Some unhappy ideas

John Crudele writes on the economy for the New York Post; his specialty is unemployment and the government statistics about it. Frequently, Crudele sounds like the high priest at the Temple of Doom. Thing often seem to Crudele to be worse than reported. Usually, I discount his more arcane points, but he has a column from yesterday's paper that makes some points about which everyone should be aware. Crudele's subject was explaining why job creation in the economy is so low despite the improving GDP numbers that ought to lead to higher job creation.

First, Crudele goes through the accepted wisdom that job growth is stagnant due to companies that do not want to hire in order to protect their profits or that fear of inflation and rising healthcare costs is hindering hiring. If you read the economic press, you have heard the details of all this before.

Then, Crudele gets to the main point. Maybe, he says, the economic growth rate is being overstated and there truly is no disconnect between job creation and increases in GDP. Absent much of a rise in GDP, one should not expect much increase in the numbers of jobs. Crudele points out that the actual growth for the last quarter of 2010 was 0.8% which translates into an annualized rate of 3.2%. This is far from robust growth that those in business can clearly see. Indeed, even a small overstatement could mean that the annualized rate was flat. Crudele points out that 3.44% of the GDP estimated for the last quarter of 2010 came as a result of the inexplicable decline in imports into the USA. With oil prices rising during that time, that would mean an even larger decline in other types of imports. There certainly seems to be no evidence of such a decline.

Further, the government used 0.3% as the annualized deflator in the GDP report. This deflator is supposed to be an estimate of inflation. Since the Consumer Price Index of the period was up 2.6% for the last year, the deflator was about 2.3% low, and that is if one uses the CPI, an index which itself seems to be understating actual inflation. A switch to a deflator of 2.6% from 0.3% would be enough to drop GDP growth from an annualized 3.2% to one of less than 1%. If the import drop and the deflator are both valid points, then the economy actually contracted in the fourth quarter, and the paltry job growth is not surprising.

These points really require a rational response from the government. If the GDP numbers are being "adjusted" to make things look better, the resulting scandal is one of enormous importance. What good are government statistics if they are phony?