Heading for a double dip
Why aren鈥檛 Americans being told the truth about the economy? We鈥檙e heading in the direction of a double dip 鈥� but you鈥檇 never know it if you listened to the upbeat messages coming out of Wall Street and Washington.
Consumers are 70 percent of the American economy, and consumer confidence is plummeting. It鈥檚 weaker today on average than at the lowest point of the Great Recession.
The Reuters/University of Michigan survey shows a 10 point decline in March 鈥� the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board鈥檚 index of consumer confidence, just released, shows consumer confidence at a five-month low 鈥� and a large part is due to expectations of fewer jobs and lower wages in the months ahead.
Pessimistic consumers buy less. And fewer sales spells economic trouble ahead.
What about the 192,000 jobs added in February? (We鈥檒l know more Friday about how many jobs were added in March.) It鈥檚 peanuts compared to what鈥檚 needed. Remember, 125,000 new jobs are necessary just to keep up with a growing number of Americans eligible for employment. And the nation has lost so many jobs over the last three years that even at a rate of 200,000 a month we wouldn鈥檛 get back to 6 percent unemployment until 2016.
But isn鈥檛 the economy growing again 鈥� by an estimated 2.5 to 2.9 percent this year? Yes, but that鈥檚 even less than peanuts. The deeper the economic hole, the faster the growth needed to get back on track. By this point in the so-called recovery we鈥檇 expect growth of 4 to 6 percent.
Consider that back in 1934, when it was emerging from the deepest hole of the Great Depression, the economy grew 7.7 percent. The next year it grew over 8 percent. In 1936 it grew a whopping 14.1 percent.
Add two other ominous signs: Real hourly wages continue to fall, and housing prices continue to drop. Hourly wages are falling because with unemployment so high, most people have no bargaining power and will take whatever they can get. Housing is dropping because of the ever-larger number of homes people have walked away from because they can鈥檛 pay their mortgages. But because homes the biggest asset most Americans own, as home prices drop most Americans feel even poorer.
There鈥檚 no possibility government will make up for the coming shortfall in consumer spending. To the contrary, government is worsening the situation. State and local governments are slashing their budgets by roughly $110 billion this year. The federal stimulus is ending, and the federal government will end up cutting some $30 billion from this year鈥檚 budget.
In other words: Watch out. We may avoid a double dip but the economy is slowing ominously, and the booster rockets are disappearing.
So why aren鈥檛 we getting the truth about the economy? For one thing, Wall Street is buoyant 鈥� and most financial news you hear comes from the Street. Wall Street profits soared to $426.5 billion last quarter, according to the Commerce Department. (That gain more than offset a drop in the profits of non-financial domestic companies.) Anyone who believes the Dodd-Frank financial reform bill put a stop to the Street鈥檚 creativity hasn鈥檛 been watching.
To the extent non-financial companies are doing well, they鈥檙e making most of their money abroad. Since 1992, for example, G.E.鈥檚 offshore profits have risen $92 billion, from $15 billion (which is one reason it pays no U.S. taxes). In fact, the only group that鈥檚 optimistic about the future are CEOs of big American companies. The Business Roundtable鈥檚 economic outlook index, which surveys 142 CEOs, is now at its highest point since it began in 2002.
Washington, meanwhile, doesn鈥檛 want to sound the economic alarm. The White House and most Democrats want Americans to believe the economy is on an upswing.
Republicans, for their part, worry that if they tell it like it is Americans will want government to do more rather than less. They鈥檇 rather not talk about jobs and wages, and put the focus instead on deficit reduction (or spread the lie that by reducing the deficit we鈥檒l get more jobs and higher wages).
I鈥檓 sorry to have to deliver the bad news, but it鈥檚 better you know.
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