We keep hearing that the economy is improving and about the statistics to back up the claim. Personal incomes rose, but unemployment held steady. Consumer spending increased, but not as much as expected. The economy grew at an impressive 5.7 percent in the last quarter of 2009, but most economists expect the overall growth for 2010 to stay under 3 percent. What does all this mean?
Maybe our data driven world puts us on the road to less understanding instead of a better grasp of the world around us. Time magazine made that point in a recent column that the month of January offered no less than 92 pieces of economic data to be mulled, mused and manipulated. However, there is usually a story behind the data, a reason for each and every number that can change the impact of the data.
Take unemployment for example. The national unemployment rate is holding steady at 10 percent. Yet, the unemployment rate in New York City is 10.4 percent and the unemployment rate in Austin, Texas is 6.9 percent. One would think that New York City with all its wealthy bankers and big companies would have a lower unemployment rate, however NYC has a much higher poverty rate than other cities. The 10.4 percent reflects just New York City, not the metropolitan area.
A recent New York Times piece pointed out the correlation between the unemployment rate and the number of college graduates in an area. The national unemployment rate for high school dropouts is 15.3 percent, while the rate for college graduates is 5 percent. The highest unemployment in the country is in the California border town of El Centro at 27.7 percent, with few employers and no universities nearby.
Who do they usually feature on the evening news having a tough time finding a job? Not the family who is barely existing below the poverty level, but rather the college graduate who got laid off from an executive level position. This recession has certainly hit families of every socioeconomic background, but there are far less former executives looking for jobs than there are former factory workers.
Jobless claims are up, spending remains anemic and housing seems unpredictable. The numbers can be mind-numbing. Labor productivity is up while labor costs are down. A survey from the National Association for Business Economics shows a moderate expectation for growth in 2010. Of the companies surveyed, 28 percent expect to cut payrolls, but 29 percent expect to hire in the next six months (Associated Press). So does one cancel out the other?
The reason the evening news features the out-of-work executive and not the factory worker is that the executive spends more on food, clothing and housing than the factory worker. And spending is what it’s all about. Spending accounts for about 70 percent of Gross Domestic Product (GDP), so if there is not spending there is not growth in the GDP. Unfortunately not all jobs, and not all data, are created equally and the 10 percent unemployment statistic doesn’t even begin to tell the whole story.