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The problem with our economy

Job numbers are coming out today. I suspect that they will be a bummer.

The Stalled Recovery

The U.S. economy was supposed to be in bloom by late spring but it’s hardly growing at all. Expectations for second quarter growth aren’t much better than the measly 1.8 percent annualized rate of the first quarter.

That’s not nearly fast enough to reduce our ferociously-high level of unemployment. The Labor Department will tell us Friday whether the jobs situation improved in May, but there’s been no sign of a surge in hiring. Nor in wages. Average hourly earnings of production and non-supervisory employees – who make up 80 percent of non-government workers – are lower than they were in the depths of the recession, adjusted for inflation.

Meanwhile, housing prices continue to fall. They’re now 33 percent below their 2006 peak. That’s a bigger drop than recorded in the Great Depression. Homes are the largest single asset of the American middle class, so as housing prices drop many Americans feel poorer. All of this is contributing to a general gloominess. Not surprisingly, consumer confidence is also down.

The recovery has stalled. It’s unlikely America will find itself back in recession but the possibility of a double dip can’t be dismissed.

The Problem of Demand

The problem isn’t on the supply side of the ledger. Corporate profits are still healthy. Big companies continue to sit on a cash hoard. Large and middle-sized companies can easily borrow more, at low rates.

The problem is on the demand side. American consumers, who constitute 70 percent of the total economy, can’t and won’t buy enough to get it moving. They justifiably worry they won’t be able to pay their bills or afford to send their children to college or to retire. Banks, with equal justification, are reluctant to lend to them. But as long as consumers hold back, companies remain reluctant to hire new workers or raise the wages of current ones, feeding the vicious cycle.

The timing is unfortunate. Foreign consumers won’t help much even if the dollar continues to slide. Europe’s debt crisis and embrace of austerity, Japan’s tragedy, and China’s fiscal tightening have reduced global demand. At the same time, the federal stimulus here has about run its course. The Federal Reserve is about to end its $600 billion of purchases of Treasury bills, designed to bring down long-term interest rates and make it easier for homeowners to refinance. Worse yet, state governments – starved for revenue and constitutionally barred from running deficits – continue to cut programs. Local governments are now in worse shape, laying off platoons of teachers and fire fighters. (more…)

By ecthompsonmd|2011-06-03T06:33:25-04:00June 3rd, 2011|Economy|Comments Off

July jobless numbers (Updated)

I’ll have more later but here’s the numbers. It looks better but…

From NYT:

The rampant pace of job losses slowed in July, an encouraging sign that the labor market is nearing a bottom as the broader economy struggles to recover, the government reported on Friday.

The American economy shed 247,000 jobs last month, the smallest monthly toll since last August. While businesses are expected to keep cutting positions through the rest of the year, the Labor Department’s latest figures offered hopeful signs for the American worker and a measure of relief to the Obama administration, which has faced rising criticism as unemployment blew past its earlier projections.

“The trend lines are positive,” said Mark Zandi, chief economist at Moody’s Economy.com. “We are going from massive job losses to just big job losses on our way to a stable job market, I think by next spring.”

The length of the workweek increased, albeit slightly, for the first time since August, a sign that businesses were not scaling back hours to cut their payroll costs. The government said fewer jobs were lost this spring than it had initially estimated, revising June’s lob losses to 443,000 from 467,000. (more… )

From EPI:

This recession is continuing to shatter records for long-term unemployment; with roughly six unemployed workers per job, job seekers are not finding work. In July, the number of workers who have been unemployed for over six months increased by 584,000 to 5 million, so that now 3.2% of the labor force has been unemployed at least six months, far surpassing the record high of 2.6% set in June of 1983. Currently over one-third (33.8%) of this country’s 14.5 million unemployed workers have been unable to find work for over half a year, an all-time high. While the pace of layoffs is slowing, unemployed workers are not finding jobs. (more… )

It should be clear to everyone that this recession is going to take a while to ride out. Hold on tight!!

By ecthompsonmd|2009-08-07T10:03:40-04:00August 7th, 2009|Economy|Comments Off

Updated: Sixth Straight Month of Job Losses

You can get out your protractor and pocket calculator and try to tell me that we aren’t in a recession because of this or that, but the fact is, we are in a recession. I wonder, though, how ugly this market going to get.

Senator Obama calls on President Bush and Congress to do more. However, Senator McCain has stated that people are hurting and let’s not do anything.

I found some thoughtful analysis from the Economic Policy Institute.

Update: GM shares have dropped below $10 per share.

Update II: From EPI –

The job market is clearly in recessionary territory. Most industries are cutting jobs, unemployment and especially underemployment are elevated, and perhaps most importantly, wage growth is slowing quite sharply and is well behind inflation. Workers paychecks are under attack from three sides: diminished jobs and hours, slower hourly wage growth, and faster price growth. Moreover, most workers lack the bargaining power necessary to fend off these attacks.

From CNN.com:

Employers trimmed jobs from their payrolls in June for the sixth straight month, as the government’s closely watched report Thursday showed continued weakness in the labor market.

The Labor Department reported a net loss of 62,000 jobs in the month. That matched the job loss figure for May, which was revised higher from 49,000. Economists surveyed by Briefing.com had forecast a loss of 60,000 jobs.

The June number brought to 438,000 the number of jobs lost by the U.S. economy so far this year. (more… )

By ecthompsonmd|2008-07-03T10:13:24-04:00July 3rd, 2008|Economy|Comments Off