On Friday, President Obama remarked that “the private sector is doing fine,” especially relative to state and local government employment. Partisan opponents got so excited about this “gaffe” that they forgot to show contrary data.
Marketwatch put together a few charts, some of which actually supported the President’s view, and some, like this one, which supposedly paint a more tepid picture.
But notice that this is a chart of year over year profit growth. Second-derivative divination does not make for the best arguments, especially when the complaint here is that the rate at which profits are growing is not increasing. Companies are profitable, and their profits are growing. The fact that the rate at which those profits grow is slowing is only a germane criticism against someone who thinks that we’re in the midst of a mind-blowing economic boom.
Joe Weisenthal took us on a much better tour of the data, showing that profits, investment, and hiring are all chugging higher. Additionally, the data from state and local governments support the thesis that the anti-growth policies of fiscal hawks are a continuing drag on the economy.
In response, Josh Brown argues that all the strong economic data doesn’t count because it’s just reflecting the good fortunes of a few huge corporations:
[B]usiness spending and profits are both heading in the right direction and some of these metrics are nearing record highs – but what they don’t understand is that this is all skewed by a relatively small number of companies (the megalithic multi-nationals). If you talk to a broad swathe of small and mid-sized business owners as I do, you know that they are categorically not hiring (outside of technology and energy) and you also know that they are scared to death about healthcare and tax issues, still. They are not doing anything regardless of what the largest corporations do.
This is a really popular bit of conventional wisdom right now, but I don’t see what the evidence is for it. The facts actually go in the other direction.
First, look at the employment picture. Here’s payroll employment for companies with 1-49 employees (green) and 50-499 employees (red) vs. the total NFP number (blue), indexed to the end of the recession.
If small businesses were putting the brakes on hiring, we would expect to see that green line trailing far below the total NFP. Instead, we see the exact opposite: small business hiring is rising, and rising faster. Employment is looking better for medium-sized companies, too.
Second, those record corporate profits aren’t just accruing to multinationals. Earnings for small businesses are rocketing higher.
Source: National Federation of Independent Business
As the NFIB survey commentary notes: “The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months gained another 3 points to 4 percent, this after a surprising 8 point gain in March. This is the best reading since April 2007 and equal to the average 4 percent reading in 2006.” Improved sales translated into better earnings: “Reports of positive earnings trends improved a stunning 11 points to a negative 12 percent in April, the best reading since April 2007.”
Finally, the biggest challenge facing small businesses is still the lack of demand. Not taxes, or regulation, or Solyndra, or birth certificates. Who says? The job-creating, apple-pie-eating, perfect-jawline-having, indefatigable small business owners themselves, that’s who:
Source: American Sustainable Business Council; Main Street Alliance; Small Business Majority
Every time I’ve seen this poll since 2008, it’s been the same story: insufficient aggregate demand trumps everything else.
As Karl Smith and other sober economists have been saying for some time, we are actually in a stable, slow-growth environment. If you exclude exogenous problems like Germany’s creeping neocolonialist project in Europe or the self-destructive and entirely voluntary fiscal crisis that budget hawks in Congress are imposing on the country – in other words, if you actually look at the private sector of the U.S. economy on its own – it’s actually doing fine. Not great; not dawn-of-a-new-age fantastic; but not poorly, either.
As for those exogenous threats: I wonder whether it is a coincidence that the core constituents of the German CDU and the U.S. GOP are the same, namely, creditors.