Economic Misery: The New Normal
How the Obama administration is fudging the numbers on our economic decline.
(/sites/default/files/uploads/2013/05/michigan-unemployment-claims.gi_.top_1.jpg)The weakest recovery in the nation’s history continues. On Wednesday, payroll processing firm ADP reported that private sector businesses created a disappointing 119,000 jobs in the month of April. Once again, to use a word that should embarrass those who support the Obama administration’s Keynesian economic policies, this meager total was “unexpected.” Economic “experts” surveyed by Reuters had predicted at least 150,000 new jobs. ”Nearly every industry has seen slower growth since the beginning of the year,” said Moody’s economist Mark Zandi. “Smaller businesses are experiencing much weaker growth.”
Most of the jobs were created in the service industries, which added 113,000 positions, while goods production accounted for the other 6,000. Both figures represented 7-month lows in growth. Adding to the misery, ADP’s March total of 158,000 jobs gained was revised downward to 131,000, and the latest data show the manufacturing sector, which lost 10,000 jobs, has plateaued, or may be slowing down again.
The level of economic weakness is daunting. According to Bespoke Investment Group, the seven year stretch of Gross Domestic Product (GDP) growth below three precent, occurring from 2006 to the present, represents the longest one since 1929, the year which marked the beginning of the Great Depression.
Furthermore, despite a U3 unemployment rate of 7.6 percent, used by the Bureau of Labor Statistics (BLS) to calculate “official” unemployment, the U6 rate that far more accurately reflects reality, is 13.8 percent. The reason the U3 rate is misleading is because people who have given up looking for work aren’t counted as unemployed. Since America’s workforce participation rate is at its lowest level since 1979, reality is being manipulated to make the Obama administration’s dismal economic policies look better than they actually are.
Still more manipulation is being pursued by the feds. They are going to revise how GDP growth is calculated. Research and development spending, as well as the capital value of all “intellectual property,” such as books, movies, records, television programs and plays–produced since 1929--will be added to the total. Michael Pento, founder of Pento Portfolio Strategies, cut to the heart of the subterfuge. ”When GDP numbers are chronically bad and the labor force participation rate is perpetually falling, our government will do the same thing they did for the inflation data–tinker with the formula until you get the desired result,” he explained.
Pento further notes that no amount of manipulation can obscure the reality that federal revenue intake has remained stagnant for six years, even as the national debt has soared by nearly $7 trillion. ”It’s a shame they won’t just implement real measures to grow the economy like reduce regulations, simplify the tax code and balance the budget.”
For progressives, such solutions are completely antithetical to their desire for ever-expanding government. Despite historically anemic growth, and $7 trillion of additional debt that is nothing more than stimulus by another name, the Obama administration will continue to pursue such destructive policies.
Thus, it was no surprise that Federal Reserve’s Open Markets Committee (FMOC) voted 11-1 Wednesday to maintain their latest quantitative easing project that consists of keeping interest rates near zero and maintaining $85 billion of asset purchases ($45 billion in Treasurys and another $40 billion in mortgage-backed securities) per month. The one notable change: asset purchases would increase or decrease depending on economic conditions. ”The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes,” a statement said.
Moreover, they criticized the so-called budget cuts imposed by sequestration for holding back the economy. One is left to wonder what held back the economy for the four years preceding the $85 billion in automatic spending cuts. Those years included stimulus spending totaling more than $4 trillion in borrowed money. That “pump priming” was supposed to bring unemployment below 6 percent, a number as inaccurate as the Obama administration’s overly optimistic growth predictions that also fell short--unexpectedly–year after year.
Ken Griffen, head of the Chicago-based hedge fund Citadel, explains what companies do in an artificially created, low-interest rate environment. ”As we’ve all learned over the years, if you reduce the cost of capital you increase your use of fixed assets and you take out jobs. Corporate America, seeing an ever increasing cost for its employee base and extraordinarily low interest rates, is taking every step it can possibly take to reduce employment, to build factories abroad and domestically to substitute technology and automated processes for people,” he contends.
The most onerous increasing cost for an employee base? Obamacare.
Beginning next year, companies with 50 or more employees in 2013 will have to provide health insurance for their workers. As Mark Zandi notes, business with 20 to 49 employees have cut hiring for three straight months, from 53,000 in January to just 17,000 in March. Other businesses are cutting back employee hours, because only full time workers–defined as those who work 30 or more hours a week–are required to be covered. The food service industry, which currently accounts for one out of every 13 jobs, has acknowledged that keeping shifts below 30 hours may be the difference between remaining open, or going bankrupt. Employers forced to reduce the hours of their workers are now known by a telling nickname: “The 29ers.”
Yet it is not just the food service industry that is hurting. The 22,000-member United Union of Roofers, Waterproofers and Allied Workers International who initially supported the healthcare law, is now calling for its repeal. The union contends the law will “jeopardize our multi-employer health plans, have the potential to cause a loss of work for our members, create an unfair bidding advantage for those contractors who do not provide health coverage to their workers, and in the worst case, may cause our members and their families to lose the benefits they currently enjoy as participants in multi-employer health plans.”
Another factor weighing down the economy is weak corporate sales growth. While company earnings haves been robust, sales have been dismal. According to Zacks Investment Research, 38 percent of the 271 S&P 500 companies reporting as of last Friday showed an overall sales decline of 1.45 percent. “The loss of momentum in the U.S. economy has been palpable, but what looks to be a soft patch in yet another 2 percent year for real economic growth now has the potential to morph into something more painful,” said RBC Capital Markets economists Tom Porcelli and Jacob Oubina in a report.
The report then spelled out where that pain would be felt. “What is important to consider on the back of these results is that employment tends to become the victim of a disappointing revenue backdrop,” it stated. “In other words, headcount tends to become the focus in any effort to extract savings and boost bottom line results.”
The bigger picture is even clearer. Despite the populist facade erected by this administration, Wall Street is doing record level business, even as Main Street remains mired uneconomic stagnation and enduring unemployment.
Friday, the “official” unemployment rate for April will be revealed. Measured within the context the smallest labor participation rate since 1979 it will also be irrelevant. Millions of Americans will remain victimized by a reprisal of the Keynesian economic philosophy that turned the 1930s into a lost decade of misery, desperation and despair.
“We have tried spending money. We are spending more than we have ever spent before and it does not work….we have just as much unemployment as when we started… And an enormous debt to boot.” Those words were spoken by the Treasury Secretary. Not Obama’s Treasury Secretary, Tim Geithner. FDR’s Treasury Secretary, Henry Morgenthau–in 1939. Thus, the “new normal” is a lot older than most Americans realize.
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