Let the Fun Begin

Last week Wall Street finally realized something that everyone else has known for some time…this economy stinks worse than rotten tomatoes.  After rising 14 points on Tuesday, the S&P500 dropped 45 points to close out the week.  Then, yesterday, it dropped 14 more…losing 4.6 percent over the last four trading days.

If the market’s supposed to be a forward looking animal, in this instance, it was blind to the obvious.  Namely, that the recovery is a fraud.  Anyone who works in the real world for a living knows that the recovery has been a sham since it began.

Economic growth has hardly budged.  Jobs creation has been nonexistent.  The only thing that’s improved over the last two years is the stock market, which has been boosted up by nearly $2 trillion dollars of funny money from the Federal Reserve.

Without all the heavy handed intervention by the Fed stock prices would be a lot lower.  So, too, it’s possible, after suffering a swift decline, the economy would have landed on solid ground and a real economic recovery would have begun.

Instead, following a two year delay of the inevitable, the government’s up to its eyeballs in debt, and it appears things are setting up for the great double dip.

Unemployment is Much Worse

For example, on Friday the Bureau of Labor Statistics reported that only 54,000 jobs were added in May, pushing the unemployment rate up to 9.1 percent.  Obviously, adding jobs is better than losing jobs, but 54,000 jobs is not enough.  In fact, as you can see, even with the addition of these jobs the unemployment rate still rose.  Here’s why…

“The economy must generate at least 100,000 jobs each month just to keep up with population growth and prevent the unemployment rate from rising,” explained AP.  “And economists say the gains need to be at least double that total to drive down the [unemployment] rate.”

Moreover, if you think a 9.1 percent unemployment rate is bad…that’s nothing.  It’s actually much worse.  “When the unemployed are combined with part-time workers who would rather be working full time and people who have given up looking for jobs, roughly 25 million Americans are ‘underemployed.’  That’s equal to 15.8 percent of the work force.”

The combination of unemployed with part time workers who would like full time work, and those who’ve given up looking for work all together, is what the BLS calls the U-6.  Here in the land of fruits and nuts the U-6 is 22.0 percent.  In Los Angeles County the U-6 is 24.1 percent.

Yet, alas, it’s not just the jobs market that’s floundering.  There’s much, much more wallowing about…

Let the Fun Begin

Housing, for instance, just laid another fat goose egg.  The latest from the Case-Shiller index of 20 cities was released last week and showed prices dropped 3.6 percent from March 2010 and 0.8 percent from February.  In short, another wave of housing price losses is gaining momentum and there’s no longer the $8,000 first time homebuyer credit to slow things down.

In addition to housing, consumer spending, which accounts for about 70 percent of the economy, is fading.  Consumer spending in April increased just 0.4 percent.  When adjusted for inflation it went up just 0.1 percent.  No doubt, rising gas and food prices are squeezing consumer budgets.

And wouldn’t you know it, when consumers aren’t buying stuff, there’s no reason for manufacturers to make stuff.  In May, 5,000 manufacturing jobs disappeared from the U.S. economy…3,400 jobs in the auto manufacturing sector alone.

Jobs, housing, consumer spending, manufacturing…they’re all in the gutter.  All it will take now is just a modest drop in stock prices and there will be panic in D.C.  What’s more, the presidential election season is just kicking off.  Surely, this will be an election to remember…where a flailing economy, and simmering angst, should combined for some good old fashioned populism and demagoguery.  What we mean is the yahoos running for president will say anything to get elected.

“Change We Need,” campaigned Obama during his last presidential campaign…the populace swallowed it hook, line, and sinker.  What a slimy glob of mackerel bait that’s turned out to be.  This time around things should get really absurd.  And if the economy falls far enough the people will believe any line of bumper sticker guff that rhymes.

Let the fun begin.

Sincerely,

MN Gordon
for Economic Prism

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