Unhappy US Economic Numbers

There are a number of disturbing trends that can be discerned, if one has the time, from rummaging through the data coming out of the Bureau of Economic Analysis. One is that out of the $89.4 billion growth in national income from the second quarter of this year to the third, $12.8 billion was growth of "subsidies". That does not refer to "cash for clunkers" and so forth, but money heading from the taxpayer into government enterprises (our guess mostly Fannie Mae and Freddie Mac - but really, who knows?). How that can be construed as income is bizarre enough, but it's not good news that 1/7 of third quarter growth comes from something so fishy.

But such accounting shenanigans could be dismissed as mere noise compared to some really big numbers - such as the jump in the profits of our corporate masters: $110.4 billion dollars. One might astutely note that this is actually more than the increase in national income, $21 billion more as a matter of fact. Or putting the whole matter another way, all (and then some) of the much touted 'recovery' is growth of corporate profits, and the rest of us will just have to make do with the scraps.

But the really bad news is something hidden (in the sense that it is not presented by itself - but has to be derived from two data sets) and insidious: the approaching excess of consumption of fixed private capital ($1525.5 billion) over fixed private investment ($1,712.6 billion). We say "approaching" because obviously the latter figure is larger than the former, but it has been falling at a rate of 21% over the year ending September 30 (and without a third quarter "recovery") and 4% the year before that.

Between bank lending contracting, the real estate market collapsing, and corporations being inclined to invest their winnings overseas, there isn't much prospect for anything other than continued decline in fixed private investment. We really can't say if the rate is going to accelerate or moderate but even if it continues at, say, a moderated 10%, the cross over would likely come in late 2010.

What this means in plain English is that at some point in the near future, the economy will reach a state where consumption of capital exceeds its formation, and there will be no prospect of any kind of economic growth ever, until growth in private investment materialises. It could be a long wait.