As positive as last Friday’s employment report was, a few market bees are buzzing that other economic factors are actually pointing to a double-dip recession in the U.S. Is there more to recent economic figures, or are we just reading too many dramatic headlines?
Here are five reasons why the possibility of a double-dip recession in the U.S. is much higher than you think:
Reason 1: A loooong way to go for employment
Those pointing to recent employment data as evidence of a strong recovery will have to do better to convince me that the economy is truly out of a rut.
So what if 192,000 jobs were added in February and 216,000 in March? Need I remind you all that 125,000 new jobs are needed monthly just to match the rising number of Americans eligible for work?
Besides, even if the labor market does manage to post 200,000 new jobs a month from here on out, the unemployment rate won’t return to pre-recession levels (below 6.0%) until 2016! That’s so far ahead that Justin Bieber might actually hit puberty by then! Wait, he will hit puberty, right? RIGHT?!
Need more proof that the labor market isn’t as healthy as many think? Real hourly wages are still on the decline! Because unemployment is still at uncomfortably high levels, most employees are hesitant to ask for raises and will basically take whatever their employers have to offer.
Reason 2: Houses are getting cheaper
Since unemployment is oh-so-high, and wages are falling, the bargaining power of most Americans has dropped significantly. Because of this, Americans are simply settling for whatever they can get.
In one of my previous blog posts, I mentioned that CoreLogic, a real-estate information agency, reported that the average selling price of homes have dropped almost 6% compared to the previous year. If your house was worth $300,000, then you just lost $18,000. Ouch!
Houses are arguably the most expensive assets Americans own. So, as the price of homes decline, so does the wealth of most Americans!
Reason 3: Weak Consumer Confidence
Until pigs learn to fly or until the cast of Jersey Shore stops tanning themselves, pessimistic consumers will continue to be thrifty spenders. After all, why will you buy that extra bag of chocolate chip cookies if you aren’t sure where you’ll get your next paycheck?
Recall that despite the recent upside surprises in employment figures, consumer confidence reports have been printing in the red.
The University of Michigan consumer sentiment fell to a reading of 68.2 in March, which is not only lower than February’s 77.5 reading, but is also the tenth biggest decline for the data.
In addition, the CB consumer confidence report released last week registered a drop to 63.4 in March, a five-month low, from its 72.0 figure in February. According to the report, more Americans have lowered their expectations on job availability and wages in the near future.
Since consumer spending accounts for almost 70% of GDP, the negative readings do not bode well for the economic activity.
Reason 4: GDP growth at snail’s pace
Whoever said slow and steady wins the race probably didn’t have GDP growth in mind. Yes, it’s true that the U.S. economy is on track to grow by 2.5% to 2.9% this year, but this is simply NOT ENOUGH!
At this point in the recovery, the economy should be expanding somewhere around 5% already.
Let me put it this way: when you’re deep in doo doo, you need to work hard to get out of it. And when you’re in even deeper doo doo, you need to work even harder!
A 2.5% to 2.9% growth may be alright for a run-of-the-mill year, but it’s not what you’d like to see after a recession.
Compare the economy’s current performance to when it crawled out of its hole after the Great Depression. It grew over 7% in 1934, it expanded over 8% in 1935, and it downright boomed with a 14% growth in 1936!
Reason 5: Quantitative Easing 2 is about to end
The improvement we’ve been seeing has mostly been the result of the Fed’s stimulus measures. Once the Fed ends its quantitative easing measures in June, what do you think will happen to the economy?
If consumer spending remains weak, business hiring is subdued, and the housing market is declining, who the heck will pick up the slack?
Hey, I don’t mean to sound all gloom-and-doom, but I’m just saying things as they are! Hopefully, things turn around and I turn out to be wrong.