Memo to Obama: Cars are not like pizzas

In my commentary last week I mistakenly referred to the Gross Domestic Product (GDP) growth rates as quarterly for 2009, instead of “rolling four quarters” of negative growth rates of 1.9, 3.3 and 3.8 percent, respectively, which they were. My apologies for the error!

But when you use the latest released GDP for the third quarter of a positive 3.5 percent, the latest corresponding rolling four quarters growth rate is a negative 1.4 percent. The chairperson of the President’s Economic Advisors, Christina Romer, said this “jolt to the economy” was caused by the $194 billion already spent from the “stimulus bill”. You can call it a jolt, but it is not an economic “turnaround” or an end to the recession as some analysts are claiming.

Here’s why. Cars and houses are not like a pizza promotion.

Even though the administration claims great success with Cash for Clunkers, and the new home buyers’ tax credit, the promotions merely caused some of the sales to happen sooner rather than later, but they do not generate repeat sales. Every business person knows that, but maybe that’s the problem.

In the pizza business (remember, I used to run a pizza company), a good promotion would stimulate trial purchases, and if the customers loved the product, they would be back within the following two weeks to make a repeat purchase.

People do not buy cars and houses every two weeks.

In fact, auto sales analysts at Edmunds.com just released an analysis that revealed that the Cash for Clunkers program really only generated about 125,000 net new car sales instead of the 690,000 being advertised. Of course, the administration has now attacked Edmonds.com in the media for daring to disagree with the administration’s propaganda.

The other reason we should be cautious about claiming that the economy has turned around is the fact that the jobless recovery usually lags sustained GDP growth by 12 to 24 months, and possibly more.

As Peter Cohen wrote in Daily Finance – During the last recession in 2001, there were 22 months between the time that GDP started growing and the time that job growth resumed. Of course, this current recession has been far worse, so it could be three years before we start to see job creation.

It may not take three years, but the economic recovery will not be back in three months, because most businesses are still not in a hiring mode, most of the “stimulus bill” was directed at more government jobs and consumers are not increasing their spending.

Good, because people are already in too much debt.

As I wrote in an earlier commentary, wishing doth not a recession end. With no genuine economic stimulus in the bill for businesses, the threat of the Cap & Trade & Tax & Kill bill, and the threat of health care deform legislation, most businesses are making no plans to hire anybody. They are managing for survival.

Until the economy receives a real economic stimulus directly into the hands of consumers and businesses, such as a direct cut in payroll taxes, we will have to continue to endure these imaginary administration promoted “jolts” in the economy, while our economy drifts more and more into a deeper recession.

As the economy continues to stall, and deficit spending continues to spiral out of control, imaginary pizza promotions by the federal government are not going to put people back to work.

Maybe the administration needs an experienced business czar.