Or choose individually:
- America’s National Debt Binge Is A Lot Of Hot Air
- Exploding The Myth Of The Rebounding Consumer
- Stocks Have Now Run WAY Ahead Of The Actual Economy
- Here’s Why Your Employer Can Fire You Just Like That
- No Green Shoots At All For The Long-Term Unemployed
Substantial attention is paid the U.S. government's growth in debt these days, yet far less is paid to America's total debt picture as a whole.
More should be, because a quick look at the chart here will make you realise that much of America's perceived debt 'binge' these days is the result of hype rather than fact.
Yes, the American government has increased its borrowing at a record rate. In 2008 and 2009 U.S. state & local governments plus the federal government net-borrowed a combined $1.3 trillion and $1.6 trillion respectively. That's a huge step-up from their combined net borrowing of $428 billion in 2007. In isolation, this data is terrifying.
Yet if one is concerned about the entire nation's solvency, and wants to understand why proponents of current stimulus aren't necessarily irresponsible, then one has to step back and take into account the private side of the U.S. debt equation. This is especially important since America is a nation driven mostly by its private economy. The private economy is far larger than the government's. Thus to ignore what the private sector does is to see less than half of the picture.
On this measure, if you look at 'total net U.S. borrowing', which takes into account borrowing by everyone -- the government, private U.S. households, financial companies, and non-financial companies -- then it turns out that 2009 was indeed a monumental year for U.S. borrowing... in that total U.S. borrowing fell by $438.4 billion. (shown in red here)
This historic reduction in U.S. borrowing is due to the fact that in 2009, U.S households, financial companies, and non-financial companies all de-levered as a group. In fact, they reduced their borrowing by so much in 2009 that it completely eclipsed growth in borrowing by the government. In 2009, U.S. households reduced their borrowing by $237 billion, financial companies reduced it by a whopping $1.8 trillion, and non-financial companies reduced borrowing by $200 billion. The data on this can be found at the Federal Reserve.
Thus whether you are for or against various stimulus policies, one should at least try to understand the thought process behind the U.S. government's debt growth. Many proponents of stimulus were worried by the massive de-leveraging (reduction in net borrowing) by the private sector and the effects it would have on the U.S. economy during a downturn. If the government hadn't increased its borrowing, the red negative bar in the chart would be far larger, at nearly -$2,000 trillion. Less debt can be a good thing, but if everyone de-levers at the same time in a sharp fashion then it can destroy a substantial amount of economic activity in a flash, which would be extremely painful for many Americans. Proponents of stimulus were worried that this would make for an extremely ugly recession, far worse than we saw.
Hence, cognisant of private sector de-leveraging, they realised that the government could increase borrowing without creating a dangerous increase in total U.S. borrowing. Thus the government was used to step in and fill the gap, due fears of that private de-leveraging, which had to happen due to past excesses, could create a lot of suffering for Americans if left without a counterbalance of stimulus from the government.
So even with seemingly ridiculous borrowing from the U.S. government, America as a whole actually ended up paring back its debt in an unprecedented fashion. Let's just hope that the government's debt growth is reigned in, now that the U.S. economy has recovered to some degree. Yet the key take-away regardless of your political view on stimulus is that America isn't binging on debt right now.
Yesterday fresh personal consumption data came out showing that consumers have completely forgotten the recession, and returned to their freespending ways.
But is the headline masking deeper weakness?
This chart, first put together by Karl Smith at modelled behaviour, plots personal consumption against retail and food sales. Note that the later, in the blue line, hasn't come back nearly as strongly as the red line.
The answer? Costs of things like healthcare and education continue to push higher. Sales of things people actually want to buy are still well off their highs. (Via Michael Panzner)
This chart from Citi economist Steven Wieting argues that the S&P 500 might have run too far relative to improving economic data we've seen thus far.
U.S. stocks have frequently rebounded from troughs as U.S. industrial production improved. This is shown by the historical trend here. (The S&P 500 is in red with industrial production in blue)
Yet stocks have also frequently run too far ahead industrial production, thus falling or stalling out in future months as industrial production kept rising to 'catch up'. Note the most recent gap between industrial production improvement and the S&P 500, shown in the right-most portion of the chart, blue vs. red.
It's an example of how positive economic news might have already been priced-into stocks, and then some.
(Via Citi, May 2010 Chart of The Month, 5 May 2010)
As American companies slashed jobs during the downturn, something interesting happened. Their output didn't fall by nearly as much as their workforce size. Many companies found all kinds of ways to use the same number of people to do more. This has shown up in the U.S. macro data -- U.S. worker productivity has surged over the last four quarters.
Are Americans being forced to work their tails off like never before? For many that may be the case, but surging productivity represents higher output per hour, so it's not simply people working longer. Could it be that Americans are working smarter? We all may like to think this is the case on an individual basis, but higher productivity could also be the result of workers and managers simply wasting less time than they used to.
In fact, according to research performed by Celerant Consulting surveying 11,000 working hours across four industries (Energy, Healthcare, Chemicals, and Consumer Staples), the majority of American workers' time is spent on activities which don't add any value to the 'process and final price' of companies' products or services. Maybe that's why American companies were able to slash their workforces so liberally. Even if you weren't personally unproductive, companies were able to fire you and then squeeze more out of your lazy colleague who somehow survived the cuts.
Here is the breakdown of time usage by the four industries. Consumer Staples workers spend the highest share of their time, 50%, performing value-added (VA) activities such as reading Business Insider religiously. Congrats. They nevertheless continue to spend 47% of their time on non-value added activities (NVA) and 3% on non-value-adding-but-required tasks (NVAR) which seems to be a bit of a grey area category created by Celerant. Who are the worst time wasters? Healthcare/Life Sciences workers were found to spend just 27% of their time on value-adding tasks. Shockingly, Workers in all four industries spent 50% or more of their time on NVA or NVAR tasks. Too bad they didn't survey financial professionals...
Celerant's conclusion is that U.S. worker productivity still has a long way to increase, and that companies have substantial room to increase their output without investing large sums in equipment or new people. (they might even be able to keep their current output with even further job cuts) It's not exactly the kind of news unemployed Americans want to hear, but maybe the upshot is that new hires just have to spent 51% of their time productively in order to outshine their colleagues. Roll back the effort once you're unionized.
Obviously, we're sure many will question how Celerant measured 'value-add'. You can chase up the details with them here, but let's face it, deep down you've probably always suspected this time wasting statistic was true.
This mornings unemployment report was mixed. Jobs were created at a clip faster than economists expected, but unemployment rose as more workers started looking for jobs again.
But here's one slice that wasn't mixed. The number of long-term unemployed is shooting straight up with nary a green shoot in sight.