If you harken back to late 2005, all we heard were repeated stories about how businesses were expecting healthy increases in holiday Christmas spending (forget for a moment that media outlets are all owned by commercial conglomerates - ie, they have a financial interest in you going out to spend money...so everywhere is a sale, and the stores are running out of stuff - so go - NOW!).
Today we get the news that economic growth in the fourth quarter of '05 was a paltry 1.1%. By itself, this doesn't seem like a reason for alarm...perhaps a reason to cock your eyebrows and take notice, but there are several reasons to think that its a bump in the road, or not a true indicator of economic performance to come. An freak of nature, if you will.
After all, if we look back on the last quarter of 2005, while we did have Christmas shopping, we are talking about October through December. There was a pall over the country in October. Not only was the country mired in Iraq (unlike now, where it is, well, mired in Iraq), but the full effects of Hurricane Katrina were coming to light, Hurricane Rita was coming ashore in late September, threatening to devestate the oil and gas producing regions in Texas on the gulf coast near Galveston. Then in October, we got the amazing Hurricane Wilma, which ultimately broke all the rules about hurricane formation - not only was it the third category 5 storm of the year, but the pressure drop, both in terms of overall barometric pressure (882 mb) and the rate of decrease in pressure were unprecedented. It sat over the Yucatan for days dropping something like 60 inches of rain, and then made a bee line for florida, regaining to a category 3. So gas prices were through the roof. The mix of unstable oil/gas prices and anxiety over the continuing war in Iraq was not a good lead in for the holidays.
But, the government did call hearings, and like magic, oil and gas prices floated back down to earth. Plus, when considering the impact of the holidays, one has to remember that gift cards that are purchased today do not get factored in until they are actually spent. Ie, you don't get to count the revenue until you use the gift card, otherwise you'd probably count the revenue twice - once when you sold the card, and once when you sold the item.
So, maybe things weren't bad....maybe the 1.1% growth is an anomoly. Afterall, Bush will give his state of the union speech on tuesday, and my best guess is that he'll say the economy is good and the state of the union is strong.
Except, 4th quarter 2005 was not an anomoly.
Anyone who was out in the malls and stores knows that while christmas shopping was high, it wasn't nearly as high as in the past year. Some of this is internet related (shopping - not porn). In reality, though, the malls are ALWAYS packed. We went to Roosevelt Field near my mother's house on black friday (the day after thanksgiving), and it was busy, but it wasn't any busier than any other day...ie, it wasn't like its been on past thanksgiving weekends (we went to pick something up - not to christmas shop). I guess for this christmas shopping, as far as economics go, color me unimpressed.
But maybe it was, again, just a bad confluence of events.
When Katrina hit and gas soared over $3.00/gallon overnight (or during the day), people said that it would have a limited impact on the economy...maybe in the order of 1/2 a point. But its obvious that it had a greater impact. What separates 4Q '05 from other weak quarters is that we have entered the beginning stages of permanent "crisis." All of the crisis are low level, but if they impact you, they impact you. Cumulatively, we are looking at a net drag on the economy for the forseeable future. Maybe not recession - but definitely the days of good growth are gone for now.
First, oil didn't simply spike to $65+/barrel, ready to come down just as soon as we conserve. Oil is staying high in price, and a new reality is setting in. Plus, as we've seen, any crisis sets off the commodities markets. $100/barrel oil is not unrealistic by the end of this year, nor is $3.50 gas. IT will not take much to happen. China is a new player on the oil markets, soaking up the resources, and frankly, OPEC simply can't keep up with the demand, despite what they say. There are limited new supplies to come. We may be at Hubberts Peak right now, or even past it, but evidence suggests that we will not know for year. IF we've reached peak oil, we have a problem (people do not appreciate our dependence on oil - not just for cars, not just for heating, etc., but for plastics and the like - oil is the machine that runs our society).
Second, Katrina wasn't an anomoly. Oh, Katrina itself may have been a once-per-hundred-year storm, in that a storm hit New Orleans just right (although weakened from cat 5, it brought a record cat 5 storm surge), but this country is now on a path of man-made disaster, mixed with natural disaster. Medicare Part D is the first of many problems we will face. Think about it - we are spending hundreds of billions of dollars, for a program that doesn't work. Medicare itself is a good program. But the Part D add on comes across as if it was designed to show people that government can't work, by giving the people a poorly thought out program. Insurance companies make money, and drug companies make money. Big money. And we are paying twice. First, for the inadequate coverage, from the government or individual's pockets/taxes, and second, for overinflated drugs through loopholes like the donut hole provisions. Social Security reform, if the Dems give in, will have the same impact. Our environmental disregard will have the same impacts. Bush is touting HSAs - as if the problem for the 45 million uninsured americans is that they are actually overinsured...will have the same impacts. Bankruptcy reform will have the same impact.
In other words, be it natural or man made, our country will continue to lurch from problem to problem, while stuck in the Iraq quagmire, with very high oil prices.
The 4th quarter was no anomoly. It was a harbinger.
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