The media is calling it a “Spring swoon”, but it’s really just the next phase of the long slump.
After a strong showing in the first quarter (Q1), the economy is starting to lose steam for the forth year in a row. The main cause for the slowdown is –what Bloomberg calls–“the biggest federal-budget tightening in more than 60 years”. The impact of the budget cuts can already be seen in retail sales, personal consumption and consumer confidence. Eventually, they’ll be felt throughout the entire economy pushing unemployment higher and shrinking GDP by 1.6 percent or more.
Economists warned policymakers not to reduce government spending while the economy was still weak, but Congress shrugged off their advice and cleared the way for another slowdown. Activity is likely to fall off sharply as already over-stretched households try to muddle through on paychecks that are now 2 percent smaller following the restoration of the payroll tax. The deceleration should intensify into the summer months impacting other areas of the economy and, ultimately, widening the deficits due to lower tax receipts. This illustrates the futility of austerity measures, they only serve to make matters worse.
Let’s face it; the economy has never gotten better, not for working people at least. And now it’s getting worse; should we be surprised?
Not at all. The system is performing the way it’s set to perform; providing unlimited sums of money for speculators and moneybags friends of Obama, and table scraps for everyone else. Here’s a blurb from the Wall Street Journal that just confirms what everyone already knows:
“From 2009 to 2011, the average wealth of America’s richest 7% — the 8 million households with a net worth north of about $800,000 — rose nearly 30% to $3.2 million from $2.5 million, according to a Pew Research Center report that analyzed recent Census data. By contrast, the average wealth of America’s remaining 93%, some 111 million households, actually dropped by 4% to $134,000 from $140,000. Wealth is the value of what a household owns minus what it owes.”
So all the money is going upwards, but we’re expected to believe that that’s not what policymakers had in mind to begin with; that it’s all just one big accident?
Uh, huh. As Robert Reich points out, there’s never been a recovery, not really. Here’s how he puts it in his latest blog-post:
“Four years into a so-called recovery and we’re still below recession levels in every important respect except the stock market. A measly 88,000 jobs were created in March, and total employment remains some 3 million below its pre-recession level. Labor-force participation is its lowest since 1979.
Businesses won’t hire and expand unless they have more customers, but most Americans can’t spend more. Last Friday’s retail sales report showed sales down .4 percent in March. Consumer sentiment has fallen to its lowest level in nine months.
The underlying problem is the vast middle class is running out of money. They can’t borrow more — and shouldn’t, given what happened after the last borrowing binge.
Real annual median household income keeps falling. It’s down to $45,018, from $51,144 in 2010. All the gains from the recovery continue to go to the top.” (“Why This is the Worst Recovery on Record“, Robert Reich’s blog)
Okay, so you’ve heard it all a million times before. But it’s about to get worse, so you might want to know some of the details. You see, the economy was already slowing down before
Obama’s budget cuts. Retail sales are off, manufacturing is sputtering, earnings are weak, existing home sales are dropping, and durable goods are in the tank. Here’s more from the WSJ:
“U.S. orders for long-lasting manufactured goods fell sharply in March as businesses cut investment, suggesting that economic growth has cooled since the start of the year.
Durable goods orders decreased 5.7% from the prior month to a seasonally adjusted $216.28 billion, the Commerce Department said Wednesday. Economists surveyed by Dow Jones Newswires expected a 2.9% drop in March orders.
Durable goods are usually big-ticket items designed to last at least three years. Businesses and consumers typically make such purchases when they are confident about the economy….
Wednesday’s report echoes other recent data suggesting solid but slowing growth through the first quarter of the year as consumers and businesses became increasingly cautious.”
Problems in the US are compounded by growing troubles abroad, notably the slowdown in China and the ongoing Depression in Europe. Here’s more from the WSJ:
“Troubles overseas are threatening the U.S. recovery for the fourth year in a row. This time it’s weakening economies abroad, rather than tumbling financial markets, signaling turbulence ahead.
U.S. exports of goods to the European Union are declining outright. Growth in overall U.S. exports has been sputtering for months, after a three-year postrecession surge. And major U.S. companies are reporting increasingly dour overseas outlooks tied to the recession-plagued euro zone and slowing growth in other leading economies such as China.
The renewed fears of a global slowdown come after months of hope that a stronger recovery was finally taking shape.”
So, don’t expect any help from overseas–like an uptick in exports–because it ain’t gonna happen. China’s investment-heavy economic model is beginning to crack beneath its prodigious debt-load and the slump in Europe will persist until EU elites achieve their goal, which is to decimate the social model that provides health care, pensions and labor protections for the people in the 17-member Eurozone. That’s what this is all about. Once the EU’s working population has been reduced to third world poverty, then policymakers will return to a pro-growth strategy, but not before. But that’s going to take a while, so don’t hold your breath.
So, what’s in store for the US economy?
First we need to summarize what’s going on right now. Just take a quick look at these charts from analyst Lance Roberts at Street Talk Live in a post titled “Economy In Pictures: Have We Seen The Peak?”
This will help you see the present trajectory of the economy vis a vis wages, consumer spending, output, employment and GDP.
Wages and Salaries
Incomes are the lifeblood of the economy. In order for consumers to consume (which makes up roughly 70% of the economy currently) wages must rise at a rate to support increases in consumption.
As state above, personal consumption expenditures (PCE) comprise about 70% of the gross domestic product calculation. As PCE goes – so goes the economy.
Production and Manufacturing
The chart below is the STA Economic Output Composite Index which is an index comprised of the Chicago Fed National Activity Report, ISM Composite, several Fed regional manufacturing surveys, Chicago ISM PMI, and the NFIB Small Business Survey. This is a very broad measure of the economy.
The chart below shows both the seasonally adjustment employment levels compared to a 12-month moving average of the non-seasonally adjusted data.
Do you see any glimmer of light in these charts?
I don’t. The fact is, everything is headed in the wrong direction. And this is just “big picture” stuff. If you wanted to get into the weeds and really dig through the data on other sectors, you’d see the same thing, that is, that things are progressively getting worse. And, of course, Obama’s budget cuts will further intensify the downturn, which appears to be what the politicians really want.
Have you seen this Bloomberg video of Nouriel Roubini explaining what we can expect when the sequester cuts kick in?
Here’s a clip. Nouriel Roubini:
“I’m quite concerned about the US economy. People underestimated how much…the sequester would effect the economy. …fiscal drag of 1.7%….We’re doing the wrong kind of fiscal consolidation. It’s way too frontloaded….will have a drag on consumption…so, US will have subpar growth, below trend..and unemployment will remain high. …The Fed’s QE has already created froth in asset and credit markets that could lead to another significant bubble …So, you’ll have a big party in asset prices for the next couple years, (while rates stay low) followed by a crash bigger than before.” (Bloomberg)
Oh good. So the asset bubbles are already forming, but the economy is still flat on its back. So–chances are–we’ll suffer a meltdown before the anticipated recovery ever takes hold. Doesn’t that sound like a policy that needs to be revisited?
Let’s not kid ourselves, none of this is accidental. This whole permanent Depression-thing is just part of the plan. How could it not be? I mean, is there anyone dumb enough to believe in austerity anymore? Even the right-wing Washington Post has given belt tightening the old heave-ho. Just look at this excerpt from a recent editorial:
“There’s basically no evidence that fast austerity programs, or ones undertaken during economic downturns, are even good at reducing the debt burden. It’s very clear they’re bad for growth. Austerity through spending cuts may help growth in the long run, but so do a lot of things, and if those cuts are to things known to boost growth, like early childhood education or research, they could be counterproductive. But for the time being, austerity is the wrong prescription for advanced economies.”
Even Fox on 15th Street is admitting defeat and running up the white flag. Can you believe it?
But it doesn’t matter how discredited the policy is, the politicians are going to keep ratcheting up the pressure until they get what they want, which is, more privatization of public assets, more busting up federal unions and more dismantling critical safetynet programs. (particularly, SS, Medicare, Medicaid) Present policy has nothing to do with growing the economy or putting people back to work. It’s just plain old class warfare.
So, how bad will it get?
Nobody really knows for sure, but with factory output already dropping, retail sales flagging, existing home sales down, new payrolls flatlining, consumers spending less and saving more, and the global economy on life-support, it’s hard to see how we’re going to get out of the doldrums, especially since the full effect of the tax hikes and budget cuts have yet to be felt. Clearly, the downside risks have increased exponentially, which means that any unexpected shock will push the economy back into recession.
MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. Whitney’s story on Bernanke’s Subprime Bonanza appears in the April issue of CounterPunch magazine. He can be reached at [email protected].