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Posts Tagged ‘recession’

Bond Yield Curve Points To Major Economic Recession

August 14th, 2019 Comments off

 

Until now, the last time the U.S. Treasury 10-year bond yield dipped below 2-year bonds was in 2007. That event foretold the 2007-08 global economic and financial crisis. This inverted curve has been uncanny in its predictive ability to foretell a near-time arrival of a major recession. Now, in August 2019, we again have an inverted yield curve.

Investors worldwide know the significance of this development. Stock markets, including the Dow Jones, are plummeting by big figures. Is this an overreaction, or a rational response to impending fiscal and economic danger.

The inverted yield curve should not be viewed in isolation. Rather, it should be seen in the context of the escalating trade war between the world’s two largest economies, the growing risk of a hard Brexit, and economic stagnation in Europe.

The warning chimes are growing louder.

U.S. Unemployment Rate Continues To Fall-As Discouraged Workers “Disappear”

May 5th, 2012 Comments off

he latest numbers from the Bureau of Labor Statistics indicate that the United States supposedly “created” 115,00 jobs in April. Not even President Obama’s supporters are cheering loudly over this figure, as it indicates a slowing down of job creation-and that is if the number is accurate. As many know, BLS jobs numbers are usually a mathematical abstraction based  on assumptions and inferences, not hard numbers. In any event, if there were 115,000 jobs created in April, that is below the approximately 200,000 new jobs that must be created in the U.S each month in order to keep up with population growth. In other words, 115,000 new jobs in April would mean that the American unemployment rate would increase.

But in April, again according to the BLS, the U.S. unemployment rate did not increase; in fact it “declined” to 8.1 percent. If job creation is lagging behind the expected entry of new workers into the U.S. labor market, how did the magicians at the Bureau of Labor Statistics construct a reduction in unemployment?  Very simple. There are so many discouraged unemployed workers in the United States, they are simply giving up and “leaving” the labor force. In many cases, actually, the BLS is exercising initiative and assuming that a certain proportion of the unemployed simply drop out of the workforce each month.

The real meaning of the April jobs number is that the participation of age-eligible Americans in the labor force -both working and unemployed-is at a 30 year low. How is that synonymous with an economic recovery?

In point of fact, a staggeringly high rate of unemployment, made artificially lower by not counting those long-term unemployed workers as being part of the active labor force, is by no means characteristic of a post-recessionary economic recovery. What has recovered since the onset of the global financial and economic crisis in 2008 are equity prices, which have regained almost all of their losses. However, that recovery is not due to increased consumer demand stemming from the reentry into the workforce of formerly unemployed workers. Rather, stock prices regained most of their losses and have enjoyed a recovery due almost entirely to the loose monetary policies of the Federal Reserve under the tutelage of its chairman, Ben Bernanke.

In contrast with the policies of President Franklin Roosevelt during America’s Great Depression of the 1930s, which focused on facilitating job creation, the policymakers in the U.S. have focused their efforts on reinflating equity prices through quantitative easing (money printing) and offering banks (including investment banks) historically low interest rates, in effect free money. Perhaps sooner than we can imagine, history will render its verdict on this policy of neglecting a recovery in the labor market in favor of reinflating the stock market.

                 

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Where is the American Consumer?

August 15th, 2009 Comments off

At  its peak level of GDP, the U.S. economy depended on the American consumer for more than 70% of its output of goods and services. It has been the deleveraging of the American consumer, and to a growing extent his/her unemployment, that has been the catalyst of the U.S. recession. And not only America; the centrality of the U.S. consumer to the overall global economy has meant his pulling back on a debt induced shopping spree has sparked a worldwide synchronized recession.

The vast amount of money that Uncle Sam has borrowed to fund a nearly $800 billion economic stimulus program is supposed to substitute for the falloff in consumer demand, stop the avalanche of job losses and in the process regenerate consumer spending. The perception that this policy response was beginning to bear fruit has been the foundation of a recent flurry of statements emanating from the Federal Reserve, intimating that the recession was winding down, with recovery just around the corner. Both the Fed, Obama administration and Wall Street fully expected that the July retail sales figures would reflect a return to growth in consumer spending, juiced up by a taxpayer funding “cash for clunkers” gimmick aimed at kick-starting auto sales.

When the official sales figures were released by the Commerce Department, jaws dropped right through the floor. Instead of the .7% rise that was expected, July’s retail sales figures revealed a decline of .1%. However, the reality was much worse than even the posted decline, for the July figures were artificially inflated by a large increase in automobile related products due to “cash for clunkers.” Without the engineered car driven increase in consumer purchases, the actual retail sales contraction was .6%.

The ugly truth is that no matter how manipulated official economic statistics are, including the U3 unemployment number, the reality is that total consumer purchasing power, reflecting the number of hours worked multiplied by average wage, has declined to a level that makes it virtually impossible to recreate vigorous economic growth. Despite the happy talk from Washington,  I think it would be surprising if the Obama administration does not ask Congress for a second massive stimulus package before the end of the year.

Should a second stimulus package be proposed by President Obama, he may encounter stiff resistance from Republicans and fiscally conservative Democrats over concerns about the exploding national debt. However, it is likely that the Obama administration will place a higher priority on going into the 2010 mid-term elections with the ability to claim they have reduced unemployment rather than positioning themselves as fiscally responsible.

Higher deficits, however ,create the danger of inflation and much higher interest rates. Escalating interest rates will serve as a brake on economic expansion, defeating the purpose of deficit  funded stimulus programs. Now, in that situation, one can always resort to monetary policy, with the Federal Reserve reducing interest rates. However, in this unique economic disaster our planet is currently navigating its way through, the Fed, as with many central banks throughout the world, has already reduced its funds rate to close to zero.

Could the Obama administration be running out of options? If fall retail sales continue to plummet and unemployment rises, things could get even more ugly for the problematic American economy.

 

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com 

 

 

Global Financial Crisis Claims 535,000 Jobs In U.S.

December 7th, 2008 Comments off

The November unemployment numbers released by the U.S. Labor Department show a record 535,000 jobs were lost during the month. This is the worst monthly total of lost jobs ever tabulated, and shows that the full wrath of the global economic crisis is wreaking havoc on the United States economy. With only weeks left in the lifespan of the Bush administration, America appears rudderless at a time when its economy is in dangerous free-fall.

Many economists believe the worst is yet to come. The official unemployment rate, which excludes long-term jobless, now stands at 6.7%. Some experts are forecasting that the number will rise to 8 or 9 percent, or even higher. With fear rife among families about losing their livelihoods, consumer spending in the U.S. will continue to erode, leading to further demand destruction. This is likely to continue the trend of house price deflation, the facilitator of the current credit crisis. A vicious circle of economic implosion is now fully underway, with policy makers in the United States and throughout the world desperately throwing money in vast sums at the problem, hoping something will work. So far, however, nothing seems to be impacting the acceleration of the global economic crisis. It is likely that vast numbers of workers across the globe will be joining the ranks of the unemployed, leading to further recessionary pressures on the global economy and dangerous levels of deflation.