The media bombards us daily
with the tribulations of Rosie O’Donnell, Anna Nicole
Smith, Don Imus, Alec Baldwin ad-infinitum. This doesn’t
even include the war on terror, nuclear proliferation, illegal
immigration, energy dependency, healthcare, social security
and global warming. Pass the aspirin please. However, traveling
under the radar of all this bad news has been a vibrant economy.
The economy actually entered a recession in the 3rd quarter
of 2000, and from its peak in early 2000, the stock market
sliced $8 trillion from American wealth. The Federal Reserve
had just completed six interest-rate hikes when they finally
reversed course in January 2001. Then we suffered through
the terrorist attacks on 9-11-01, the disaster created by
Katrina and the war on terror. A lesser people would have
caved in with all this weight.
Nevertheless, since 2002 we have witnessed one of the strongest
periods of economic growth in our history; a period that has
gone largely unnoticed. A few highlights bear witnessing:
- Real gross domestic product has soared $7.64 trillion
or 16.5% during a five year stretch averaging annual growth
of 3%.
- Disposable personal income (after taxes) has jumped $2.16
trillion or 29% to $9.65 trillion.
- Productivity has improved by 14.3%.
- Overall employee compensation has expanded 4% a year.
- Net wealth (the amount people have after paying off debts)
has swelled $15.2 trillion or 38% to $55.6 trillion.
- About 69% of Americans now own their own homes, an all
time high.
- The jobless rate at 4.5% remains below its 40 year average.
Since August 2003, 7.8 million new jobs have been created.
- Tax receipts have surged 43% or $757.6 billion.
- The Dow Jones Industrial Average is hitting daily new
all time highs having surpassed 13,000.
- Interest rates remain low by historical standards.
We are indebted to Investors Business Daily for this data.
And, according to the Wall Street Journal, federal tax receipts
for April were $10 billion above the same month in 2006, and
April 24 marked the single biggest day of tax collections
in US history at $48.7 billion. Treasury revenues for the
first seven months of fiscal 2007 are up 11.3% or $153 billion.
The Wall Street Journal further states, “Taxes paid
on so-called non-withheld income, which are dollars that don’t
come from normal wages and salaries, have climbed nearly 30%.
This is income largely derived from capital gains, dividends
and other investment sources – i.e., the tax rates that
President Bush cut in 2003. Individual income taxes are also
up by 17.5% - a handsome fiscal dividend from rising wages
and low unemployment.” As Joey from friends would say,
“What’s not to like?”
Well, the Fed met once again and for the seventh straight
meeting held interest rates steady. They once again indicated
that inflation remains their top concern but did note that
economic growth is slowing. Core inflation – minus food
and oil – rose 2.1% for the year ending in March, slightly
above the Fed’s target rate of 1% - 2%. On the other
hand, the economy grew at a rate of 1.3% in the first quarter,
the weakest in four years. There is no question that the slowdown
in the housing market has been a major factor in the weakened
economy. The sub-prime mortgage market hasn’t helped
either, and unfortunately the housing market cannot turn on
a dime, so we can expect further weakness to continue to hamper
the extended economic growth. However, we do not believe this
will lead to a recession, just a pause before the next continuation
of the current economic expansion. Some analysts are calling
for a rate reduction to ward off a potential recession, and
others want a rate increase to combat inflation. The Fed will
soon be forced to get off the fence and move one way or the
other. We are reminded of President Reagan’s comment
that competition, not interest rates, is the best weapon against
inflation.
Random thought for May 2007:
“A critic is a man who knows the way but can’t
drive the car.”
Kenneth Tynru (critic)
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