Many conservative commentators, especially those whose words often grace the editorial pages of the Wall Street Journal, are seemingly incapable of speaking ill of the U.S. economy, even when the facts are so obvious that, to paraphrase the tagline of those humorous Geico commercials, even a caveman could do it.
In particular, I'm referring to permabull "economists" like Brian Wesbury or David Malpass, who never met a data point they couldn't transform into a thriving green shoot.
Imagine my surprise, then, when I stumbled across the following op-ed in today's Journal, entitled "The Economy Is Even Worse Than You Think," by Mortimer Zuckerman, the billionaire chairman and editor in chief of U.S. News & World Report.
Not only did the conservative real estate mogul and publisher forget to put his de riguer accessory, rose-colored glasses, on -- except when he wrote his last paragraph, where he pondered whether the maniacs running the asylum in Washington might change course before it's too late -- it appears that he slipped on the darkest-colored shades he could find instead.
The average length of unemployment is higher than it's been since government began tracking the data in 1948.
The recent unemployment numbers have undermined confidence that we might be nearing the bottom of the recession. What we can see on the surface is disconcerting enough, but the inside numbers are just as bad.
The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.
Here are 10 reasons we are in even more trouble than the 9.5% unemployment rate indicates:
- June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.
- More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.
- No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey.
- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.
- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).
- The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.
- The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.
- The goods producing sector is losing the most jobs -- 223,000 in the last report alone.
- The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.
Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period.
Can we find comfort in the fact that employment has long been considered a lagging indicator? It is conventionally seen as having limited predictive power since employment reflects decisions taken earlier in the business cycle. But today is different. Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook.
How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10% of the stimulus package today.
About 40% of U.S. workers believe the recession will continue for another full year, and their pessimism is justified. As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough.
It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden was right when he said a week ago that the administration misread how bad the economy was and how effective the stimulus would be. It was supposed to be about jobs but it wasn't. The Recovery Act was a single piece of legislation but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.
Another $150 billion, which was allocated to state coffers to continue programs like Medicaid, did not add new jobs; hundreds of billions were set aside for tax cuts and for new benefits for the poor and the unemployed, and they did not add new jobs. Now state budgets are drowning in red ink as jobless claims and Medicaid bills climb.
Next year state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending, raise taxes, or both. State and local governments, representing about 15% of the economy, are beginning the worst contraction in postwar history amid a deficit of $166 billion for fiscal 2010, according to the Center on Budget and Policy Priorities, and a gap of $350 billion in fiscal 2011.
Households overburdened with historic levels of debt will also be saving more. The savings rate has already jumped to almost 7% of after-tax income from 0% in 2007, and it is still going up. Every dollar of saving comes out of consumption. Since consumer spending is the economy's main driver, we are going to have a weak consumer sector and many businesses simply won't have the means or the need to hire employees. After the 1990-91 recessions, consumers went out and bought houses, cars and other expensive goods. This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending.
This process is nowhere near complete and, until it is, the economy will barely grow if it does at all, and it may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of excessive debt has been completed. Until then, the economy will be deprived of adequate profits and cash flow, and businesses will not start to hire nor race to make capital expenditures when they have vast idle capacity.
No wonder poll after poll shows a steady erosion of confidence in the stimulus. So what kind of second-act stimulus should we look for? Something that might have a real multiplier effect, not a congressional wish list of pet programs. It is critical that the Obama administration not play politics with the issue. The time to get ready for a serious infrastructure program is now. It's a shame Washington didn't get it right the first time.
I don't know U.S. News & World Report well enough to say anything about Mr. Zuckerman being conservative or not, being Dutch, but I understand it to be a serious publication. (A Dutch journalist once described it as "pretty boring".) Assuming the numbers Mr. Zuckerman quotes are correct -and they seem to tally with what I have in mind- I can't really find fault with his opinions. After all, the U.S, economy depends on consumer spending for some two-thirds of U.S. GDP. How one could expect the U.S. economy to make a quick recovery is something I am unable to understand.
Posted by: Martin | July 15, 2009 at 04:55 AM
"BUT YET" ... the stock market continues to rally. "But yet" is the new equivalent of "irrational exuberance." While bad news piles up on bad news, bulls find some sliver of hope to drive the market north. Often that sliver of hope is hyped so much that it obscures reality. Yesterday, for example, the market made a great move upward because an analyst was on CNBC and was strong on Goldman -- I watched that interview ... she also said that she thought unemployment would go above 13% and, she added, she actually thinks things will be even worse, but she said she doesn't have enough courage to say how bad she thinks things will actually get. "But yet," on the basis of her sliver of hope about Goldman, the market rallied. At a certain point, the fundamentals will crash with the slivers of hopes and dreams that are now driving the market.
Posted by: Doug Poretz | July 15, 2009 at 09:43 AM
I have three part-time jobs. I've stopped looking for full-time employment because it seems useless. I have 300 credits and a post-graduate degree. The job market sucks!!
Why doesn't the BLS count me!?! Why aren't I important enough to be a statistic!?!
Posted by: Abraham | July 15, 2009 at 11:07 AM
It's blatantly obvious what "their" priorities are.
Posted by: edgar | July 15, 2009 at 12:13 PM
In the past decade, say 1999 - 2009, America invested at least $30 trillion in living a very good time and in things now confirmed to be quite useless. (Remember granite counter top and big flat screen TV?) Much of the money was borrowed, which of course stays a debt with interest compounding. But the asset side is pretty much wiped out. That's what Americans did. Not to mention what the federal government did!
Economic history going back a few centuries clearly shows how such a state of affair behave. It grows and declines as a almost perfect Bell curve. This is fact. Since it took a decade to bubble up it will take a decade to puff down. The peak was hit in the past few months, and likely stay almost peak for the rest of 2009. Therefore, the unwinding will last to 2019. There will be no sign of recovery, however you define that word, for a minimum of 5 years.
Why am I writing this? To deliver a true sense of reality, so that one can do serious and realistic planning for one's future.
Posted by: The Real Deal | July 15, 2009 at 03:21 PM
Sorry, don't agree with you on "serious infrastructure program" to stimulate the economy.
Why? It would take 10 years to start any "serious infrastructure program". You need to get it past the lawyers and environmentalists and NIMBYs and BANANAs. Not happening.
To get cash into the economy, look at the most distressed portion: Those laid off over 50 years old. Bring them into Social Security and Medicare. The USA has no jobs for them. There won't be any before they retire. Whom are we kidding? One year of unemployment will not get them to 62.
Posted by: Printfaster | July 15, 2009 at 04:33 PM
Pretty good. Nothing earth shattering but a good overall "why were more screwed than we think" roundup. Wonder what kind of placement, if any, it got in the print edition. Considering a large chunk of the article was a critique of the U3 and Birth/Death Model, it would have been nice if the author at least mentioned this so as to educate the casual reader. He could have run through U1 to U6 and Birth/Death with about as much ink.
Covered a lot of ground. from article:
>making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.
Not to mention the fact that many of these jobs were crappy low wage ones anyway. For many this recession started back in 2001 and just never ended.
>The paycheck has returned as the primary source of spending.
Could have mentioned that this is a good thing, at least in the long run.
>The time to get ready for a serious infrastructure program is now. It's a shame Washington didn't get it right the first time.
I'm not a big fan of deficit spending as a plan, but if you are going to do it, don't waste it. If we are going to do a 2nd stimulus (let's get real, barring some massive dollar event, they wont be able to resist, one year, two years, they will do it) don't try to make it a short term fix for the current pain. The ship has already sailed on that one. Make it something with long term gains.
And maintaining/patching the infrastructure of the last century will not pay dividends in the long run. Build the one for the next. Upgrade the electrical grid so that next gen power can be delivered from where it is produced to where it is consumed. Build light rail in areas that have reached critical population density. Electrify existing rail to begin moving away from long haul trucking, diesel and coal powered rail. Allocate larger chunks of the wireless spectrum for unliscened use. Rollout broadband in rural areas, and massive broadband speed upgrades in areas that have it. Fiber to the home and wireless will lay the foundation for information access for the next 100 years, get started!! Most of this might not even need to be direct spending and could be done through loan guaranties. Some will fail, some wont. Math probably works out better than straight capital injection and provides a better way to gauge the merits of the project.
>This process is nowhere near complete and, until it is, the economy will barely grow if it does at all, and it may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of excessive debt has been completed.
I tend to think that a lot of the bears are still too optimistic for my taste. They have a longer timeline for this all "working through the system" than the bulls. I think the bears are likely right but they assume that after that we can at least *start* to move upwards. I tend to disagree. Mostly based on ideas from peak oil, resource depletion, population growth, etc. I think that right around the time we should be coming out of this, we will be hit with and even larger and more fundamental challenge to growth. Scarcity like we have never seen it before. Depending on the timing there *could* be a short period of growth in between.
Printfaster:
>Those laid off over 50 years old. Bring them into Social Security and Medicare.
Seriously, that's your idea. Get more ppl dependent on the Fed gov't for their ability to survive. Expand social programs with no means test?! Medicare should be expanded to all or shut down. SS should be flat out SHUT DOWN. I don't mean shaft everyone, I mean see how much is really left in the funds(it will be a lot less than you think) and start writing checks. Start with the oldest who have paid in the longest(include a net worth/income cap) and work your way down. Someone my age(31) should receive just about... NOTHING. I have no problem with this as long as I know I will never pay another dollar into the SS system. This would at the same time be a HUGE stimulus and MASSIVELY improve the long term prospects of the federal budget. New programs if needed to fill the gap should put it in the budget so they can't lie about it and pretend they are not spending SS money like drunk sailors.
p.s. Michael: why does the comment section not take html tags? It clearly understands them as it removes the tag from being visible in the text, but does not take the action prescribed by the tag. Just curious if this is a switch you could flip?
-vividvew
Posted by: vivdvew | July 15, 2009 at 09:42 PM