THE BLOG

Hard Times and Easy Money

05/25/2011 12:25 pm ET

Statistics are cold and distant. No blood pumps through their veins, stress never causes their hands to tremble and no tears ever form in the corners of their eyes. They are a cold calculus of the pains and joys experienced by millions of American fathers, mothers, sons, sisters, daughters and neighbors. Hard times are pounding in the door of America's depreciating economic house. Let's survey the landscape and keep in mind that behind every number below there are vast numbers of real people with real problems.

In just over a weak between January 22 and January 30, The Federal Reserve (Fed) cut both of the interest rates under their sway by 1.25%. This is easy money on steroids. Last week hosted about the most feverish rate cutting ever seen. In an emergency meeting on January 22 and again at a scheduled meeting a week later, the Fed made huge cuts in the cost of short term credit to and between banks. By the second cut, the markets were jaded, had successfully pressed a flustered Fed into action and were no longer impressed. Wednesday's 50basis points, half of one percentage point, cuts were unable to keep any major US stock index above water. The Dow, S&P500 and NASDAQ all fell. Not too long into the future this will be understood as a turning point in the present financial turmoil. Hard times economic data are in a struggle with easy money. The hard times are plastered all over American faces. A GDP growth forecast for the end of 2007 at .6% growth means pain. A nasty, negative 17,000 December payrolls number means pain. These are the many reasons why super cheap and super easy money failed to save the day.

About six hours before the Fed cut rates, the Bureau of Economic Analysis (BEA) released its advanced estimate of the economic growth for the fourth quarter of 2007.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.6 percent in the fourth quarter of 2007,according to advance estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 4.9 percent.

Needless to say, this is a hard times number. Everything in the report is advanced estimate and therefore, subject to large revision. Fourth quarter advanced estimate GDP was reported 88% below third quarter GDP growth. That is a major tumble and was not forecast. The consensus estimates of fourth quarter GDP growth were in the area of 1.2%. We expected a poor number, nowhere near that poor. GDP is not the only jarring news. The BEA released Personal Income and Outlays December 2007. There was much bad news in this data as well. However, to see how bad it actually is you need to read the full report and make a few calculations. Therefore, it has largely gone unnoticed! The headline growth in December personal income is a strong .5%. Behind that number lurks the fact that income growth rates largely fell across essential categories.

Private wage and salary disbursements increased $21.4 billion in December, compared with an increase of $34.5 billion in November. Goods-producing industries' payrolls decreased $1.4 billion, in contrast to an increase of $6.8 billion; manufacturing payrolls decreased $2.0 billion, in contrast to an increase of $2.5 billion. Services-producing industries' payrolls increased $22.8 billion, compared with an increase of $27.7 billion. Government wage and salary disbursements increased$3.7 billion, compared with an increase of $4.0 billion. BEA Personal Income and Outlays December 2007

Greater bad news lurks in the data on spending and price level. The Fed's preferred prices index- that excludes food and energy- rose by 2.2%. This is above the stated inflation comfort level and was enough to erase all gains in personal spending, PCE or Personal Consumption Expenditure.

Real PCE -- PCE adjusted to remove price changes -- decreased less than 0.1 percent in December, in contrast to an increase of 0.4 percent in November. Purchases of durable goods decreased 0.3 percent, compared with a decrease of less than 0.1 percent. Purchases of nondurable goods decreased 0.2 percent, in contrast to an increase of 0.4 percent. Purchases of services increased 0.1 percent, compared with an increase of 0.5 percent.

The economic data is uniformly bad. Overall economic growth (GDP) is rapidly slowing, wage growth is slowing, adjusted for inflation there is no personal spending growth and price growth remains high. Slashing interest rates promises to increase price pressures and will take months- if successful- to provide broad economic support. The employment picture news came on the morning of February 01, 2008. These numbers are for January 2008. The news is just plain awful. More hard luck recorded, more hard luck in the forecast.

In January, total nonfarm payroll employment was about unchanged (-17,000), after edging up in November (60,000) and December (82,000).... Construction employment decreased by 27,000 in January and has fallen by 284,000 since its peak in September 2006. Over-the-month job losses occurred in residential building (-10,000) and residential specialty trade contractors (-18,000).Manufacturing lost 28,000 jobs in January. Over the month, small declines occurred among many durable and nondurable goods industries. Manufacturing has lost 269,000jobs over the past 12 months.

The Fed pulled out all the stops. It was easy money to the rescue on January 22, 2008 and January 30, 2008. Economic weakness is in the driver's seat. Hard times have arrived for many. Don't let the numbers and the hype hide the real distress that the above numbers signal. None of this is to say that things cannot or will not improve. They will. The issue at hand is to address and admit that we are in a genuinely painful economic downswing and that millions of folks out there are experiencing distress. The numbers can't tell you that plain and clear. Make no mistake about it, hard times are what these numbers announce in their own cold, hard way.