Submitted by Charles Hugh Smith from Of Two Minds [5]
If This Is Such a Strong Economy, Why Does This Chart Look Recessionary?
Is the U.S. really a post-oil economy?
One way to gauge the real economy is to look at charts of the GDP, wages, household debt and the price of oil; another way is to correlate all of these on one chart. The following chart (courtesy of frequent contributor B.C.) plots these four metrics thusly: GDP/(wages/household debt)/price of oil.
What pops out of the chart is what happens when oil spikes higher or declines. In 1973, the first oil shock sent the economy off a cliff. Conversely, when oil fell to $12/barrel in the late 1990s while wages were rising strongly, the plotline peaked, reflecting a strong economy.
In 2008, oil spiked to $140/barrel in 2008, household debt reached record heights and wages began stagnating, and the economy fell into a sharp recession. When oil plummeted back to $40/barrel in early 2009, the plotline spiked up.
When oil prices and household debt are high while wages stagnate or decline, the economy sinks to recessionary levels.
[6]
Here are B.C.'s observations:
This chart utterly discredits the economics profession and those who claim that the post-industrial economy ("deindustrialization" and "financialization") is not oil-constrained and the service economy is what the rest of the world should adopt as the normative standard at $100+/barrel oil.
The current plotline is hovering just above the recessionary levels of late 2008. Does this reflect a strong economy, or one that is weak? If oil keeps climbing, what will that do to a visibly weak economy?
The Bulls are convinced that the U.S. has decoupled from the rest of the world and from the price of oil. This chart makes the opposite case: the price of oil matters, especially when wages are declining and household debt is elevated.