|
The U.S.
Bureau of Economic Analysis reports that first quarter 2006 real GDP rose by
4.8 percent. This is a very robust number and reflects the strength of the
national economy. This also represents a healthy rebound from the weak 1.7
percent growth registered in fourth quarter 2005. The impact of the gulf
coast hurricanes had a major negative impact on the fourth quarter real GDP
number. In addition, the civilian unemployment rate in the
U.S. was
down to just 4.7 percent on a seasonally adjusted basis in March. The Bureau
of Labor Statistics data also shows that the unemployment rate peaked in
mid-2002 at around 6.5 percent. For the record, the U.S. has had seventeen
quarters of economic expansion.
Moreover,
much progress has taken place nationally in regard to the unemployment
situation. The government reports that the country's payrolls have expanded
by over six hundred thousand net jobs in the February through March time
frame. Further, the index of leading economic indicators is up, core
inflation remains under control, and housing activity remains strong; all
suggesting a rather rosy economic picture. However, it is important to
recognize that real personal income growth over the past five years has been
anemic and household medium income has been stagnant. This strongly suggests
that a very large segment of the population has not benefited from the overall
growth of the economy. The reason most often cited for this has been the
decline of manufacturing sector jobs, the growth of lower paying replacement
jobs in the retail sector, and to some extent the growth of the services
sector.
With a few
minor accounting adjustments, GDP is a measure of national income. So it has
to be true that part of the population has done very well economically over
the past number of years. In addition, the Bureau of Economic Analysis
reports that corporate profits were at a seasonally adjusted $700 billion in
2001. By the end of fourth quarter 2005, profits expanded to $1,479 billion,
more than doubling over the period. Moreover, the rapid growth in corporate
profits has helped to fuel a major upward movement in the nation's financial
markets. Since 2002, most of the major markets have recorded impressive
gains. For example, the Federal Reserve Board reports that the Dow Jones
Industrial Average is near an all time record level and the S & P 500 Index
has rebounded smartly from a low of about 900 to around the 1300 level over
the past three years, a gain of about 45 percent. Thus, you would expect that
with the increases in the financial markets and the huge gains in real estate
prices, that median household net wealth would be rising.
However,
this is not the case. The Federal Reserve reported in its latest Survey of
Consumer Finances (February 2006) that the median net worth of American
households rose by just 1.5 percent over the past three-year period of
2001-2004. To be fair, it should be pointed out that if 2005 data were
available for their analysis, the rate of growth most likely would have been
higher. In contrast, net wealth expanded 17.4 percent during the years
1995-1998 and by 10.3 percent from 1998-2001. The benefits of the expanding
national economy have not reached middle income Americans.
Given the
slowdown in real personal income growth, median household income, and
household net worth, it becomes more understandable as to why Americans are so
concerned about the health of the economy. The latest Wall Street Journal/NBC
News Poll shows that 77 percent of Americans are uneasy about the economy.
The rising cost of energy, the potential conflict with Iran, the ongoing
conflict in Iraq, the inability of the nation to secure its own borders, the
growing trade deficit, the record federal budget deficit, the looming problems
of Social Security and Medicare, and the threat of competition from overseas
have all contributed to a growing anxiety about the economy and the future
direction of our nation. |
