Despite Tom Keene's best efforts to appear fair-and-balanced, this brief interview on Bloomberg TV places ECRI's Lakshman Achuthan in the uncomfortable position of destroying every propagandized 'fact' that the mainstream media is entrusted with disseminating to the Pavlovian investing community. From recessions with job growth ("we believe a US recession began in 2012") to the wealth divide and from GDP revisions to job quality differentials, Achuthan warns the US is becoming Japan, "U.S. growth over the last five years is weaker than Japan during the Lost Decades." Keene's insistence that things are on-the-up (though admitting that Achuthan's call on the decline in growth was correct) is met with the rhetorical question, "you wouldn't have four years of zero-interest rate policy and quantitative easing if everything was okay."
At 1:05, Achuthan stuns the Bloomberg anchors - "We believe that a recession began last year. Time will tell if that call is correct."
To which they retort...
"The jobs situation is great"
[LA] ...the job market is not doing well, all headlines aside. When you – I think the core thing here, and something that concerns us quite a bit, is the types of jobs that make money. So if you happen to be between the age of 35 and 54, since this so-called jobs recovery began three-and-a-half years ago, you’ve actually seen job losses, not gains, okay?
Job losses for 35 to 54 year-olds approaching a million jobs lost. Now that happens to be, that 20-year span of your life, happens to be where you make the most money, and where you spend the most money. And so I think that is at the core of why, when you say, “Hey, jobs are great,” people say, “Eh, you know, it doesn't feel that way.” And they're right.
"Who is doing well?"
[LA] Madison Avenue is not the country. It's not the world we live in, actually. It's kind of a little bit of a bubble, and as is some of the luxury items, to tell you the truth, right? If you are doing well, financially generally, then in the recent economy, you’ve been doing very well because you’ve seen real estate prices recover sharply, and you’ve seen the stock market recover sharply. To switch gears here, it's good – If you're around Wall Street, you're probably close to the helicopters which are spewing out cash. And that's a pretty good thing.
"But most people are not near Wall Street"
[LA] Most people are near Main Street. And that is why there is all this kind of disconnect. The President is doing what he’s doing. The policymakers are saying – The conservatives are saying, “Hey, there’s too much regulation and too much taxing.” The liberals are saying, “Let’s do some more Keynesian stimulus and other things.”
And I think everybody’s missing what’s going on, which is that growth is not there. Growth has been downshifting since before the Great Recession. And it's not only happening in the U.S.
And that's ailing the aggregate economy.
"but again, jobs are improving?"
[LA] First off, all you have now are preliminary numbers... All that gets revised massively, that defines where the economy is. And secondarily, you cannot get away from the fact that 35 to 54 year olds have lost almost a million jobs since this jobs recovery began. That's where you make your money. You don’t make your money as a kid. And you don’t make your money when you're about to retire.
"but The Fed sees growth..."
[LA] Of course. They would like you to believe that everything’s okay, and things are relatively under control, except their actions suggest otherwise, right?
I’ve never heard a Fed Chairman call a recession. They’ve always said there isn’t one. And then they’ve said, “if you don’t do” – or, “If I didn't do what I was doing, there would be one,” when there is, in fact, one going on, if you look at the history.
But I just want to say plainly that you wouldn't have four years of zero-interest rate policy and quantitative easing and Q-ternity if everything was okay.
"Short-term GDP growth might be weak but growth is around the corner"
[LA] ...tomorrow, you're going to get a revision, and a preliminary number for the latest quarter and then a revision to the history. And when you do that, and when you see that, I want you to understand that GDP, following recessions, gets revised. It gets revised much more than you think...
It gets revised – On the last few recessions - Two to four percentage point revision, almost always downward, following the last few recessions. And you're sitting here applauding about a 1% growth
In the first six months you get about 10% of the revision. There are subsequent revisions to come. So tomorrow is not [the end]
"but how can we be in recession if we are creating jobs?"
[LA] ...you have had recessions where you’ve had positive job growth for eight or so months...
In the ’73 – ’75 recession, which was a severe global recession, you had positive jobs growth. Now, to your point, there are also revisions to the jobs data. Geoffrey Moore was Commissioner of BLS at one time, and knows that the information that is used to define recession: output, employment, income and sales – Those things all get revised massively.
Before Lehman, if you look back, those jobs data, on average, are revised down 140,000 per month. And you're sitting here, rightly reporting that we’re hoping for 150,000 to 180,000. I'm suggesting that that is well within the range of the revisions that you need to go negative. And on top of that, now, anyone who’s in the moment of their life when they're supposed to make money, is not making money. They’ve lost almost a million jobs, 35 to 54.
I think Main Street agrees with us.
[LA] ...This is an inconvenient thing I'm saying here, that there is no growth, and it's going the other way. Now if you're the Fed, and you're the only game in town, you're at zero interest rates, and you're trying the wealth effect, you have to say it's working, and you have to say, “Now I can taper.” If you're a politician maker, you say, “You should use my policy.”
But what’s happening is growth has been declining since before the last recession. And it's not only happening here.
Five years ago, the summer before the Lehman collapse, ECRI’s research found that U.S. economic growth had been stair-stepping down in successive economic expansions, going back to the 1970s. So, even before the Global Financial Crisis (GFC) and deleveraging concerns came to the fore, we predicted a feeble economic expansion to follow the then-ongoing recession.
We extended our research to other major developed economies, most of which exhibited similar patterns of slowing trend growth. Driven by deep structural changes, these patterns were likely to result in low trend growth for many years to come – with or without the deleveraging that followed the GFC.
In the chart, the rear row of green bars depicts average GDP growth in each economy from 1980 to the beginning of the 21st century (for Japan the green bar shows average GDP growth from 1980 to 1992, which saw the first recession of its “lost decades”).
Japan’s entry into its lost decades (1992 to present, red bar), and the other developed economies’ entry into the 21st century (yellow bars), saw major downshifts in growth.
Notably, the U.S. and other major developed economies have experience slower growth in the last five years (blue bars, front row) than Japan experienced in its lost decades (red bar). Chinese GDP growth has also declined.
The bottom line: around the world, long-term trends in growth have downshifted, already resulting in weaker recoveries and more frequent recessions than most had expected when the 21st century began. The response, following Japan’s example, has been more and more quantitative easing, which has been unable to break this pattern of long-term declines in trend growth.
But to those betting on a return to much stronger trend growth, either after the end of deleveraging or after policy changes, it is simply not convenient to recognize that the downshifts in growth are global in nature, and predated both the GFC and supposed policy mistakes.
Source: ECRI and Bloomberg TV