Now is the summer of our economic discontent
Kansas City Star, 8/6/11
By RICK MONTGOMERY and SCOTT CANON
August 6, 2011
The Kansas City Star
Confidence shot. Tempers up. Patience spent. This economy has Americans feeling cooked.
It had been one bummer of a summer, conservatives and liberals agreed, even before the news late Friday that Standard & Poor’s reduced the nation’s top credit rating from AAA to AA-plus. The previous day, after a federal debt deal averted government default, the European credit crisis and fears of a double-dip U.S. recession crashed the Dow anyway — erasing all gains of 2011.
Public pessimism is swelling to levels not recorded since the spring of 2009. In the face of some upbeat trends — robust corporate profits and rebounds in manufacturing — doubts alone scare us from spending and weaken our will to invest.
The latest Gallup poll taken before the weekend showed 77 percent of Americans saying economic conditions were “getting worse,” not better.
“I think the public’s ahead of the economists,” said Karlyn Bowman, who tracks polls for the American Enterprise Institute. “People are profoundly pessimistic. … I haven’t seen anything like this in a long time.”
An earlier CNN/Opinion Research Poll found congressional approval ratings at the lowest level ever, 14 percent. As President Barack Obama observed an uneasy 50th birthday on Thursday, the day the Dow shed 512 points, his approval ratings dropped toward 40 percent.
Those approval scores are likely to take further blows — and Monday’s markets may, too — as the embarrassment of the first-ever downgrade in America’s credit rating sinks into the public psyche. The two other major agencies that assign ratings have no plans to downgrade the nation’s top borrowing scores.
“Only time will tell whether this will have an adverse effect on prevailing interest rates paid on new U.S. debt,” said former Comptroller General David Walker to The Associated Press. “If it does, it will only serve to compound our current economic challenges.”
A long slog
Two years after the Great Recession officially ended, people still ask: Where are the jobs? What’s become of our nest eggs? Where’s the leadership?
Are governments in any financial shape to offer a fix? Will someone please explain these weird new rules of recovery and point to the road that leads to truly better times?
Economic confidence “seemed to be improving a bit earlier this year, but in these last two weeks, it’s just dropped like a rock,” said Frank Newport, Gallup’s editor in chief. “Right now, I think Americans would respond negatively to just about anything you asked them.”
All “negative, negative, negative,” he said.
Last week’s losses on Wall Street may have had more to do with anxiety over Europe’s spreading debt crisis than with public skepticism or the political temperature in Washington. But recent economic numbers don’t help:
- The U.S. economy is growing by millimeters, with a feeble 0.4 percent expansion in the first quarter and 1.3 percent in the second.
- The Federal Reserve Bank of San Francisco reports the average American has cut personal spending by $175 a month from pre-recession levels.
- A record 45.8 million Americans — nearly 15 percent of the population — now rely on the government’s current-day equivalent of food stamps.
- In a recent assessment, the International Monetary Fund predicted U.S. economic growth will not top 3 percent in any of the next five years.
So pervasive is our gloom, the nation’s leading prognosticators were mildly stunned by a relatively decent jobs report on Friday. We added 117,000 new jobs last month, more than the 25,000 to 50,000 many were predicting. But we remain about 10 million jobs short of reaching anything resembling full employment.
Practitioners of the dismal science of economics find mostly dismal things to say. Quite likely, say some, we’ve already begun to taste that dreaded double-dip recession, meaning we could be headed for an even deeper abyss before fully climbing out of the hole we sunk into after derivatives and subprime mortgages cratered things in 2008.
Even the rosiest of views holds that recovery will be one long slog.
“You’re seeing abject frustration,” said Chris Kuehl, an economic forecaster at Armada Corporate Intelligence in Kansas City, Kan. “It’s almost an academic point for someone who’s out of a job … but (with mild economic growth) we’re still in positive territory.”
Check around the region and you wonder, “positive” compared to what?
For Debbie Alexander, a registered nurse in Kansas City, the slow grind of our turnaround is apparent in the Baby Boomers who show up in her emergency room, people who once enjoyed full medical coverage but now skimp on their hypertension pills or diabetes checks.
“They’ll monitor their blood levels only once a day instead of three times, because the test strips cost a dollar apiece,” she said. “To save $2 a day, they’re willing to get sick. And once they lose control of their diabetes, everything starts going out of whack. That’s why they’re in the emergency room.”
A Gallup poll earlier this year found 33 percent of respondents saying they or a family member recently skipped dental appointments to save money and nearly as many used home remedies rather than see a doctor. One in five didn’t fill prescriptions because of the cost, and 15 percent were cutting pills in half to trim household expenses.
Leawood lawyer and estate planner Michael Ong said he was among those spooked by the nation’s debate over raising the debt ceiling.
“I learned things I’d not really stopped to think about, like how we’re borrowing 41 cents for every dollar we spend… What’s going to be the plan for that?”
Or as economist Kuehl put it: “My God, there’s nobody in charge. Congress can’t do anything. The president can’t do anything…”
Obama plans to tour the Midwest later this month to pitch job-growth ideas. But at a Chicago fundraiser last week, the president acknowledged obstacles ahead when he reminded supporters of his campaign pledge:
“When I said, “Change we can believe in,’ I didn’t say, ‘Change we can believe in tomorrow’ … We knew this was going to take time.”
Watching the signs
Any good news?
Remember, the economy’s still expanding, however slowly, and new indicators next week might bring a lift or two.
On Tuesday, the U.S. Bureau of Labor Statistics will weigh in on productivity levels. The Federal Reserve will give its latest outlook on the economy. On Wednesday, numbers will come out on wholesale sales and inventory. And Friday will bring retail sales figures — the best reading of consumers’ willingness to spend in this economy.
No big reports out Monday — giving the markets a clean read on Standard & Poor’s move.
“The average person probably doesn’t care about the bond rating on U.S. securities,” said Michael Oldfather, retired Kansas State University economist. “I think most folks are just tuned to the facts, which show the economy in really bad shape. And it doesn’t seem we’re able or willing to do much about that.”
Our expansion may never resemble an adolescent’s growth spurt. The new reality of recovery might best be measured in geologic time: Ever. So. Slowly.
“We’re just muddling along,” said Ryan Sweet, a senior economist at Moody’s Analytics. “The economy essentially came to a grinding halt in the first half of this year. Things were grim.”
Now, he said, some signs point in the right direction. Parts disruptions that hurt car sales early this year following the Japanese earthquake and tsunami have mostly passed. The spike in energy prices seems to have passed. Consumer demand has been pent up so long that spending can be expected to shoot up.
“When employers see more customers coming through the door, they’ll feel better about hiring another employee,” Sweet said. “Then that person will go out and pump more money into the economy. … The labor market is the thing to watch.”
One other glimmer of good news: Oil prices fell to nearly $30 a barrel at the end of 2008 because the recession cut demand. Analysts aren’t expecting such low prices now but they have recently dropped more than $10 a barrel, closing Friday at about $87 for a barrel of West Texas crude.
More signs of an economic slowdown would likely push fuel prices down further.
“It’s going to be a real rough ride, but I do believe we’ll see prices trend lower,” said Steve Mosby, vice president of Admo Energy, which assists fuel retailers in managing their purchases of gasoline and diesel.
Lower oil prices by themselves won’t pull an economy out of a recession. But a drop of $1 per gallon in gasoline and diesel prices would shave $15 billion per month off the country’s fuel bill, and a typical household with two vehicles would have $100 a month to spend on other things.
For those who depend on fuel for their livelihoods, the stakes are far higher. Lee Klass, an over-the-road trucker who uses 20,000 gallons of diesel annually, has recently had less freight to haul even as rates to move it have declined. The squeeze is made much worse by often paying more than $4 for a gallon of diesel.
“It’s awful,” he said. “For every dollar I earn, I spend 66 cents per mile on fuel. … There’s a feeling of helplessness out here.”
Watch your attitude
Many economists do see a stronger foundation. Beyond maybe the gold market — buoyed throughout the recession by people in search of a safe haven — there are no obvious bubbles left to burst.
Housing values have already been hollowed out. This summer’s stock market correction would seem to suggest shares are no longer overvalued. The Dow Jones industrial average plunged 9.75 percent, or 1,236.55 points, in the last two weeks despite a small gain Friday. It was the index’s worst showing since the stock market hit bottom in March 2009.
Over the last three years, consumers have markedly reduced their debts, though about one-fifth of mortgages keep owners “underwater.”
The same economists who note strong points, however, concede they would have been shocked a year ago to see how little progress has been made between what was to be the summer of recovery and what now feels like the summer of our discontent.
Economist Larry Kudlow, writing for National Review, asks if “this pessimism is getting a little overbaked?”
Corporate profits are near all-time highs as a share of the GDP. U.S. automakers are surging back. Interest rates favor borrowing and building — all factors typically missing from recessions, Kudlow notes.
“If the dollar can hold its current level and energy prices remain quiescent, the economy will be OK. Not great … There are so many tax-and-regulatory threats out there that it’s hard to expect much more growth. But at least it’s not recession.”
In an even darker economic time, Franklin Roosevelt warned his country that the only thing it had to fear was “fear itself.” Today we may not be jumpy, but we certainly are bummed.
And why not? More than one in 20 people have told pollsters consistently — for the last 29 months — that they’d lost a job in the previous half-year. Roughly one in five had a family member who’d been axed. And nearly two out of three had a friend who’d been dumped by the boss.
The longer a person is jobless, the harder it is to find work. For those Americans unemployed for at least a year, fewer than 9 percent found jobs in the past 12 months, government data says.
The employed have their own worries. Roughly four in five say jobs where they live are hard to find. That leaves them stuck with employers that one in four suspects are on the verge of cutting health care and retirement benefits, the Pew Research Center says.
Americans’ pessimism about the direction of the country was greater at the start of this recession than the one that began early in the Reagan administration. And AEI’s Bowman thinks Reagan’s seemingly eternal optimism (critics would call it simplistic) might have made it easier for public attitudes to help turn the economic reality.
At Kansas City-based Hallmark, the privately held company has been frank in saying shaky consumer confidence has hurt retail sales. That makes things all the worse for greeting cards, an industry rocked by the Internet revolution. It’s trying to adjust by offering online greetings along with cards that can be personalized online.
“I don’t want to sound all like a sunflower,” said Hallmark spokeswoman Julie O’Dell, “but there are still birthdays to celebrate and those everyday moments of encouragement.”
The company knows its marketplace. Search its website for a card for a “job loss” and it’s got something acknowledging “it’s hard to know what to say at a sensitive time like this” or another card fit for our times:
“One day you’ll look back on all this with the wisdom that distance bestows and you’ll say … wow, that sucked.”
58 percent of Americans say the economy is in poor condition, according to Gallup as of Aug. 2; 8 percent either say it’s good or excellent.
-55 the economic confidence index as of Aug. 2-4 according to Gallup; It was -22 on Feb. 1.
73 percentage of Americans saying economy is getting worse as of a July 24 Gallup poll; It was 62 percent at the start of July.
55 percent say current economic situation is a source of stress in their lives according to the Kaiser Family Foundation from Jan.-Feb. 2011; 45 percent say it is not.