The Economic Engine Still Can’t Make It
It's hard to believe we’ve been chugging along in this valley for two and a half years. During the second half of the third year of this recession will we be able to climb out?
According to a new Pew Research Center Report, 62% of Americans believe they will be better off financially by the beginning of next year. Right now, however, the economic engine doesn’t seem to be gaining steam or confidence.
The employment scene is still pretty atrocious-this report also states that since the beginning of the recession 55% of adults in the workforce have been negatively affected either through lay-offs, pay cuts, or a reduction in hours. Jobless claims numbers just released were up for the week, for the 4-week moving average and continuous claims are up to 4.6 million.
Naturally this has led to less income which is bad, and therefore less spending, which is good and bad. Being frugal is generally a good thing. People have been changing their spending habits and reliance on debt, but it's been a forced change. You can't spend as much if you don't make as much and you can't borrow more when your credit limit has been lowered and bank lending requirements have become more stringent.
The bad consequence of less spending is less demand for goods and services. This is what drives the growth of business and the engine of economic expansion. So if demand doesn’t pick up the economy won’t either. The ISM Manufacturing Index came in today and although the economic growth in the manufacturing sector is continuing, the pace slowed down in May.
Pending sales of existing homes were announced today and the total for May was a drop of 30% from April.The housing market hit the skids again because the stimulus program ended and because millions of foreclosed properties are either on the market or still in bank inventories. According to a recent study by LPS Applied Analytics, given the current rate of home sales, this overhang will take more than eight years to go away and the timeframe doesn’t even factor in homeowners who are over 90 days late on their mortgage payments or homeowners who have been on the sidelines waiting to sell as soon as the market activity picks up.
The U.S. economic engine is still struggling to get up that hill and out of the valley; it keeps sputtering, “I don‘t think I can, I don‘t think I can.“