Proof the Incentive to Work Is Fading

U.S. Exports Plummet First Quarter 2014I keep hearing about the economy improving, but I keep asking, where? I ask because the facts continue to say otherwise.

The U.S. Bureau of Economic Analysis reports gross domestic product (GDP) came in at just 0.1% in the first quarter of 2014. To remind my readers, in the fourth quarter of 2013, U.S. GDP grew by 2.6%. (Source: U.S. Bureau of Economic Analysis, April 30, 2014.)

These GDP figures reaffirm what I have been saying for some time now: the U.S. economy is headed towards an economic slowdown, not growth.

All we need to do is look at our exports. Exports from the U.S. economy to the global economy collapsed in the first quarter of 2014, declining by 7.6%. That’s definitely not helping GDP.

The Baltic Dry Index (BDI), an indicator of how demand in the global economy looks, is in a sharp downtrend, as illustrated in the chart below.

Baltic Dry Index ChartChart courtesy of www.StockCharts.com

And consumer spending is facing headwinds. I can see this in the amount of inventory businesses are stockpiling. In the first quarter of this year, private business inventories rose by $87.4 billion after increasing by $111.7 billion in the fourth quarter of 2013. Businesses increasing inventories suggests customers are buying less, as each business’ inventory isn’t turning over; it’s stockpiling. GDP cannot grow without consumer spending.

Finally, last Friday, we heard the “good news” that the U.S. economy added 288,000 jobs in April—the biggest increase since January 2012. But the underemployment rate, which includes people who have given up looking for work and people who have part-time jobs but want full-time jobs, stands stubbornly above 12%.

Look closer at the data, and you’ll find the number of people actually in the workforce, known as the “participation rate,” fell to 62.8%—the lowest level since 1978. (Source: Economic news release, Bureau of Labor Statistics, May 2, 2014.) With the government supporting so many people these days via different programs, I see the incentive to work actually fading.

But have no fear, dear reader. The Federal Reserve will look at the unemployment numbers and cheer. It will continue to cut back on its money printing program. It will take the brake off historically low interest rates and slowly let them rise. Rising interest rates: just what the economy needs for GDP growth!