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Sunday, June 29, 2014

Economic decline worst in 5 years

Tony Paradiso

Really? The government just can’t resist poking into the past, as long as political careers are not in danger of being jeopardized.

I warned them to leave well enough alone, but nooooo. They had to take one more bite of the first-quarter GDP apple. And the latest reading is almost three times worse that the last. ...

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Really? The government just can’t resist poking into the past, as long as political careers are not in danger of being jeopardized.

I warned them to leave well enough alone, but nooooo. They had to take one more bite of the first-quarter GDP apple. And the latest reading is almost three times worse that the last.

Estimates for the quarter started at a modest growth of 1 percent. In the second go-round, 1 percent growth turned into a 1 percent contraction. And the third time wasn’t the charm. We are now told that the first quarter was the worst single-quarter economic decline in the last five years. The economic contraction of 2.9 percent was also the largest nonrecession-related drop since the end of World War II.

Please, no more looking back. The next revision will probably reveal that – in retrospect – the entire global financial system collapsed.

The reason for the precipitous drop: the Affordable Care Act. It turns out that it really is affordable. Health care spending came in well below what was expected based on ACA enrollments and Medicaid data. Overall, spending on health care declined at an annualized pace of 1.4 percent for the quarter. Earlier estimates had health care spending increasing by 9.1 percent.

Doesn’t that just exude confidence in the government’s ability to count?

But health care wasn’t the only problem. It was just the biggest estimate-related screw-up. Consumer spending was revised down from an increase of 3.1 percent to a rise of only 1 percent. The Commerce Department also reported that businesses depleted inventories in the first quarter after having overbuilt them late last year. That shaved 1.7 percentage points from growth.

And we aren’t alone in struggling to get back on firm economic footing. In a sign that the global economy continues to be challenged, exports fell almost 10 percent in Q1.

Interestingly, since World War II we have experienced 15 other quarters when GDP has dropped by 2.9 percent or more. In 14 of the 15, hiring also contracted. The first quarter of this year marked only the second time that employment improved despite a large GDP drop.

So all is not lost.

In other news: To seek or not to seek a college degree, that is more and more the question these days.

As states begin to examine salary data from public colleges, they’re finding that associate degrees in technical fields are better educational investments, at least in the short term. But long-term, college degrees result in the best return.

The first “return on investment” report issued by the Indiana commission for higher education found that after one year in the workforce, the average salary for a graduate with an associate degree was higher than for one with a bachelor’s degree. But five years after graduation, a BA earner surpasses that of an associate degree. And the gap grows to almost $7,000 annually after 10 years.

With demographics working against the Social Security system, people may find themselves working until they’re 80. That extra seven grand will certainly add up. But take heart, young people. In 50 years, 80 will be the new 60.

Colorado’s research took a different approach. It looked specifically at grads with associate degrees in nursing, industrial production, fire protection and engineering and found that all generated starting salaries above $60,000. By comparison, the average starting salary for a graduate with a bachelor’s degree in Colorado in any field was $38,860.

Economists at the New York Federal Reserve Bank found that in reality, not much has changed over the last several decades when it come to degrees of higher learning. The rate of return for bachelor and associate degrees has remained basically the same, as has the difference in wages.

According to the New York Fed, last year a holder of a bachelor’s degree earned about $65,800, while an associate-degree holder made far less, at about $46,300. As for skipping college altogether – as difficult as the jobs market may be – relying only a high school diploma remains a poor long-term choice. High school graduates earn only $37,897 on average.

In other news: There has been a shocking development in the General Motors ignition recall investigation. Documents released last week by a congressional committee appear to contradict GM’s account of events. The documents indicate that Doug Parks, a top lieutenant to current GM CEO Mary Barra, knew of the ignition issue in 2005. To date, fired GM engineer Raymond DeGiorgio has borne the brunt of the blame.

This latest turn of events is outrageous on many levels. First, it’s unfathomable to think that a corporate executive could possibly have been complicit in hiding a potentially costly defect. It’s also extraordinary that the company’s thorough internal investigation – which resulted in the dismissal of 15 lower-level employees – failed to discover Park’s involvement.

I guess sometimes no matter how hard you try, mistakes are unavoidable. One thing is for sure: GM executives seem to have learned a thing or two from working with their government overseers. It’s just too bad someone from the IRS wasn’t on GM’s board. They could have enlightened them on how to destroy the evidence.

Tony Paradiso is an author, professor, entrepreneur, radio and TV commentator, and marketing and management expert. His website can be found at www.tonyparadiso.com.