I do not believe! (K. S. Stanislavsky)

January 20-26, 2024

Big news. The big news is data on US GDP in the fourth quarter, +3.3%. This, of course, is lower than the results of the third quarter (under 5%), but still very much. US Treasury Secretary Janet Yellen is delighted: “Despite the predictions of many forecasters, there is no recession in 2023. Instead, inflation fell significantly and we maintained a healthy labor market. The unemployment rate is near historic lows. And we had the fastest—and fairest—recovery ever.”

United States GDP Annual Growth Rate
Рис. 1

And here we allow ourselves to exclaim, like Stanislavsky: “I don’t believe it!” We will discuss the details in the last section of the review (based on the analysis of Pavel Ryabov), but for now we will note a few points. The US budget deficit is several trillion dollars and growing rapidly. The official US GDP is about 22 trillion dollars, the real one is about 15 trillion. But even if 22.1 trillion. The deficit is approximately 5% of GDP. GDP growth in reality is an accounting technology for converting emission dollars into formal added value, especially considering that the real sector is not growing at all.

Unemployment is at a fairly high level (we simply won’t believe Yellen here, since there is a lot of data on unemployment and you can always choose positive ones from among them):

United States U-6 Unemployment Rate
Рис. 2

In December, the number of initial unemployment claims increased sharply:

United States Initial Jobless Claims
Рис. 3

The average length of the working week has fallen to levels not seen since the Covid quarantine:

United States Kansas Fed Composite Index
Рис. 4

There’s really nothing to comment on here; against the backdrop of economic growth, the length of the working week cannot fall! And in the fourth quarter of 2023 it was the lowest for several post-quarantine years!

Macroeconomics. The balance of industrial orders in Britain is -30, the 18th monthly minus in a row:

United Kingdom CBI Industrial Trends Orders
Рис. 5

The business climate in Germany (IFO survey) is the weakest since 2009, not counting the Covid disaster:

Germany Ifo Business Climate Index
Рис. 6

The Richmond Fed regional index is the worst for the year, only 1 point from the bottom since 2009 (excluding Covid):

United States Richmond Fed Manufacturing Index
Рис. 7

The Kansas Fed index has been in minus or zero for 16 months in a row, an anti-record for 24 years of observation:

United States Kansas Fed Composite Index
Рис. 8

US leading indicators -0.1% per month, 21st minus in a row:

United States Leading Index MoM
Рис. 9

In Japan, the same figure is minimal since 2020:

Japan Leading Economic Index
Рис. 10

Eurozone household loans +0.3% per year, 9-year low, very close and record lows:

Euro Area Household Credit Growth
Рис. 11

The retail balance in Britain is -50, just below the Covid bottom; before that, such numbers were only in 2009:

United Kingdom CBI Distributive Trades
Рис. 12

German consumers are most pessimistic in a year,

Germany GfK Consumer Climate
Рис. 13

The Turkish Central Bank raised the rate by another 2.5% to 45.0%

The Central Bank of Japan left its monetary policy unchanged. Like the Central Bank of Canada, where the rate is the highest in 22 years.
The remaining percentage in the eurozone has the same maximum as

The Central Bank of South Africa also did not change anything.

The Central Bank of China did the same. But its head promised to reduce the reserve requirement for banks by 0.5% in early February.

Main conclusions. The structural crisis continues. Throughout the global economy. In full accordance with the theory. And there is only one question: how to interpret the colossal economic growth in the United States? We gave a partial answer already in the first section, but it would be nice to figure out how this happened?

There are several reasons for this. The first is a significant and systemic understatement of inflation throughout the American economy. But especially in the very technology sector that is showing growth (see below).

The second is the constant stimulation of private demand, which forms the majority of GDP. And here we are talking not only about direct subsidies from the budget, due to the reduction of savings and lending to households. The budget creates a colossal amount of demand and subsidies (for example, in the medical and agricultural sectors) and this money, one way or another, participates in circulation and creates added value.

It is impossible to maintain the current rate of growth of the budget deficit for a long time (we have already written that the current model of stimulating the American economy is very reminiscent of the Russian one in 1996-98), so everything is clear here. Moreover, the end point (I don’t want to use the foreign term “deadline”) is clear to everyone – this is the beginning of November 2024.

And the third one. The US economy is increasingly financial in nature. And, as a result, financial indicators were, in fact, equal to real ones. Maybe, in part, this makes sense. But certainly not in the version that we see today, when against the backdrop of a decline in the real sector, only financial indicators (including the financial departments of enterprises in the real sector) are growing. So the positive picture that makes “Grandma Yellen” so happy most likely does not accurately convey the real picture of the world.

Below we will give an analysis of Pavel Ryabov. We will not comment on it, since we constantly interact with Pavel Ryabov and understand for sure that his picture of the world is not fundamentally different from ours. But he analyzes official figures, which, in a situation of such strong contradictions in the picture of the world, is extremely useful.

Рис. 14
Рис. 15
Рис. 16

“Is inflation defeated in the US?

One of the reasons for the strong US GDP report is the muted GDP deflator, whose growth rate has slowed by 4 times from 2021-2022, returning to the 2010-2019 norm.

The GDP deflator (price index for the components included in the calculation of GDP) is a key macroeconomic indicator, because through it, nominal GDP is converted into real GDP.

What do official US macroeconomic statistics tell us? The problem of inflation has practically disappeared.

•  In 2023, the average quarterly increase in inflation for the entire economic deflator was 0.65%, while in 4Q23 price growth slowed to 0.37% q/q, taking into account seasonal smoothing (SA). It’s a return to normal.

•  During the period of the “rocking” inflation storm from 1Q21 to 3Q22 (7 quarters), the average quarterly price increase was 1.62% (over 6.5% in annual terms), while the long-term inflation trend of 2010-2019 (exactly 10 years) was 0.41% average quarterly increase (closer to 1.7% per annum).

•  The main contribution to the slowdown in inflation in 4Q23 was made by goods, prices for which decreased by 0.48% q/q, for 2023 on average about zero, the long-term trend is also about zero, and in 2021-2022 prices grew by 1.63% per quarter.

•  Services are now the only component that stands out from the norm – 0.86% in 4Q23, about 1% in 2023, the long-term norm is 0.55%, and in 2021-2022 prices grew by 1.26% on average per quarter.

•  Investments slightly accelerated the growth rate – 0.65% in 4Q23, for the entire 2023 – 0.46%, in 2010-2019 it was 0.23%, and in 2021-2022 almost 1.6%.

•  Foreign trade prices are quite volatile, so I will give the average figures in 2023 – for exports, deflation of 0.18% vs inflation of 0.2% in 2010-2019 and a record price increase in 2021-2022 – 2.8%, and for imports – deflation of 0.32% vs near-zero change in 2010-2019 and inflation at 2% in 2021-2022.

•  Government consumption is growing by 0.48% in 4Q23, the same for the whole of 2023 and comparable to 2010-2019, in 2021-2022 prices grew by 1.7%.

Accordingly, the problem is concentrated only in the service sector due to housing.”

We will only note that housing is precisely the real sector.

Рис. 17

“U.S. GDP estimates must take into account about a $2 trillion budget deficit, so it would be inappropriate to talk about “phenomenal sustainability.”

To be fair, the budget deficit is absorbed to the greatest extent not by personal consumption as it was in 2021-2022 through “helicopter money” and comprehensive stimulus to households, but mainly by interest payments, bank bailouts, defense and pensions.

The possibility of underestimation of inflation must be taken into account.

Nevertheless, the result is impressive, given the context of the situation – the COVID crisis of 2020, the worst inflation crisis in 40 years in 2021-2022, the debt crisis in 2022, which did not continue in 2023, the extreme increase in the cost of debt servicing from 2023.

Despite all this, over the year (4Q23 to 4Q22), US GDP growth was 3.1%, over two years – 3.8%, and from pre-Covid 4Q19, GDP grew by 8.2%, which corresponds to the historical 10-year trend of 2010-2019.

Рис. 18

Household consumption grew by 2.6% y/y, plus 3.8% over two years and plus 10.5% over 4 years, which is even slightly ahead of the 2010-2019 trend.

Investments are a little worse, with an increase of 1.8% for the year, a decrease of 0.6% over two years and an increase of 9.5% since 4Q19.

The share of consumption remains stable at about 69%, which is 1.5 percentage points higher than in 2017-2019, and the share of investment in GDP is 18% – unchanged from pre-Covid times, the same is true for government consumption.

The shift in the structure of GDP since 2020 has occurred in favor of consumer demand, while simultaneously worsening the trade balance. As can be seen from the graphs, consumer demand is abnormally strong.

According to official statistics, there is no sign of a crisis. Usually investments are the first to respond to worsening conditions, but even here everything is stable.”

We will add: it is not surprising, given that investments are mainly in the financial sector and at the expense of emission money. But we will also add that it is incredibly difficult to analyze the current situation, since nothing like this happened in the past (as, for example, in the case of structural crises that occurred in both the USA and the USSR/Russia). With what and how to compare? One can only proceed from internal contradictions (partially given in the first section of the Review) and from the logic of the economic theory of PEC crises (see M. Khazin “Memories of the Future. Ideas of Modern Economics”).

If we were just starting our work on analyzing the economy, we would be very afraid to make such harsh conclusions, including in relation to official statistics, that we do. But we have a quarter of a century of hard work behind us to create and verify the economic theory of the crises of capitalism. So we are confident that we are right and that our readers can trust us. And, accordingly, calmly relax on the weekend and look confidently into the future


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