6.7 and why it may not be as bad as it seems

Just a few days ago, the number 6.7 was posted in many business news headlines and business journals. The reports are chock full of phrases like “lowest since 2008” and “why 6.7% is bad news.” It seems as though most of the media is communicating our need to be concerned over the latest hare-raising number released by the Bureau of Labor Statistics.

I’m one to be easily hyped and excitable, but these reports beg reasoning. Let’s start with why 6.7% seems to be a bad number for the United States economy.  In December the unemployment rate fell to 6.7% which is the lowest it has been since the fall of 2008. Not so bad, right?…..wrong. The key reason behind this number is that the labor force participation has fallen meaning that people have stopped looking for work. (You know, that ugly phrase “discouraged workers”) Other bad news is that only 74,000 jobs were created in the US as compared to the average of approximately 212,000. These factors are ones that have analysts and economists rolling their eyes and sighing.

But…before we get too engrossed in the negative aspects of this newly released statistic, I found it is important to step back and look at the big picture. Though this snapshot is not the most appealing, it’s exactly just that; a snapshot.  Instead of this 6.7 unemployment number being one to freak out about, it needs to be communicated that this may not be as dramatic as the business news makes it out to be and why this is so.

As stated before, it is crucial to shift our emphasis to the bigger picture. Combine the statistics for the year for a broader view and the economy is still at a healthy point. In fact, it’s better than it has been.  The United States economy is expected to have expanded as much as 3.5% in 2013 versus the previously estimated 2%.

Another positive, yet very debatable point about this statistic I believe is that it may slow the Federal Reserve’s tapering. The Fed has planned to reduce the amount invested in stimulus from $85 billion to $75 billion. The tapering for consumers may mean that interest rates on mortgages and students loans and whatnot will increase. The Fed’s continuation down the road of the taper process is data dependent. If the gloomy numbers continue to be released consistently, it may end or slow the tapering of the stimulus investment.

But tapering or not, I’ll have to side with Aesop on this one and agree that slow and steady wins the race. An important strategy is not to engross ourselves in the gloomy snapshots, but in the big picture. So I’ll choose to see this “hare”-raising statistic as another step (shaky, but still a step) on the road to recovery.

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4.1 in a nutshell…but is it all it’s cracked up to be?

squirrel eating peanuts

The number on the street before the weekend began was 4.1% and that’s a positive increase. The Bureau of Economic Analysis released the final revised real GDP number for the 3rd quarter. This number is supposed to wow us all especially since the last estimate for the third quarter real GDP was 3.6%.  Real Gross Domestic Product by definition is the monetary value of all finished goods and services produced within a country’s borders in a year. This number is then adjusted for inflation. Real GDP is arguably an indicator of the health of the economy of a nation and even said to be a gauge of a country’s standard of living. To obtain a better understanding, it can be broken down into the following oversimplified formula:

 GDP= C + G + I + NX

GDP is consumer spending + government spending + inventories + net exports

 But hold on a minute there.

Further analysis of this number may keep us from celebrating a fantastic outlook just yet. A couple fundamental questions must be asked first. One: What component of the real GDP formula contributed to this positive number? And two: Is this contribution sustainable? The major contributor to this number is inventories which added a whopping 1.7%. Private sector businesses boosted their inventories from July to September of this year (hopefully not because they couldn’t sell their products. heh).

Seems dandy but there’s a catch; inventories are a one-shot deal. If inventories were a big contributor for this quarter, it is highly likely this number will be low the next quarter. Already, analysts have decreased their estimates for the third quarter with this piece of information. Other important contributors were consumer spending on healthcare and business intellectual property. Personally, I’m a little concerned regarding the sustainability of these numbers (not to be a Debby downer).

I can’t dog on this number without some balance.On a positive note, the boost in consumer spending is a big plus to the US economy. Proof is in the steady stock market and housing numbers (see my last blog post).

It is true that 4.1%  is a good lead-in for a press conference as proof of economic recovery Mr. President, but with a little more analysis and critical thinking it might not be all it’s cracked up to be.

Housing starts, housing smarts

Number of the day: 22.7

What is it? That’s the percentage of the rise of housing starts in November. It is a number that is released by the United States Commerce Department around the seventeenth of each month and it’s a number that economists have their eye on. This number is one especially to draw attention to. This is the largest increase in housing starts since 2008.  (Remember the housing crisis? Bubble? Anyone?…)

But what is a housing start? A housing start is a new residential construction project that is began during the month. It includes building permits, housing starts, and housing completion data. These numbers are seasonally adjusted using statistical formulas because they can be affected by weather. That means how many neighbors were rudely awakened by hammering and pounding of the construction of the new house next door.housing starts

What is the meaning of this?!?!*

Data with knowledge of its implications becomes information which can then become a resource. I am a strong believer that when you know the world around you, you create for yourself a competitive advantage to take it on. (Knowledge is power.) My growing interest in these economic statistics pulls me to find meaning in numbers such as these. And yes, seemingly gibberish combinations of data and jargon that are released by the government have significance. These are numbers that are indicators of the state of the economy and are important tools to knowing your business.  Analysis of this percentage increase in housing starts indicates that demand for housing is growing despite the similar growth in mortgage rates. More people are choosing to build new houses during this time since five years.  The predictions made by organizations such as Bloomberg were nowhere near. Though this is only a snapshot, it could be a sign of a better outlook for the economy of 2014.

More neighbors rudely awakened but possibly a better economy to come.

*Punctuation added for dramatic effect