Heading For a Double-Dip Recession?
Recession: A day after purchasing managers reported an "unexpected" slump in manufacturing, another surprise report shows consumer spending falling for the first time in nearly two years. Double dip, anyone?
Despite the largest Keynesian spending splurge in the history of the planet, the economy continues to founder.
The last two years' "stimulus" - meant to get consumers and businesses humming again - was in excess of 10% of GDP, an unheard of economic intervention, exceeding even FDR's during the Depression.
Tragically, the result has been the same: failure. Indeed, if anything, trillions of dollars of federal stimulus seems to have damaged hopes for a rebound.
With joblessness at 9.2%, the manufacturing sector showing signs of decline and consumers on the ropes, it's time to consider that we might be lapsing into recession again - a little over two years after we emerged from the last one.
Just weeks ago, many economists were convinced the second half of 2011 would be bullishly strong, with higher auto output, a bottoming in home sales and prices, and perhaps even a modest pickup in jobs. Today that scenario doesn't look so likely.
Just last week the Commerce Department reported that GDP in the first half posted a less-than-1% growth rate - really a rounding error from zero. Worse, revisions showed the decline during the first recession was far deeper than thought - 5.1% rather than the 4.1% first reported. So current weakness looks even worse.
Now comes more bad news. On Tuesday the government reported consumer spending slowed 0.2% in June, at a time in our two-year-old recovery when it should be growing strongly. Adjusting for inflation, spending was flat, after falling two months in a row.
On net, then, it appears consumer spending was in the red in the second quarter. There's a powerful correlation between economic growth and consumer spending, so this is the strongest sign yet we're heading back into recession.
Those hoping the new debt-ceiling deal will help are kidding themselves. We'll still add $7 trillion or more to our national debt over the next 10 years - an amount that will be a drag on the economy for decades to come.
Virtually all economists now agree: Business investment and job creation hold the key to a sound, rapidly growing economy. But businesses have been vocal about what they see as the problem: uncertainty.
They don't know if U.S. government debt will be downgraded from AAA, setting off a spike in rates across the economy. They don't know what their tax rates will be next year. They see hundreds if not thousands of new regulations coming down the pipeline. And they hear politicians on the left - from Obama to Reid and Pelosi - routinely demonizing them.
Who invests and creates jobs in such an environment?
If the economy stumbles and falls, it's the Democrats' recession. After three years, their policies have met with nothing but failure - a fact that report after economic report now seems to bear out.