Consumer Spending Across All Income Groups Down in August

Year-over-year self-reported spending is down compared with July 2010 and August 2009

by Dennis Jacobe, Chief Economist

PRINCETON, NJ -- Americans' self-reported average daily spending in stores, restaurants, gas stations, and online averaged $63 per day during August -- down $5 from July, and down $2 compared with August 2009. Consumer discretionary year-over-year spending is thus running just slightly below the depressed "new normal" rate of a year ago.

Upper-Income Spending Remains Far Below May 2010 Levels

Upper-income Americans (those making $90,000 or more annually) reported spending an average of $109 per day in August, down $10 from June and July, and down $36 from May. Spending among this group is also down $7 compared with August 2009. Only once -- in May -- has 2010 upper-income spending exceeded the 2009 "new normal" spending range of $107 to $121 per day.

Month-Over-Month Middle- and Lower-Income Spending Falls

Middle- and lower-income Americans spent an average of $54 per day during August -- down from $64 in July and $62 in June, and lower than the $57 seen in August 2009. Americans in these income groups had been spending at the higher end of last year's "new normal" range of $52 to $61 but are now back to the lower end of that range. More...

March jobs report points to protracted US downturn

By Andre Damon
The US economy gained 162,000 jobs last month, the most in three years, according to the latest figures from the Labor Department. Far from a recovery, however, the figures reveal a stagnant economy with mass long-term unemployment and a continual decline in wages.

The official unemployment rate remained at 9.7 percent. Even by government estimates, the rate is expected to stay at or above 10 percent for months, if not years.

Approximately 48,000 jobs added in March were temporary hires as part of the US census. According to some estimates,150,000 jobs have to be created every month in order to keep up with population growth. Combining these two figures erases the jobs gain.

The broadest measure of unemployment, which includes “discouraged” workers who have left the labor market and people working part-time because there are no full-time jobs, increased to 16.9 percent. This was the third consecutive monthly increase of this figure.

Long-term unemployment continues to rise, as millions of people have been unable to find jobs for months or years. More than 6.5 million have been out of a job for at least six months, up 414,000 from last month, and an all-time high. The average length of unemployment also rose to the highest level on record going back more than six decades—31 weeks.

An article in the Wall Street Journal Friday noted that the problem of long-term unemployment “is markedly worse in this recession than even in the deep slide of 1981 and 1982.” At the peak of the earlier crisis, the percent of unemployed out of work for six months or more was 26 percent, compared to over 40 percent today.

Many of the long-term unemployed will see the cut-off of their benefits and health care this week, as the Senate failed to pass an extension of benefits before taking a two-week recess.

A vast portion of American society is either unemployed or underemployed. About 15 million people are without jobs and look for work every week. Another 9.1 million work part-time because full-time work is not available. And millions more have simply given up looking for work.

The US economy has lost 8.4 million jobs since the start of the downturn, and would need to create 10.8 million jobs for the unemployment rate to return to pre-recession levels.

Wages are also stagnant, as employers have seized on mass unemployment to cut costs and boost profits. Average hourly wages fell by 0.1 percent in March, without taking into account inflation. When inflation is taken into account, average weekly wages fell by 2.2 percent in the third quarter of last year, the latest figures for which data is available.

March’s tepid job growth does not represent, as Obama termed it, “turning the corner” and the beginning of a sustained recovery in jobs. Even by the Obama administration’s own estimates, the US economy will not reach its pre-crisis level of unemployment for another seven years, if ever.

Obama met the jobs report with a speech at a lithium-ion battery plant in Charlotte, North Carolina. The White House had a propaganda video prepared beforehand, featuring interviews from workers at the company, Celgard, who had been rehired after their employer received money from the stimulus bill.

Obama used the speech to insist once again that there would be no federal jobs program to address the unemployment crisis. “The true engine of job growth in this country has always been the private sector, businesses like Celgard,” he said. “What government can do is create the conditions for companies to succeed.”

Indeed, the main component of the “recovery” has been in the profit levels of corporations, aided by the Obama administration. Corporate profits, which are highest when workers are overexploited and underpaid, grew explosively in 2009. The Obama administration’s various “jobs” programs, including the $750 billion stimulus bill, have gone in large part into subsidies to businesses like Celgard.

The growth of exploitation is reflected in a dramatic increase in labor productivity. Last month the Labor Department announced that labor productivity increased at a rate of 6.9 percent, meaning that, on average, people are working 7 percent harder now than they were a year ago.

All of this has taken its toll on the working class. A study of court records found that there were 158,000 personal bankruptcy filings in March, an increase of 35 percent since February, and up 20 percent from the same time last year.

The housing situation is even worse. In 2009 there were 2.8 million foreclosures, but RealtyTrac.com, a property marketplace, expects another 4.5 million people to lose their homes next year.

The Obama administration is presiding over a job-cutting offensive on all levels of the government. States and cities are facing record budget deficits and are responding by slashing social programs and jobs. Leaving aside temporary census hiring, the government sector shrank dramatically in March, including 3,500 postal jobs, 5,000 state government jobs, and 4,000 in local government.

But even more job cuts are coming. Employers announced plans in March to cut 67,611 jobs according to Challenger, Gray & Christmas. This is a 61 percent increase from February. Planned layoffs in the government sector amounted to an astounding 75 percent of total job losses. The US Postal Service is leading other services, announcing that it would reduce its workforce by 30,000 this year.

Far from creating jobs, the Obama administration’s program is to foster an economic environment with high unemployment, low social spending, and falling wages. This is done in the direct interest of boosting the profits of corporations.

25th monthly decline in net jobs in the last 26 months

Image by Vlastula via Flickr

US payrolls shrank by 36,000 in February
By Barry Grey
6 March 2010

The Labor Department’s employment report for February, released Friday, showed that the US economy is continuing to shed jobs, wages are continuing to decline, and the so-called economic “recovery” is based on an accelerating fall in the living standards of the working class.

The Obama administration hailed the report, which showed a less-than-expected net job loss of 36,000 and no rise from January’s official jobless rate of 9.7 percent, as a positive sign of a “stabilizing” labor market and a vindication of its economic policies. For the most part, the media similarly cast the report as a confirmation that the economy is improving.

This only highlights the chasm separating the political and corporate establishment from the vast majority of the American people. The report not only registered the 25th monthly decline in net jobs in the last 26 months, it showed an overall increase in the number of people counted officially as unemployed to 14.9 million, including 6.1 million who have been without a job for more than six months.

What is called the “underemployment rate,” which includes those who have given up looking for work and those involuntarily working part-time, shot up to 16.8 percent from 16.5 percent in January. Even this figure underestimates the devastating impact of the economic crisis. Many of the new jobs being created pay less than the jobs that have been lost and many are part-time.

The number of those working part-time because they cannot get a full-time job or because their hours have been slashed rose in February by half a million, to 8.8 million from 8.3 million in January. A separate report released by the Labor Department Thursday on productivity and labor costs provided a statistical reflection of the way in which mass unemployment is being used to extract more production from those who have a job for the same or lower wages—and consequently higher profits for big business.

The Labor Department revised upward its gauge of productivity growth for the fourth quarter of 2009 from an annual rate of 6.2 percent to 6.9 percent. Unit labor costs, it said, fell 5.9 percent, as compared to its original estimate of 4.4 percent, and inflation-adjusted hourly wages fell by 2.8 percent from the prior quarter. These figures document a sharp rise in the intensity of the exploitation of the labor force.

President Obama touted the jobs figures as “better than expected.” He went on to call the jobless rate “more than we should tolerate,” but signaled that he remained opposed to any government jobs program, saying, “We’ve got to do everything we can to help the private sector create jobs.”

This means, in practice, providing more tax cuts for business in the guise of a “jobs program.” On Thursday, the Democratic-controlled House of Representatives passed one such measure, similar to a bill passed earlier by the Democratic-led Senate, which would give $15 billion in tax credits to companies that hire unemployed workers. Even business groups dismissed this derisory measure, saying it would do little to drive down the jobless rate.

Christina Romer, who chairs the White House Council of Economic Advisers, said Friday’s jobs report “is consistent with the pattern of stabilization and gradual labor market healing we have been seeing in recent months.”

Senate Majority Leader Harry Reid, Democrat from Nevada, was even more effusive. Speaking from the floor of the Senate, he said, “Today is a big day in America. Only 36,000 people lost their jobs today, which is really good.”

On income, the employment report for February showed a further fall in average weekly earnings of 0.4 percent. Over the past 12 months, average hourly earnings, adjusted for inflation, are down 0.8 percent. The average work week declined 0.1 hour, to 33.8 hours.

The steepest job losses were in construction, which lost 64,000 positions. Local governments cut 31,000 jobs, a reflection of the budget cuts being carried out across the country. The financial industry cut 10,000 jobs. Factories eked out a net gain of 1,000 jobs, largely on the basis of reduced wages and intensified speedup.

The federal government added 7,000 jobs, in part due to the hiring of part-time census workers. The biggest increase by far was in temporary employment, which rose by 48,000.

Many analysts claim that the report would have shown a net increase in jobs were it not for severe snow storms that hit the East Coast in February. However, economists estimate at least 100,000 new jobs have to be generated each month just to keep pace with new entrants into the labor force. Even the rosiest prognoses, such as those of the Obama administration, project official unemployment above 9 percent for the remainder of the year. Bloomberg News reports that economists it has surveyed predict that the jobless rate will average 9.8 percent this year and end the year at 9.5 percent.

This means increasing poverty and desperation for millions of Americans. One barometer of the social crisis is a report released earlier this week by the American Bankruptcy Institute showing that consumer bankruptcy filings surged 14 percent in February, compared to a year earlier. February filings also increased by 9 percent from the previous month.

Bankruptcy filings in 2009 were up 32 percent from the previous year, hitting 1.47 million. They are expected to top 1.5 million this year.

Other economic data released this week similarly point to a protracted slump. The National Association of Realtors on Thursday reported that pending home sales unexpectedly dropped sharply in January, contracting by 7.6 percent from the previous month. Last week the Commerce Department reported that sales of newly-built homes fell in January by 11.2 percent from December to the lowest total in almost 50 years.

With the Federal Reserve poised to end its purchase of hundreds of billions of dollars in mortgage-backed securities at the end of the month, the prospects for a lasting stabilization or improvement in the housing market are remote. Home sales and prices are likely to resume their downward spiral, further depleting the wealth of ordinary Americans.

The Recession Is Over, the Depression Just Beginning

...In his upcoming State of the Union address, Obama is expected to repeat his post-China trip message that fiscal austerity (meaning sharp social spending cuts) is necessary to cut the public debt. In other words, bankrolling Wall Street, health insurers, the drug cartel, other corporate favorites, and war profiteers will continue while working Americans won't be helped during the greatest economic crisis in their lifetimes, a protracted one that will last years.

Looking ahead in 2010, the state of the nation for most people is dire and worsening, and 2011 looks no better. City mayors are on the front lines dealing with it. So are governors at their state levels, but increasingly they're getting less help from Washington from an administration with priorities leaving them out and the millions they serve, on their own and out of luck.

Stephen Lendman
In late 2009, former Merrill Lynch economist, now with the Canadian firm, Gluskin Sheff, said the following:

"The credit collapse and the accompanying deflation and overcapacity are going to drive the economy and financial markets in 2010. We have said this repeatedly that this recession is really a depression because the (post-WW II) recessions were merely small backward steps in an inventory cycle but in the context of expanding credit. Whereas now, we are in a prolonged period of credit contraction, especially as it relates to households and small businesses."

Summarizing his 2010 outlook, Rosenberg highlighted asset deflation and credit contraction imploding "the largest balance sheet in the world - the US household sector" in the amount of "an epic $12 trillion of lost net worth, a degree of trauma we have never seen before," even after the equity bear market rally and "tenuous" housing recovery likely to be short-lived and illusory with a true bottom many months away.

As a result, consumer spending will be severely impacted. "Frugality is the new fashion and likely to stay that way for years," highlighting a secular shift toward prudence and conservatism because households are traumatized, tapped out, and mindful of a bleak outlook. It shows in new consumer credit data, contracting $17.5 billion in November, the largest monthly amount since 1943 record keeping began.

Surprisingly, only people over age 55 have experienced job growth. All others have lost jobs, can't get them, and for youths the "unemployment crisis (is) of epic proportions." In addition, there's a record number of Americans out of work for longer than six months, in part because the "aging but not aged" aren't retiring, and those who did are coming back, of necessity, to make up for wealth lost.

Rosenberg stresses that for a sustainable recovery to begin, the ratio of household credit to personal disposable income must revert to the mean and reach an excess in the opposite direction. In the 1950s, it was 30%. Today its 125%, down from the late 2007 139% peak, with a long way to go taking years, and when it's over, another $7 trillion in household credit will have to be extinguished.

Until he retired in 1992, Robert Farrell was a highly respected Merrill Lynch market strategist and theorist, best remembered for his "10 Market Rules to Remember." Number one was that "markets tend to return to the mean over time." Number two was that "excesses in one direction will lead to an opposite excess in the other direction," and number nine was that "when all the experts and forecasts agree -- something else is going to happen."

According to a November National Association of Business Economics (NABE) survey, 48 top economists expect the US economy to grow 3.2% in 2010 even though the job outlook is bleak. Overall, they're so optimistic that only 15% want more stimulus, 40% said leave the present package in place, and the other 45% want the amount approved but not spent cut because it's not needed. At the same time, according to Investors Intelligence, market sentiment is at the highest level since December 2007, shortly after equities peaked, headed down, and world economies began to crator.

In his January 5 commentary, David Rosenberg notes that "Sentiment is wildly bullish....almost every survey is overwhelmingly constructive," yet reviewing 2009's market performance in the face of economic fundamentals "almost wants to make you believe in the tooth fairy." He explained that "small business (still faces) a credit quagmire," there's no housing recovery, and household spending is retrenching and hunkering down for the long haul.

The latest US nonfarm payroll report provides more confirmation. Although the headline number was a modestly anemic -85,000, Rosenberg called it "horrible" because its details showed consistent weakness. As a result, he estimates a more accurate "465,000" December decline, based on what's occurring at the small company level "where the trend in orders, output, sales and employment" has been dismal.

Importantly, economic sectors sensitive to the business cycle actually "cratered" in December, "which flies in the face of the overwhelming view that this recession has fully run its course." Also disturbing was that while "temp help" gained 47,000 jobs, its fifth straight increase, full-time employment "plunged" 647,000 last month, a clear sign that no one is hiring, especially small businesses that do most of it.

The reason headline U-3 unemployment held steady at 10% was because the labor force plunged by 661,000, the sharpest (discouraged worker) decline in nearly 15 years. The broader U-6 unemployment is 17.3%, and economist John Williams (shadowstats.com) calculates it more accurately at 21.9% by excluding manipulated changes for more valid figures. He estimates about 500,000 December job losses, not the sanitized U-3 number. He also says that a "major double-dip downturn should be obvious by mid-year."

Economist Jack Rasmus' Outlook

Z Magazine's January issue features a bleak outlook from economist Jack Rasmus in his article titled, "Economic Crisis in 2010 and Beyond." In reviewing 2009, he argued that no recovery is possible as long as job losses and home foreclosures continue.

Looking ahead in 2010, he says "The fundamental problems of financial and consumption fragility have not been resolved." Both are deteriorating, and banks are in trouble, large and small, with 500 or more of the latter ones to fail this year. In addition, credit contraction will continue. Banks aren't lending to business or consumers. "Commercial property markets' deflation will deepen," so more Fed rescues will be needed in the face of defaults.

Business bankruptcies will increase, and so will the numbers of unemployed and those losing their homes. And if interest rates rise, the junk and Treasury bond markets will crater.

As for consumers, consumption will continue weak. Disposable income will decline, so recovery in 2010 isn't likely. In addition, without more stimulus (he believes won't come), unemployment will rise to 27 million from the current 24 million level, U-6 unemployment will reach 19% by year end, (the true number will be close to 25%), and hiring that does occur will be mostly low-wage temporary and part time.

Home foreclosures will also exceed seven million, "on their way to a possible 10 million." After stabilizing, home prices will again fall, and by year end "Between 33 percent to 50 percent of homes will be under water," a grave situation with many owners walking away from them and glutting the market more with unsold properties.

Rasmus also sees no interest rate hike until after the November mid-term elections, no meaningful financial reform, a lower dollar, more defaults like Dubai-World, perhaps in troubled economies in Latvia, Ukraine, Greece and Italy, and US states in greater trouble than today because of falling revenues, rising deficits, little in the way of relief, and forced budget cuts and layoffs exacerbating a dire situation. In other words, Rasmus, like Rosenberg, sees hard times ahead, in contrast to the consensus rosy outlook. More...