If you would like an email sent to you when I update the blog please send an email with "subscribe" in the subject line to traderbob58@gmail.com. To be removed use "unsubscribe".

Search This Blog or Web

Tuesday, August 14, 2012

One difference in this recovery

Anybody watching the GDP data since 2009 knows that this has been a weak recovery.  I think these charts show why that is.  The first chart shows the recovery in manufactured goods.

The recovery in the manufacturing sector looks a lot like the last two recoveries did.  No problem there. Now take a peek at the chart for the service sector.

Whoa!  This recovery does not look anything like past recoveries.  With the services sector now making up about 70% of the economy it is no wonder things suck.  People need a certain amount of manufactured goods to live.  However, when it comes to services, that isn't so true.  There are many services we can live without.  Clearly Americans are cutting back.  Why are we cutting back and is it a short term phenomenon or not?  I have shown this chart before, but I am showing it again.  This is why we are cutting back and why it will continue long term.

We spent decades living beyond our means.  Borrowing and spending like the world was ending in 2012.
The financial crisis scared the &*%$ out of people and we now have switched to a spending less and saving more environment.  This is a seismic shift in people's attitudes and behavior.  This will be a constant drag on the economy which will only reinforce in people's minds the need to save.  I think people expecting that self sustaining recovery to start any day now will be sorely disappointed.

This country was built by hard working people saving and investing their money.  We switched to a borrow and spend society that has put us in a box.  There is no easy solution.  It is not mathematically possible to spend your way to prosperity.  I really do not understand why so many otherwise reasonably intelligent people cannot seem to grasp that concept.  We are going to have to make some hard choices in the years ahead and the longer we delay the worse it will get.  We have been in "recovery" for three years and the economy isn't any better.  If the credit bubble was going to re-inflate it would have done so by now.  Liquidity is not the problem or the solution.  It is time to admit what the problem is and stop digging the hole that we are in deeper.  That is what intelligent people would do, but I guess intelligence is not exactly a prerequisite for getting elected is it.


No comments:


The information in this blog is provided for educational purposes only and is not to be construed as investment advice.