Double dip recession in US and Europe

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US jobs report points to deepening slump

US jobs report points to deepening slump
By Barry Grey
3 July 2010

The employment report for June released Friday by the Labor Department confirms that the United States is in the grips of a protracted economic slump with no recovery in sight. If anything, the report suggests that the economic situation would best be described as a depression, rather than the official designation of a slow “recovery.”

The Labor Department reported a net loss of non-farm jobs of 125,000, primarily due to the expiration of 225,000 temporary US Census government positions. However, the private sector generated a mere 83,000 net jobs, well below economists’ projections and barely half the number of new jobs needed to keep pace with the normal monthly growth of the labor market.

The anemic increase in private sector jobs in June follows a disastrous performance in May. Friday’s survey downwardly revised the May figure from 41,000 to 33,000.

The impact of a new wave of job and service cuts by deficit-ridden state and local governments began to be felt with a net loss of 8,000 state and municipal positions.

Job gains were largely in low-paying industries—leisure and hospitality, and the temporary help industry. Manufacturing payrolls grew by 9,000, much smaller than the average of 25,000 over the previous five months. Construction shed another 22,000 jobs.

The percentage of the overall working-age population that is in the labor force fell to 64.7 percent—near a 25-year low.

These figures indicate that the most severe jobs crisis since the Great Depression will only grow worse.

According to Friday’s report, two-and-a-half years after the official start of the recession in December of 2007, there are now 15.2 million workers who are unemployed and 25.8 million who are either unemployed or underemployed. Some 6.8 million have been unemployed for more than 6 months. The official underemployment rate—including workers who have given up looking for a job and part-time workers who want a full-time job—stands at 16.5 percent.

The reality, however, is even worse than the dismal picture presented by these official figures.

Perhaps the most disturbing aspect of Friday’s report, ironically, is the nominal fall in the official jobless rate to 9.5 percent from 9.7 percent in May. This is because the decline is due entirely to a contraction in the statistical labor force, a result of the staggering growth of long-term unemployment.

The official labor force shrank by 652,000 workers, primarily due to long-term jobless people giving up looking for work and therefore no longer being counted for the purposes of estimating the unemployment rate. Had these so-called “discouraged” workers continued to look for work, the official rate for June would have been 9.9 percent.

The catastrophic impact of the economic crisis on widening layers of the working population is underscored by the levels of long-term joblessness. The Labor Department reports that 45.5 percent of the unemployed have been out of work for 27 weeks or more (the official benchmark for “long-term” unemployment). The average length of joblessness is now six months (twice the previous record duration).

Other aspects of Friday’s employment report also indicate that the economy is losing momentum. Average weekly hours of work declined, as did average hourly wages.

Friday’s jobs survey comes in the midst of a series of economic reports pointing to weaker growth. This week saw a sharply lower consumer confidence report, a record 30 percent drop in pending home sales for May, a double-digit decline in US auto sales for June, an unanticipated rise in initial jobless benefit claims, and a decline in an index of manufacturing activity to its lowest level since December.

Also on Friday, the Commerce Department reported that factory orders fell by 1.4 percent in May, the first decline after nine months of gains and the biggest drop since March 2009.

The employment report places in sharp relief the indifference of the Obama administration, Congress and both political parties to the social disaster facing millions of working class families.

On the same day the Labor Department report was issued, Congress adjourned for the week-long July Fourth holiday without extending federal unemployment benefits. Some 1.7 million jobless people have already stopped getting an unemployment check (averaging nationally a paltry $335 a week, and far lower in many states), as a result of the expiration of federally funded extended benefits. That figure will rise to 3.3 million by the end of July.

Congress has also failed to allocate additional aid to the states, worsening the fiscal crisis of scores of states and setting the stage for the layoff of hundreds of thousands of public employees, including teachers, firefighters, social workers, etc.—as well as new and more draconian cuts in basic public services.

Obama has barely made an issue of the jobless benefit cutoff, focusing instead on demands that Congress pass a toothless financial regulatory bill tailored to the interests of Wall Street.

On Friday, he responded to the new jobless numbers with a statement that recalls Herbert Hoover’s declaration in 1932 that “Prosperity is just around the corner.”

“Make no mistake,” he declared, “we are headed in the right direction.” He added that “we are not headed there fast enough for most Americans.”

This statement is a direct falsification of the economic reality, intended to deceive and politically disarm the population. It echoes Vice President Joseph Biden’s declaration last month that this is the “Recovery Summer.”

The jobs report indicates that the economy is headed in the wrong direction, and may be slipping back to negative growth. To talk of the “right direction” under the present circumstances—with unemployment, home foreclosures and personal bankruptcies at post-war record levels, and wages, home values and retirement savings being decimated—is an insult to the intelligence of the American people.

For those social layers whose interests Obama serves, however, things are going not at all badly. The banks are making near-record profits and rewarding their CEOs with multi-million-dollar pay packages, and corporations across the board are using mass unemployment to drive down wages and drive up labor productivity.

An article by Brett Arends published June 29 on the MarketWatch web site notes: “Numbers published by the Federal Reserve a few weeks ago show that corporate profit margins have just hit record levels. Andrew Smithers, the well-regarded financial consultant and author of Wall Street Revalued, calculates from the Fed’s latest Flow of Funds report that corporate profit margins rocketed to 36 percent in the first quarter. Since records began in 1947 they have never been this high. The highest they got under Ronald Reagan was 30 percent.”

Arends also notes a recent report that estimates the super-rich of North America saw an 18 percent jump in their wealth last year.

In his article, entitled “The Three Biggest Lies About the Economy,” Arends cites statistics showing that the actual level of unemployment in the US is about 25 percent. He writes: “An analysis of data at the US Labor Department shows that there are 79 million men in America between the ages of 25 and 65. And nearly 18 million of them, or 22 percent, are out of work completely. (The rate in the 1950s was less than 10 percent). And that doesn’t even count those who are working part-time because they can’t get full-time work. Add those to the mix and about one in four men of prime working age lacks a full-time job.”

 

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The Three Biggest Lies About the Economy - Yahoo! Finance

The Three Biggest Lies About the Economy
by Brett Arends
Tuesday, June 29, 2010

The G-20 calls for members to slash their budget deficits. The U.S. Senate ices further aid for the unemployed. The head of the Business Roundtable slams President Obama for undermining American capitalism. Wall Street succeeds in watering down reform.

Depending on your politics, you'll love this or hate it.

But there's just one problem.

We're still living in a fantasyland. Most people have no idea what's really going on in the economy. They're living on spin, myths and downright lies. And if we don't know the facts, how can we make intelligent decisions?

Here are the three biggest economic myths — the things everything thinks they know about the economy that just ain't so.

Myth 1: Unemployment is below 10%

What nonsense that is. The official jobless rate, at 9.7%, is a fiction and should be treated as such. It doesn't even count lots of unemployed people. The so-called "underemployment" or U-6 rate is an improvement: For example it counts discouraged job seekers, and those forced to work part-time because they can't get a full-time job.

That rate right now is 16.6%, just below its recent high and twice the level it was a few years ago

And even that may not tell the full story. Many people have simply dropped out of the labor force statistics.

Consider, for example, the situation among men of prime working age. An analysis of data at the U.S. Labor Department shows that there are 79 million men in America between the ages of 25 and 65. And nearly 18 million of them, or 22%, are out of work completely. (The rate in the 1950s was less than 10%.) And that doesn't even count those who are working part-time because they can't get full-time work. Add those to the mix and about one in four men of prime working age lacks a full-time job.

Dean Baker, economist at the Center for Economic and Policy Research in Washington, D.C., says the numbers may be even worse than that. His research suggests a growing number of men, especially in deprived, urban and minority neighborhoods, have vanished from the statistical rolls altogether.

Myth 2: The markets are panicking about the deficit

To hear the G-20 tell it, the U.S. and other top countries had better slash those budget deficits before the world comes to an end.

And maybe the markets should be panicking about the deficits.

But they're not. It's that simple.

If they were, the interest rate on government bonds would be skyrocketing. That's what happens with risky debt: Lenders demand higher and higher interest payments to compensate them for the dangers.

But the rates on U.S. bonds have been plummeting recently. The yield on the 30-year Treasury bond down to just 4%. By historic standards that's chickenfeed. Panicked? The bond markets are practically snoring.

They aren't seeing inflation either. On the contrary, they're saying it will average just 2.3% a year over the next three decades. That's the gap between the interest rates on inflation-protected Treasury bonds and the rates on the regular bonds. By any modern standard the forecast is low. Instead of worrying about inflation, some are starting to worry about something even more dangerous: deflation, or falling prices.

If that takes hold, cutting spending and raising taxes would be a bad move.

It's certainly possible the lenders buying these bonds are being foolish. And it's worth noting that the Treasury market is also subject to political distortions, because foreign are among the heavy buyers of bonds. So it's worth treating its apparent verdicts with some caution. Nonetheless, the burden of proof, as usual, is on those who argue the market is wrong.

Myth 3: The U.S. is sliding into "socialism"

For a system allegedly being strangled in its bed, U.S. capitalism seems to be in astonishingly robust shape.

Numbers published by the Federal Reserve a few weeks ago show that corporate profit margins have just hit record levels. Indeed. Andrew Smithers, the well-regarded financial consultant and author of "Wall Street Revalued," calculates from the Fed's latest Flow of Funds report that corporate profit margins rocketed to 36% in the first quarter. Since records began in 1947 they have never been this high. The highest they got under Ronald Reagan was 30%.

The picture is also similar when you exclude financials.

The Dow Jones Industrial Average is above 10,000. Small company stocks have rallied astonishingly since early last year: The Russell 2000 index is back to levels seen not long before Lehman imploded. Meanwhile Cap Gemini's latest Wealth Report notes that the North American rich saw an 18% jump in their wealth last year.

Meanwhile, federal spending, about 25% of the economy this year, is expected to fall to about 23% by 2013. In 1983, under Ronald Reagan, it hit 23.5%. In the early 1990s it was around 22%. Some socialism.

These days, three-fifths of the entire budget goes on just three things: Insurance for our old age (through Social Security and Medicare), defense, and debt interest.

Conservatives don't want to cut the $700 billion-plus we spend on defense. We can't cut debt interest payments. And while Social Security and Medicare certainly need reform, the main "problems" are simply rising life expectancy and health care demands. If we didn't provide for the insurance through our taxes we'd have to do it individually.

What about the rest of the budget? It's jumped from around 7% of GDP a few years ago to about 10% now. Out of control? It's been in the 6% to 9% range for decades. It's forecast to fall to about 8% again in a few years.

So much for a revolution. But here comes the counter-revolution just the same.

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Fears rise among leading firms that UK faces double dip recession, says Deloitte | Business | The Guardian

Fears rise among leading firms that UK faces double dip recession, says DeloittePublic spending cuts and worldwide economic slowdown leads confidence to fall to 12-month low, finance director survey finds


Britain's leading companies increasingly fear the UK could suffer a double dip recession because of government public spending cuts and a renewed economic slowdown across the globe, according to a report released today.

A quarterly survey of finance directors conducted by accountancy firm Deloitte reveals that confidence in the economy has fallen to a 12-month low.

They now believe there is a 38% chance of the country falling back into recession, compared to 33% three months ago. The survey, which included finance directors from 32 FTSE 100 companies and 93 UK companies accounting for 28% of the equity market, showed the net percentage of those who were more optimistic had dropped from 40% to 24%. This was not only the lowest reading in a year, but also the second consecutive quarterly decline.

The survey comes after a sharp drop in global stock markets last week following disappointing economic data from Britain, Europe, the US and China. Traders believe there will be more market turmoil this week, despite European Central Bank president Jean-Claude Trichet yesterday playing down the prospect of a severe downturn. Speaking after an economic conference in France, he said he did not believe Europe was facing another recession. Austerity drives and deficit cuts would not damage growth but would restore confidence.

In contrast, Charles Stanley strategist Jeremy Batstone-Carr said: "Western developed economies will have performed a Herculean task if they avoid slipping back into negative territory over the next 12 months."

Today's report from Deloitte suggests that most UK finance directors disagree with Trichet, and see more risks than benefits from the forthcoming squeeze on public spending. Two thirds expected tighter fiscal policy to have a negative effect on their firm, particularly in terms of reduced consumer spending and job losses in the public sector. But 31% expect to see long-term benefits from the squeeze.

There are also signs that companies are less worried about the availability of financing. Although the fall in stock markets has left finance directors more cautious about using equity, bank borrowing is now seen as being as attractive as it was before the credit crunch took hold. Deloitte said: "The growing attractiveness of bank borrowing to corporates partly reflects an improvement in credit conditions. Finance directors now perceive credit as being more available and the cost of new credit lower than at any time since the third quarter of 2007."

Finance directors believe cutting costs is still their top priority, which suggests more jobs could come under threat, though they are also looking at expansion into new markets or developing new products.

Ian Stewart, Deloitte chief economist, said: "The survey paints a picture of concern about growth coupled with improvements in the corporate credit and liquidity environment. With fears of a double dip increasing, chief financial officers are maintaining a strong focus on costs."

Margaret Ewing, vice-chairman of Deloitte, said: "The last three years have been a period of exceptional volatility. Finance directors are not convinced the problems are over, but what emerges from this quarter's survey is that they are alive to the risks and looking for opportunities in what lies ahead."