Wednesday, July 31, 2013

Is the Wisconsin economy taking off and the U.S. flatlining?

A couple of reports out this week may lead some to think that the trends of the last two years are starting to turn around. In the U.S.'s case, the recent GDP numbers indicate that the recovery from the Great Recession may be slowing down in its 4th year, while in Wisconsin's case, a couple of reports showed signs of life ahead for the first time since the bomb was dropped in March 2011. Are these signs signal, or noise? We'll take a look here.

Let's first talk about the GDP reports, which came out today showing 2nd Quarter growth at 1.7%, but also with a boatload of revisions going back to 1929 (!) due to some new criteria being considered. These revisions don't change the overall picture too much, but it did reduce 1st Quarter growth from 1.5% to 1.1%, and it did modify the historical numbers a bit as well. What we now know is that growth was actually stronger in 2010 than first thought, and after a breather in 2011, there were strong year-over-year gains for 2012. However, it's been starting to stall out in 2013, and year-over-year GDP growth is now at its lowest levels since the end of 2009, under 1-and-a-half percent.

As has been the case over the last 3 years, government cutbacks have reduced overall economic growth. Since the middle of 2010, government cutbacks have taken $200 billion out of real GDP (2009 dollars), and while year-over-year private sector growth is also slowing a bit and also at their lowest levels since 2009, it still remains above 2%. In fact, private sector GDP is now $1.5 trillion above the depths of the recession in 2009's dollars.

So while we need to keep ourselves aware of this economic slowdown leading to stalling and falling, I wouldn't press the panic button quite yet. The job market seems to continue to grow, as evidenced by ADP estimating another 200,000 private sector jobs for the month of July, and the U.S. continues to see year-over-year drops in unemployment claims in the neighborhood of 10% for most weeks. The most recent unemployment claims report shows seasonally-adjusted claims at their lowest levels in several years, with the 4-week average dropping down toward 340,000.

Wisconsin also has been seeing some recent drops in unemployment claims compared to recent years, which as the purple line in this chart shows, is a notable difference from the increases we were seeing at the start of this year. (UPDATE: includes the most recent release as of August 1)

This recent change, along with higher-than-normal seasonal hiring, helps to explain the strong jobs numbers we saw in June (which I broke down here). If this drop in unemployment claims is a signal, we should see another month of job growth for the July numbers (although we don't see jobs added, so it's hard to make too definitive of a judgment). And it wasn't the only piece of good economic news that Wisconsin got this week, as the Philly Fed reversed the poor outlook it gave the state earlier in the year, and now says Wisconsin is poised to have the 2nd-best growth in the U.S. between June and the end of the year.

Not surprisingly, Governor Walker jumped on that report to give an "It's working" press release, and I suppose he can have his day, because we sure ripped the hell out of him when that same survey had Wisconsin's outlook among the worst in the nation a few months ago. Of course what's not mentioned is how much of a hole the state is due to the horrible economic record it's had in the first 2 1/2 years of the Age of Fitzwalkerstan, and as you'll see here. Right now, Wisconsin still remains in the cellar in the Midwest for growth since Walker took office in January 2011.

So even if we assume Wisconsin gets the 6% annualized increase in growth for the rest of the year that the Philly Fed projected, we'd STILL BE BELOW THE US RATE for those 3 years. Also worth noting, the collapse the Philly Fed predicts will happen in newly right-to-work Michigan.

Given that August and September should feature a large reduction in seasonal jobs that caused the big June increases in work, I think I'll cast off June's Philly Fed as noise that should be monitored, and not fool myself into thinking anything's turning around long-term in Wisconsin.

But just because I don't see a long-term change yet doesn't mean that the national and state economic indicators aren't telling a slightly different story than they were a couple of months ago. This makes the next couple of months may be more critical than your typical end-of-Summer information.

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