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Wednesday, June 8, 2011

The Economy Is Worse Than You Think

We’re walking on egg shells, we’re on the precipice, we’re one event from economic disaster…

Take food prices for example, we started turning corn into fuel instead of food causing the price of corn to spike, we ran the food growers out of business in California because of a fish causing the price of produce to spike, farmers were instructed to plow their crops under in Europe because of the E.coli outbreak causing the price of food to spike…

Expect more bad news until someone enacts a plan to bring deficits under control without raising taxes.

By MARTIN FELDSTEIN

The policies of the Obama administration have led to the weak condition of the American economy. Growth during the coming year will be subpar at best, leaving high or rising levels of unemployment and underemployment.

The drop in GDP growth to just 1.8% in the first quarter of 2011, from 3.1% in the final quarter of last year, understates the extent of the decline. Two-thirds of that 1.8% went into business inventories rather than sales to consumers or other final buyers. This means that final sales growth was at an annual rate of just 0.6% and the actual quarterly increase was just 0.15%—dangerously close to no rise at all. A sustained expansion cannot be built on inventory investment. It takes final sales to induce businesses to hire and to invest.

The picture is even gloomier if we look in more detail. Estimates of monthly GDP indicate that the only growth in the first quarter of 2011 was from February to March. After a temporary rise in March, the economy began sliding again in April, with declines in real wages, in durable-goods orders and manufacturing production, in existing home sales, and in real per-capita disposable incomes. It is not surprising that the index of leading indicators fell in April, only the second decline since it began to rise in the spring of 2009.

Chad Crowe

feldstein

The data for May are beginning to arrive and are even worse than April's. They are marked by a collapse in payroll-employment gains; a higher unemployment rate; manufacturers' reports of slower orders and production; weak chain-store sales; and a sharp drop in consumer confidence.

How has the Obama administration contributed to this failure to achieve a robust and sustainable recovery? Continue:

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