Robert B. Reich: The real economy: The weather is still stormy
By Robert Reich
Economic forecasters exist to make astrologers look good. But the recent jubilance is enough to make even weather forecasters blush.
“The economy is going gangbusters! Just look at consumer spending!”
“Look at home prices! Look at the bull market!”
I can understand the jubilation in the narrow sense that we’ve been down so long, everything looks up. Plus, economists who are paid by Wall Street or corporations tend to cheerlead because they believe that if consumers and businesses think the future will be great, they’ll buy and invest more — thereby creating a self-fulfilling prophecy.
But prophecies can’t be self-fulfilling if they’re based on wishful thinking.
The reality is we’re still in the doldrums, and the most recent data gives cause for serious worry. Jobs are still scarce. The share of the working-age population in jobs remains the lowest in 35 years, before wives and mothers began streaming into paid work.
And wages are still going nowhere. Most of the new jobs created since the recovery began pay less than the jobs that were lost in the recession, which means consumer spending will slow because consumers just don’t have the money to keep spending.
Yes, consumer spending is up. The Commerce Department reports that consumer spending rose 3.4 percent in the first quarter of this year.
But that’s only because Americans have been saving less. The personal savings rate dropped to 2.3 percent — from 5.3 percent in the last quarter of 2012. We’re down to the lowest level of savings since before the Great Recession. You don’t have to be an economic forecaster, or an astrologer, to see this can’t go on.
Yes, home prices are rising. The problem is, they’re beginning to rise above their long-run historical average. (Before the housing crash they were way, way above the long-run average.) We’ve been here before: The Fed is keeping interest rates artificially low, allowing consumers to get low-cost home-equity loans and to borrow against the rising values of their homes. Needless to say, this trend, too, is unsustainable.
And, yes, the stock market is roaring. But, as we’ve learned before, that has little if anything to do with widespread prosperity. Over 90 percent of the value of the stock market — including 401(k)s and IRAs — is held by the wealthiest 10 percent of the population.
The main reason stock prices have risen is corporate profits have ballooned. But this is largely because corporations have slashed their payrolls and kept them low. Which brings us full circle, back to the fundamental fact that most Americans’ wages are going nowhere.
Not even fat corporate profits are sustainable if American consumers don’t have enough money in their pockets. Exports can’t make up for the shortfall, given the rotten shape Europe is in and the slowdown in Asia. So don’t expect those profits to continue. In fact, the latest Commerce Department report shows that corporate profits shrank in the first quarter, reversing some of the gains in the second half of 2012.
If all this wasn’t enough reason to sober up, bear in mind that we still aren’t feeling the full effect of the cuts in government spending. The sequester is expected to be a substantial drag on the economy in the months ahead.
Look, I don’t want to rain on the parade. But any self-respecting weather forecaster would tell you to zip up and take an umbrella.
Don’t be swayed by all the sunny talk about increased consumer spending, rising home prices and a bull market on Wall Street. The only things that really count are jobs and wages. And by these measures, most Americans are still in a bad storm.