The two-track recovery is now in danger precisely because of its dual nature. Track one includes record corporate profits, record cash on hand in corporate treasuries, too-big-to-fail banks fully restored, CEO compensation back in the stratosphere. Larger companies that survived the Great Recession are for the most part stronger than ever. Tech sectors are booming. Much of manufacturing had been recovering. Wall Street rallied. China, critically, rebounded strongly, helping trade.
But track two was a very different journey: Housing collapse without end, real unemployment around 16 percent and poor levels of job creation, stagnant or falling real wages, small businesses that had hung on through the worst of the downturn remain at a tipping point, a record number of Americans on food stamps and other forms of government assistance, community banks continuing to struggle, state and local fiscal troubles. Most productivity-enhancing infrastructure projects remain in the study phase. And most of the global imbalances involving debt and trade persist, instead of being worked out by the Great Recession. The economy has not reset in a healthy, sustainable way.
At some point, unless the persistent recessionary track healed and aligned with the recovery track, the whole thing was going to come off the rails. Now signs are growing that this may be happening.
Housing has fallen into a double-dip downturn. Growth was ominously weak in the first quarter and a growing number of economists expect more of the same in the second — this means we lack the growth to create large numbers of jobs. The Obama stimulus, never deployed well to make up for the GDP drop of the recession, is running out. Signs of a slowdown in China are emerging. No wonder, then, that ADP reports that only 38,000 jobs were created in May and the Institute for Supply Management’s latest report showed an abrupt slowdown in manufacturing as well.
The Seattle area has generally recovered better than most other metros, but unemployment persists and many small businesses are on the edge. As we learned last time, the longer an economic problem persists the more likely it will land here with a nasty thud.
The political games over the debt ceiling aren’t helping. But neither is the fact that the largest banks and the hedge fund boyz are making most of their profits from trading and other risky Wall Street casino games, instead of deploying capital into productive, job-creating enterprises.
To make it real simple for the boyz cooking up their latest financial “innovations”: No recovery of good jobs, no real recovery.
Today’s Econ Haiku:
A profitable pairing
Singing to the bank