U.S. Already In a Growth Recession
Economy: As the president works on his golf game, the economy is coming apart again. Housing is taking another leg down, job gains seem to be tailing off and a fiscal iceberg lies just ahead. Will someone sound the alarm?
President Obama has busied himself with many things lately - angering longtime allies such as Israel, plunging us into an open-ended conflict in Libya without congressional approval, spending quality face-time with the British royals, golfing on Memorial Day.
On Wednesday, he even found time to declare June "Lesbian, Gay, Bisexual and Transgender Month."
We know the president is busy, but maybe it's time he returned to thinking about our foundering, job-challenged economy.
Recent data show a shocking turn south. While some worry we might soon experience a double-dip recession, we're already in a kind of recession - a growth recession. That's where the economy is barely eking out enough growth to create jobs. And the number of jobs being created isn't enough to sop up the unemployed and new entrants to the workforce.
Consider these data, all from one day:
• ADP reported that, based on its payroll tally, 38,000 private jobs were created in May - 100,000 short of the minimum needed for healthy growth.
• Employment consultant Challenger, Gray & Christmas said businesses cut 37,135 jobs last month, up nearly 2% from April.
• Housing prices in the U.S. plunged 4.2% in the first quarter, the lowest since the financial crisis began.
• The Mortgage Bankers Association's mortgage application index fell 4% in the final week of May.
• The Institute for Supply Management reported its factory activity index tumbled from 60.4 in April to 53.5 in May - the lowest since September 2009.
Faced with such "unexpected" news, economists are returning to their spreadsheets to revise their growth estimates downward.
The most recent survey of top economists by Blue Chip Economic Indicators shows the average forecast for GDP growth in 2011 fell from 2.9% in April to 2.7% in May. Based on recent data, it will head even lower.
Most economists agree that GDP growth below 3% isn't enough to create sufficient jobs in the private sector to keep unemployment from rising.
Economists also widely believe that our extraordinarily reckless fiscal profligacy is hurting our recovery. From 2008 to 2010, the U.S. borrowed over $3.1 trillion. It will borrow another $1.5 trillion this year.
At the same time, the Fed has added $2 trillion to its balance sheet, mostly to buy all that new debt.
As Michael Pento, senior economist at Euro Pacific Capital, noted Wednesday, "genuine government stimulus comes from low taxes, stable prices, reduced regulation and low debt. Our economic policymakers have scrupulously avoided such remedies." Bingo.
A good start for the president would be to heed the letter sent to him by 150 economists - including some Nobel Prize winners - saying that any increase in our government's debt limit must be offset by even bigger spending cuts in the future.
That's great advice, but by no means enough. It would be a start, a minimal first step. We'll see how serious this president is - and how competent - based on how he responds.