Why aren’t Americans being told the truth about the economy? We’re heading in the direction of a double dip – but you’d never know it if you listened to the upbeat messages coming out of Wall Street and Washington.
Consumers are 70 per cent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the low point of the Great Recession.
The Reuters/University of Michigan survey shows a 10 point decline in March – the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low — and a large part is due to expectations of fewer jobs and lower wages in the months ahead.
Pessimistic consumers don’t buy as much. And fewer sales spells big economic trouble ahead.
What about the 192,000 jobs added in February? (We’ll know more Friday about how many jobs were added in March.) It’s peanuts compared to what’s 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’t get back to 6 per cent unemployment until 2016.
But isn’t the economy growing again – by an estimated 2.5 to 2.9 per cent this year? Yes, but that’s even less than peanuts. The deeper the economic hole, the faster the growth needed to get back on track. By this point we’d expect growth of 4 to 6 per cent. In 1934, emerging from the deepest hole of the Great Depression, the economy grew 7.7 per cent. The next year it grew over 8 per cent. In 1936 it grew a whopping 14.1 per cent.
Add to these data 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. Houses are the biggest asset most Americans own, so as home prices drop most Americans feel even poorer.
There’s no possibility government will make up for the 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’s budget.
So why aren’t we getting the truth about the economy? For one thing, Wall Street is buoyant – 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’s creativity hasn’t been watching.
To the extent non-financial companies are doing well, they’re making most of their money abroad. Since 1992, for example, G.E.’s 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’s optimistic about the future are CEOs of big American companies. The Business Roundtable’s economic outlook index, which surveys 142 CEOs, is now at its highest point since it began in 2002.
Washington, meanwhile, doesn’t 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’d 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’ll get more jobs and higher wages).
I’m sorry to have to deliver the bad news, but it’s better you know.