Things do not look good at this point for the US economy despite a rousing rally today on the Dow that brought us back above the 10,000 level. Right now we are facing a major problem in the United States and that is the dreaded, “jobless recovery.” Of course the statement is misleading because without jobs, without consumer spending the American economy does not move. Right now we are suffering from several problems, first and foremost is unemployment, second is lack of consumer confidence and third is the threat of deflation.
Unemployment in June showed no real improvement other than for women. In addition the census is ending and the majority of that workforce will not be unemployed, the tourist season around the Gulf of Mexico is destroyed with many location reporting drop offs of 40-70% over last year which is going to ripple through the region with even more layoffs. Without unemployment dropping and people finding work, there is less consumer confidence which leads to less consumer spending, the details on the numbers can be found through the link:
Consumer confidence took a major drop in the last reporting period, is that a surprise to anyone but economists and politicians? Unemployment is through the roof with an overall 9.5% rate and regional pockets of 20% rates. The states are all broke, states are billions of dollars in the red with California’s Governor Arnold Schwarzenegger trying to pay state workers minimum wage until the budget is passed. In California one in eight people are unemployed and many of those that are employed are taking pay cuts this year with city governments doing extreme service cutbacks to necessities like schools, fire and police services and services to the elderly in disabled. Might take a swipe at your confidence, you can get the details on the numbers from the link below:
Paul Krugman recently wrote about the threat of depression in a NY Times Op-ed piece. This guy is no hack, he’s the 2008 Nobel Prize winner in Economics and an expert in depression era economics. Krugman makes an excellent argument that in spite of rampant fears about inflation, the true risk to our economy right now is actually deflation. If you fear inflation and act accordingly to reduce it you create more potential for deflation. Initially that doesn’t sound so bad, hell prices will go down and you’ll have more buying power. For a small amount of deflation this is true, however it was massive deflation that caused the Great Depression. Neither Krugman or this writer think we’re in for another Great Depression, but what Krugman calls a long depression with a protracted period of severely slow economic growth. The good news friends, is that if you have paid down your debts, and if you haven’t, get going, then you will actually be in a pretty good spot, and as the Dow heads for a potential bottom of 8000, start buying. There is a lot of money to be made with things bottom out, assuming you are fortunate enough to be employed and low on debt. Check out Krugman’s article at the link below: