The narrative about the stock market today is that Alcoa’s earnings, falling oil prices and disclosure of the seriousness of the Japan nuclear disaster are dragging shares lower. All true, but deeper forces are at work. One is simply the divergence between the real, productive economy and the plays being made on Wall Street. Although corporate profits are at records, companies are sitting on huge piles of cash, and CEO compensation is back to big growth rates, the expansion remains fragile.
Some 13.5 million officially unemployed, in addition to millions more who want fulltime work and can’t find it, as well as discouraged workers, is one elephant in the room. Another is the uncertainty over how federal budget cuts will affect the economy. Whether the Tea Party likes it or not, America has a mixed economy and federal spending is a huge part of the whole. The cuts amid the general economic weakness risk being a further drag, a fall into many areas that the private sector is incapable of filling. The important housing sector remains in ruins.
Wages are still weak. Seattle-based PayScale reported today that wages in the first quarter were little higher than they stood in the same period three years earlier. But buying power has been eroded by the rising cost of goods. Overall, wages rose around 0.1 percent over the previous year for the fourth quarter in a row.
After hitting a high in early 2009 (with the recession arriving late), Seattle wages have been bouncing around late 2007 levels.
As for oil, it’s the double-edged sword that cuts on both sides. When rising, it puts the expansion at risk because of higher prices and the danger of inflation (and a Fed reaction). But while falling oil prices might — might — give drivers a break, they are also a signal of slowing global demand. In other words, a weaker economy.
Today’s Econ Haiku:
Gonna be funny
A new, ugly viaduct
Due to our dithers