Recently, it became evident to Wall Street what many have long understood: the current state of the economy is dire, reminiscent of rotten tomatoes. After initially gaining 14 points on Tuesday, the S&P 500 plummeted by 45 points to conclude the week, followed by an additional drop of 14 points the next day. Over just four trading days, this marked a significant 4.6 percent loss.
If the market is meant to be a forward-thinking entity, it appears to have overlooked a glaring truth: the alleged recovery is far from genuine. Those engaged in the everyday workforce recognize that this so-called recovery has been nothing but an illusion since its inception.
Economic growth has stagnated, and job creation remains virtually nonexistent. The only sector showing improvement over the last two years has been the stock market, artificially inflated by nearly $2 trillion in stimulus funds from the Federal Reserve.
Without the Fed’s heavy-handed intervention, stock prices would be significantly lower. This interference has delayed what should have been a necessary economic correction, leaving the government deep in debt and setting the stage for a potential double-dip recession.
Unemployment is Much Worse
On Friday, the Bureau of Labor Statistics revealed that only 54,000 jobs were created in May, resulting in an uptick in the unemployment rate to 9.1 percent. While any job growth is preferable to job loss, this number is alarmingly insufficient. Despite the addition of these jobs, the unemployment rate still rose. Here’s the reasoning:
“The economy must generate at least 100,000 jobs each month just to keep pace with population growth and prevent the unemployment rate from climbing,” stated an AP report. “Economists assert that job gains need to be at least double this amount to reduce the unemployment rate meaningfully.”
Furthermore, if you think a 9.1 percent unemployment rate is concerning, the reality is much grimmer. When including part-time workers wishing for full-time employment and those who have stopped searching for jobs, around 25 million Americans are considered ‘underemployed,’ translating to approximately 15.8 percent of the workforce.
This comprehensive figure combining the unemployed, part-time workers wanting full-time jobs, and those who have ceased their job search is referred to by the BLS as the U-6. In California, the U-6 rate stands at 22.0 percent, and in Los Angeles County, it further escalates to 24.1 percent.
Unfortunately, the jobs market isn’t the only sector struggling. There’s a wider array of issues at play…
Let the Fun Begin
For instance, the housing market has recently produced yet another disappointing report. The latest Case-Shiller index for 20 cities indicated a price drop of 3.6 percent since March 2010 and a 0.8 percent decline from February. This signals that a fresh wave of housing price declines is gaining traction, especially without the $8,000 first-time homebuyer credit to dampen the momentum.
In addition to housing woes, consumer spending, which comprises about 70 percent of the economy, is also diminishing. In April, consumer spending experienced a mere 0.4 percent increase. Adjusted for inflation, this amounted to only a 0.1 percent rise. Soaring gas and food prices are undoubtedly squeezing household budgets.
And predictably, when consumers cut back on purchases, manufacturers have no incentive to maintain production levels. In May alone, the U.S. economy lost 5,000 manufacturing jobs, including 3,400 in the automotive sector.
In summary, jobs, housing, consumer spending, and manufacturing are all in a state of decline. It wouldn’t take much—a minor drop in stock prices—to incite panic in Washington. Compounding this, the presidential election season is just beginning. This election promises to be a memorable one, featuring a struggling economy and mounting public frustration, likely leading to a resurgence of populism and demagoguery. Candidates will undoubtedly say anything to secure votes.
“Change We Need,” President Obama campaigned in his last race, and many voters embraced it without question. However, it has proven to be an empty promise. As we move forward, we can expect even more absurdity. If the economy continues to falter, the public may be swayed by any catchy, rhyming slogans.
Let the fun begin.
Sincerely,
MN Gordon
for Economic Prism