While the mainstream media continues to proclaim that a nascent economic recovery is underway (to the point of sounding like cheerleaders), the economic data reveal otherwise.
The Commerce Department reported that consumer spending didn't grow at all in April. And now it says retail sales fell 1.2 percent in May, the first time they've fallen since Thanksgiving.
Last month, sales of existing homes were down 3.6 percent from the same month last year, according to the National Association of Realtors. And mortgage applications for new purchases are now at a 13-year low. All of this occurred despite mortgage rates being below 5 percent, plus an $8,000 federal tax credit for first-time buyers. And the median U.S. home sales price for May was $173,000, down 16.8 percent from the previous May.
In other words, all the pieces were in place for much healthier and more vigorous home sales. Yet that didn't happen.
Though the summer months are traditionally the best for home-buying, it is expected that sales will show declines this month and next. That is attributable to the expiration of the new home-buyer tax credit, which required purchasers to sign a contract by the end of April.
People without jobs, and those worried about losing them, don't do a lot of shopping or home-buying.
Of the 431,000 new jobs added in May, only 41,000 came from the private-sector. Government hiring accounted for the rest. This means that less than 10 percent of job creation came from the private sector. The other 90+ percent was the result of the government's temporary hiring of census workers. Meanwhile, state, and local governments continue to cut payrolls as they face crisis-level deficits.
None of this should have been unexpected. The economy is still anemic by almost any measure.
First-quarter growth was revised down to 3.0 percent from 3.2 percent, due to smaller increases in consumer spending and purchases of business software. Economists had anticipated the figure would be revised upward to 3.5 percent. That amounted to a significant decline from expectations.
And the projections show that things will get even worse.
The Consumer Metrics Institute expects the 3rd quarter GDP to be contracting at about a 2.0 percent rate.
Aside from being a warning to the US, the European debt crisis will have a more immediate economic impact here.
Though the US is not a significant exporter anymore (exports account for just 12-13 percent of GDP), the falling Euro only makes US goods more expensive, which will hurt our trade balance even further.
As the economy falters, the US government will be hard-pressed to intervene again — as it did last year — due to its heavy debt load.
The massive government stimulus applied to the economy in 2009, and the first half of this year, is now beginning to fade. What happens in the latter half of the year when the remaining funds are completely exhausted? All of those billions kept us out of a far more serious recession.
Government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010, according to an analysis by USA Today. The analysis also found that paychecks from private business shrank to their smallest share of personal income in U.S. history.
A record-low 41.9 percent of the nation's personal income came from private wages and salaries in the first quarter, down from 44.6 percent when the recession began in December 2007.
This trend is simply unsustainable since the federal government depends on private wages to generate income taxes to pay for these programs.
Any economic improvements in the past year were attributable to the federal government's stimulus efforts. But, like it or not, all of that is coming to an end. The nation's economy will soon be required to stand on its own, but right now it is on wobbly legs.
Housing and jobs are years from real recovery. The nation will have to adjust to a new paradigm of lower and slower growth, and even the likelihood of economic stagnation. The mainstream media would do the nation a great service if it stopped peddling false hopes and instead focused on telling it like it is. We don't need phony optimism, we need realism.
"The recovery is not likely to be as robust as we would like... Households are still in the process of de-leveraging... The banking system is still under significant stress... Some of the sources that have supported the nascent recovery are temporary. The big swing from inventory liquidation to accumulation will soon end. And fiscal stimulus from the federal government is subsiding and will soon reverse." – William C. Dudley, President and CEO, Federal Reserve Bank of New York
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