By

Robert Reich

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 percent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the lowest 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 buy less. And fewer sales spells 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 percent unemployment until 2016.

But isn’t the economy growing again — by an estimated 2.5 to 2.9 percent 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 in the so-called recovery we’d expect growth of 4 to 6 percent.

Consider that back in 1934, when it was emerging from the deepest hole of the Great Depression, the economy grew 7.7 percent. The next year it grew over 8 percent. In 1936 it grew a whopping 14.1 percent.

Add 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. Housing is dropping because of the ever-larger number of homes people have walked away from because they can’t pay their mortgages. But because homes the biggest asset most Americans own, as home prices drop most Americans feel even poorer.

There’s no possibility government will make up for the coming 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.

In other words: Watch out. We may avoid a double dip but the economy is slowing ominously, and the booster rockets are disappearing.

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.

US Economy shrinks at 6.2%

February 28, 2009

By JEANNINE AVERSA • Associated Press • February 28, 2009

Excerpts as reported in Courier Post

The economy contracted at a staggering 6.2 percent pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.

The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.

A much sharper cutback in consumer spending — which accounts for about 70 percent of economic activity — along with a bigger drop in U.S. exports sales, and reductions in business spending and inventories all contributed to the largest revision on records dating to 1976.

Looking ahead, economists predict consumers and businesses will keep cutting back spending, making the first six months of this year especially rocky.

“Right now we’re in the period of maximum recession stress, where the big cuts are being made,” said economist Ken Mayland, president of ClearView Economics.

The new report offered grim proof that the economy’s economic tailspin accelerated in the fourth quarter under a slew of negative forces feeding on each other. The economy started off 2008 on feeble footing, picked up a bit of speed in the spring and then contracted at an annualized rate of 0.5 percent in the third quarter.

The faster downhill slide in the final quarter of last year came as the financial crisis — the worst since the 1930s — intensified.

Consumers at the end of the year slashed spending by the most in 28 years. They chopped spending on cars, furniture, appliances, clothes and other things. Businesses retrenched sharply, too, dropping the ax on equipment and software, home building and commercial construction.

Before Friday’s report was released, many economists were projecting an annualized drop of 5 percent in the current January-March quarter. However, given the fourth quarter’s showing and the dismal state of the jobs market, Mayland believes a decline of closer to 6 percent in the current quarter is possible.

The nation’s unemployment rate is now at 7.6 percent, the highest in more than 16 years. The Federal Reserve expects the jobless rate to rise to close to 9 percent this year, and probably remain above normal levels of around 5 percent into 2011.

A smaller decline in the economy is expected for the second quarter of this year. But the new GDP figure — like the old one — marked the weakest quarterly showing since an annualized drop of 6.4 percent in the first quarter of 1982, when the country was suffering through an intense recession.

“It’s going to be a challenging 2009,” Scott Davis, chief executive officer of global shipping giant UPS, said Thursday while speaking to the U.S. Chamber of Commerce in Washington.

American consumers — spooked by vanishing jobs, sinking home values and shrinking investment portfolios have cut back. In turn, companies are slashing production and payrolls. Rising foreclosures are aggravating the already stricken housing market, hard-to-get credit has stymied business investment and is crimping the ability of some consumers to make big-ticket purchases.

It’s creating a self-perpetuating vicious cycle that Washington policymakers are finding hard to break.

To jolt life back into the economy, President Barack Obama recently signed a $787 billion recovery package of increased government spending and tax cuts. The president also unveiled a $75 billion plan to stem home foreclosures and Treasury Secretary Timothy Geithner said as much as $2 trillion could be plowed into the financial system to jump-start lending.

For all of 2008, the economy grew by just 1.1 percent, weaker than the government initially estimated. That was down from a 2 percent gain in 2007 and marked the slowest growth since the last recession in 2001.

With Friday’s figures, Mayland lowered his forecast for this year to show a deeper contraction of just over 2 percent.

In the fourth quarter, consumers cut spending at a 4.3 percent pace. That was deeper than the initial 3.5 percent annualized drop and marked the biggest decline since the second quarter of 1980.

Businesses slashed spending on equipment and software at an annualized pace of 28.8 percent in the final quarter of last year. That also was deeper than first reported and was the worst showing since the first quarter of 1958.

Fallout from the housing collapse spread to other areas. Builders cut spending on commercial construction projects by 21.1 percent, the most since the first quarter of 1975. Home builders slashed spending at a 22.2 percent pace, the most since the start of 2008.

A sharper drop in U.S. exports also factored into the weaker fourth-quarter performance. Economic troubles overseas are sapping demand for domestic goods and services.

Businesses also cut investments in inventories — as they scrambled to reduce stocks in the face of dwindling customer demand — another factor contributing to the weaker fourth-quarter reading. The government last month thought businesses had boosted inventories, which added to gross domestic product, or GDP.

GDP is the value of all goods and services produced in the United States and is the best barometer of the country’s economic health.

Fed Chairman Ben Bernanke earlier this week told Congress that the economy is suffering a “severe contraction” and is likely to keep shrinking in the first six months of this year. But he planted a seed of hope that the recession might end his year if the government managed to prop up the shaky banking system.

Even in the best-case scenario that the recession ends this year and an economic recovery happens next year, unemployment is likely to keep rising.

That’s partly because many analysts don’t think the early stages of any recovery will be vigorous, and because companies won’t be inclined to ramp up hiring until they feel confident that any economic rebound will have staying power.

More job losses were announced this week. JPMorgan Chase & Co. on Thursday said it would eliminate about 12,000 jobs as it absorbs the operations of failed savings and loan Washington Mutual Inc. That figure includes 9,200 cuts announced previously and 2,800 jobs expected to be lost through attrition.

The NFL said Wednesday that the league dropped 169 jobs through buyouts, layoffs and other reductions. Textile maker Milliken & Co. said it would cut 650 jobs at facilities worldwide, while jeweler Zale Corp. said it will close 115 stores and eliminate 245 positions.

Our Perspective:

The news keeps getting gloomier! I guess there is no easy way t0 say it. We took our eye off the ball. We elected officals to represent our interest and take care of our welfare. We can try to point fingers but we are all responsible. We all drank the kool-aid.

We thought this could never happen to us. We’re educated, life is good. We became complacient and did not plan for our future. I know President Obama is throwing a lot against the wall, hoping something will stick.

Roosevelt introduced the NewDeal. If something didn’t work, he said let’s tweak it, what else can we do. Obama is following this lead. It may not be pretty, but we are not left with many alternatives. We can see what happens when we do nothing or we are caught up in our own self interest.

We are all one and we are here to help one another. We must approach this dilemna with the hopes of picking everyone up, not just a few.  There will be difficult decisions. We are resilient and we will rebuild and prevail You may leave a comment or email george@hbsadvantage.com .

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