million Americans into poverty and restrict their spending ability.
What economists are wondering is whether or not the economy is genuinely taking off, or is the momentum bound to evaporate as it has repeatedly throughout the recovery. The chief economist at Regions Financial Corp, Richard Moody, said “every time we have thought we were finally starting to take off, we get dragged back down,” but he hopes this time might be different. However, most economists say any future gains in consumer spending will hinge on whether Americans’ incomes rise more quickly and, like a panel of three dozen economic experts last week, complained that income growth has been stagnant or declining throughout the recovery. The Sterne Agee Chief Economist, Lindsey Piegza said, “We are just not seeing the momentum behind incomes and that’s really what we need to see driving the consumer sector. We are not seeing quality, high-wage jobs being created.”
It is likely economists, and the American people, are not going to see many high-wage jobs being created, or minimum wage workers getting a raise anytime soon; if ever. Republicans left Washington without extending unemployment benefits for 1.3 million Americans who will struggle to buy food or pay rent let alone have income to buy durable goods, and the encouraging economic news will be the impetus for Republicans to reject calls to extend benefits in the new year; particularly since they convinced Democrats to pass a budget without addressing the issue when they had the opportunity. President Obama called for raising the minimum wage a year ago during the State of the Union, and despite an overwhelming majority of Americans supporting hiking the wage $3 per hour, Republicans have rejected the idea as unnecessary on earlier promising economic news.
The question economists have not asked, and are unlikely to answer, is who profited from the good economic news. It certainly has not been the majority of the population who were not in the income class the report cited were able to afford increased spending on recreation. At the beginning of the year, 47.7 million Americans were living below the poverty line and the latest estimates are that it ballooned to 50 million. More Americans require food, healthcare, and housing assistance, and although there has been a steady monthly increase in the number of jobs created, the majority have been minimum wage jobs that prevent a family from affording adequate housing or sufficient food. The sequester is predicted to kill an estimated one million jobs over the course of 2014, and yet it will stay in place for nine more years with only 4 tenths of one-percent reduction for two years as negotiated in the Ryan-Murray budget agreement.
One hopes the third quarter economic report is a sign that the economy is on a solid trajectory for sustained growth to benefit all Americans, but there is little reason to think that is the case. Republicans have no inclination, or incentive, to create jobs, raise the minimum wage, extend benefits for the unemployed, or fund infrastructure improvements that are crucial to a sustained recovery. The only thing Americans can be certain of is that Republicans will use the good economic report as a reason to reject the Presidents’ calls to address the ever-widening income gap and obstruct Democrats’ attempts to do anything that might help struggling Americans or prevent the total and complete demise of the middle class. If Americans have learned only one thing about the economic recovery, it is that Republicans will make sure the only beneficiaries of good economic reports are Wall Street and corporations and this time will be no different.
Born in the South, raised in the Mid-West and California for a well-rounded view of America; it doesn't look good.
Former minister, lifelong musician, Mahayana Zen-Buddhist.
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