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This is a tale of two cities. Well, two streets, Wall Street and Main Street, with a stop on Pennsylvania Avenue along the way. On Wall Street all is cheery, if you don't count the investment banks that are faced with rising costs, lower incomes, and the need to pare staffs. Investors have watched shares soar: the Dow Jones Industrial Average, the S&P index of 500 stocks and the Nasdaq are all well up on the year "â?? by 9.3 percent, 6.8 percent and 7.8 percent, respectively, even after the sell-off that followed today's jobs report.
It is also a story of two tables, the conference table in the board room and the kitchen table in most American homes. In the next two weeks executives gathered around board room tables will be reporting more-than-satisfactory second-quarter earnings -- topping last year by around 14 percent, according to an analysis by Brown Brothers Harriman (retailers won't do that well, companies selling in emerging markets will do better). The politically astute among them are keenly aware that corporate profits are outstripping the performance of the overall economy, and that the high profits they are earning abroad inflame voters who accuse them of exporting jobs and importing goods made by foreign workers in overseas plants. Still, happiness with high earnings trumps nervousness about the political reaction to them.
On Main Street, here is something that passes for good news: according to Epiq Systems, the number of Americans filing for bankruptcy dropped in June to 5,483 per day, from 5,846 in May, and now are running 10% below last year's level. That, of course, could not offset the impact of Friday's indescribably grim jobs report. Only 18,000 new jobs were created in June, the unemployment rate inched up from 9.1% in May to 9.2%, average hourly earnings ticked down, previous reports of job creation in April and May were revised downward, and 6.3 million workers have been out of work for six months or longer. Over 16% of the work force, some 25 million workers, are either out of work, involuntarily working only part time, or too discouraged to continue pounding the pavements of circulating resumés in the hunt for a job. About the only ray of sunshine is that the private sector created at least a few jobs "â?? a measly 57,000 -- while the public sector work force shrank by 39,000.
The political consequences of this horrible report are difficult to divine. For the President, the rise in the unemployment rate is bad news, indeed. But Republicans will find it harder to argue that spending cuts now are just what the economy ordered. With monetary policy on hold, it is less clear than it was a short time ago that fiscal policy should tighten suddenly and by a lot.
Jobs are not the only topic being discussed around kitchen tables in America. Another is the higher cost of food and clothing, the latter due to rise further because retailers have pared inventories to keep discounting to a minimum during the back-to-school and Christmas shopping seasons. Gasoline prices are on the rise again after a brief drop, and now stand at some 30% above the level at the beginning of the year.
Still another kitchen-table topic is the housing market, and not only in the homes of laid-off construction workers. Most Americans tell pollsters that they still consider home ownership an important part of the American dream, and so are more than a little upset about the continuing high level of repossessions and the prospect of rising interest rates as government agencies begin to withdraw support for the mortgage market.
Drop in for a chat around two-out-of-three kitchen tables in America, and you will hear that the country is on the wrong track. Americans lucky enough to have jobs see neighbors who are less fortunate, and fear there is an unemployment queue in their future. They also have spent months watching a dysfunctional political system at work. Even if the President and the Republicans finally reach some sort of deal to cut the deficit and raise the debt ceiling when they gather for a see-how-hard-we-work photo op in the White House on Sunday, the political process that has dominated the negotiations is raising healthy cynicism to a level that is unhealthy for a democracy.
The good news is that the sluggishness of the recovery is due in good part to policies that can be reversed. America is not in terminal decline, but the victim of a president who wants to see the unemployment rate come down, but not at the expense of interrupting what he calls his "transformation"? of the American economy, or of antagonizing the trade unions he needs to supply his re-election campaign with cash and doorbell ringers.
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