GDP growth slows: why Washington must repeal the sequester
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Robert Reich Guest blogger
Economic forecasters exist to make astrologers look good. Most had forecast growth of at least 3 percent (on an annualized basis) in the first quarter. But we聽聽(in the Commerce Department鈥檚 report) it grew only 2.5 percent.
That鈥檚 better than the 2 percent growth last year and the slowdown at the end of the year. But it鈥檚 still cause for serious concern.聽
First, consumers won鈥檛 keep up the spending. Their savings rate fell sharply 鈥� from 4.7% in the last quarter of 2012 to 2.6% from January through March.
Add in聽March鈥檚 dismal employment report, the lowest percentage of working-age adults in jobs since 1979, and January鈥檚 hike in payroll taxes, and consumer spending will almost certainly drop.聽
Median household incomes continues to decline, adjusted for inflation. Another report out today showed consumer confidence fell in April.
Second, the recovery continues to be wildly lopsided. The only thing really keeping it going is the rip-roaring stock market. But the stock market only boosts the wealth of the richest 10 percent of Americans, who own 90 percent of stocks (including 401-K retirement accounts).
But no economy can maintain momentum just on the spending of the richest 10 percent.聽
Third,聽American exports can鈥檛 possibly pick up the slack. In fact, they鈥檙e dropping. Europe is falling into recession because of austerity economics. Japan is still a basket case. China鈥檚 economy is slowing. Much of the developing world鈥檚 economy is dependent on exports to the developed world 鈥� so don鈥檛 hold your breath for developing countries to bail us out.
So what is Washington doing? Worse than nothing. It has now adopted the same kind of austerity economics that鈥檚 doomed Europe 鈥� cutting federal spending and reducing total demand. And the sequester doesn鈥檛 end September 30. It takes an even bigger bite out of the federal budget next fiscal year.
Earth to Washington: The economy is slowing. The recovery is stalling. At the very least, repeal the sequester.
You don鈥檛 have to be an astrologer to see the dangers ahead.
