The US today is facing a serious issue of staglation.
Stagflation is an economic term for a weak economy with higher than usual inflation. This is what crippled the 1970s. And it looks like we might be in for another similar period.
Let’s first consider the economic weakness, the “stag” in the stagflation term.
The US economy is weaker than most know, largely because the official economic data is massaged to make things look better than they really are.
How do you massage economic data?
Let’s take jobs for instance.
According to the “official numbers” the US economy added 113,000 jobs in January and another 175,000 in February. So, one could argue the US has added nearly 300,000 new jobs to its economy in the first two months of 2014.
The problem with this is that other metrics negate this alleged growth. The Wall Street Journal notes that the average hours worked in the US economy FELL by 3/10ths of an hour in the last six months.
When you account for this, you will find that in actual terms, the US has effectively LOST the equivalent of 100,000 jobs since September 2013.
Put another way, the US seems to be adding jobs to its economy, but given that on average workers are working less, the economic output in the US has been that of LOSING 100,000 jobs in the last six months.
One can find other similar issues with the US’s GDP numbers, alleged manufacturing renaissance and other key economic metrics. And all of these issues point to our economy being WEAKER than the headline numbers claim.
Indeed, perhaps the most glaring issues in our GDP numbers relates the CPI or Consumer Price Index, which measures the official inflation numbers in the US (the “flation” portion of stagflation).
The official CPI measure for the US claims that inflation has risen 1.6% in the last 12 months.
This is rather extraordinary given that food, energy, housing, and just about every other item consumers need has risen in price significantly more than this Indeed, if you remove the accounting hocus pocus from the “official” inflation measures, you’d find that inflation today is over 5%.
So we have an economy that is weaker than the headline numbers claim with inflation that is higher than the headline numbers claim.
That is STAGFLATION. And given that the Fed is behind the curve on it, it’s only going to get worse before it gets better.
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