Friday, July 6, 2012

Why The Economy Will Remain Slow

Thinking through the June unemployment report provides serious cause for concern about the long term health and direction of our U.S. economy.

Before getting to that, however, let's admit that June unemployment was another in a series of disappointing numbers.

In brief, the economic picture remains bleak, both here and in the rest of the world. So how bad is it?  Well, my bet is we're stuck and not likely to generate any positive growth momentum anytime soon.

Worst Quarter for Jobs Growth Since 2010  puts things in perspective:

"America’s job market hasn’t been this feeble since the economy started adding jobs regularly two years ago.
The latest data show the U.S. economy added an average of 75,000 jobs per month between April and June. That’s paltry compared with the average of 225,000 jobs notched in the first three months of the year. Worse, it’s the weakest quarter for job growth since the third quarter of 2010, when the economy lost an average of 45 jobs each month.

After this past quarter, the next weakest is July-to-September 2011, when the economy added an average of 128,000 jobs–a relatively healthy figure  and one high enough to at least keep unemployment from rising.

Clearly, America’s job market has lost the momentum it had early this year. And as we pointed out on June 25, this weakness on  jobs is outweighing the boost to consumers’ wallets from lower gasoline prices. Proof? Check out June’s retail sales figures, which grew at the slowest pace in over two years."

My Take

This jobs number stinks, as did last month's as well. Even worse, we have no reason to believe that meaningful economic activity will pick up anytime soon.

Although the official unemployment rates are bad enough at 8.2% and 14.9%, respectively, economic conditions are actually much worse than that. Fewer people than "normal" are in the work force, and of those that are employed, a bigger percentage is working in the public sector than has historically been the case.

Further, when we consider that expensive and unaffordable government programs for (1) education (K-12 through college, including student loans and Pell Grants), (2) medical care (Medicare, Medicaid and now ObamaCare) and (3) retirement benefits (Social Security and public sector pensions included) are taking more of our nation's resources than ever before, that's putting an unsustainably heavy load on the private sector to support.

Couple that with the ongoing debt debacle in both the household sector (housing bubble related and credit card debts, including student loans) and public sector (~$16 trillion national debt, excluding unfunded entitlement liabilities of perhaps another $100 trillion), and the current financial burden is simply too heavy for the private sector to sustain. Something's gotta give.


Our politicians aren't even trying to do the right things, let alone do those things right. It seems like everything is on hold until after this November's elections.

President Obama, as the standard bearer of the Democratic party, has aligned himself with both private and public sector unions. Thus, his approach won't emphasize private sector solutions, and he's constantly on the attack against private sector initiatives and business leaders. That may or may not help win him reelection, but it won't help repair the economy. In fact, he's hurting our economic prospects by both his actions and rhetoric.

The cold hard facts are that more government spending programs, higher taxes and less private sector work (such as drilling for more energy and the Keystone pipeline) won't lead us anywhere except off the economic cliff.  Doing things that will result in more public debt and higher deficits will only make things worse.

While I wish it were otherwise, it looks like it's shaping up to be a confrontation between (1) the leadership of unions, both in the public and private sectors, and the Democratic party, versus (2) the long term best interests of We the People and our nation's economy, pure and simple.

That's really sad.

Thanks. Bob.

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