Is it possible that we are already in a global recession but just don’t know it yet? And is the U.S. itself — still the epicenter of the world economy — standing on the front edge of another recession?
I sincerely hope I’m wrong. But warning signs are everywhere.
The eurozone economy is flat on its back. Greece may be headed for a political crackup and an exit from the euro and the European Union. Deposit runs in Greece and elsewhere are beginning, and a credit freeze throughout the continent is not out of the question. Meanwhile, emerging economies like China, India and Brazil are slumping.
Here at home, ex-Clinton strategists James Carville and Stan Greenberg sent a memo to President Obama telling him that his campaign message of slow and steady recovery progress is out of touch with Main Street America. They’re right. Of course, Obama’s “private sector is doing just fine” statement is part and parcel of his disconnect from economic reality.
And the reality isn’t good. Whether you’re a Democrat or a Republican, take a look at the numbers:
Job growth has been slipping badly for three months. Retail sales and factory orders have been down for two straight months. Real incomes are flat. Household wealth is way underwater from the housing collapse, dropping nearly 40 percent in the last three measured years. And GDP was an anemic 1.9 percent in the first quarter. Nearly all leading Wall Street economists are marking down their second-quarter estimates to 2 percent or less.
But here’s the key point: 2 percent growth is not a recovery. Many economists would call it a growth recession. When you get that low there’s little margin for error. A shock from Europe, an inventory selloff in the U.S. or almost any unexpected event could push us back into negative territory for an official double-dip recession.
The last saving grace for the U.S.? Business sales and profits are still trending higher, although GDP-measured profits did fall in the first quarter. That needs to be watched carefully.
That said, a recent IBD poll shows that the number of households with at least one person looking for employment is 23 percent. That translates to 30 million people looking for work. That’s not a recovery.
I can think of two major reasons for the latest economic stall — even inside an overall recovery rate that’s only half the normal pace of post-WWII recoveries. First is the deflationary impact of a sharp, nearly 10 percent rise in the exchange value of the dollar relative to the euro. That’s imparting a deflationary influence on the economy, where both import and producer prices have recently turned negative. The good side of commodity deflation is that oil and retail gas prices have fallen considerably; the bad side is that manufacturers may hold back production and debtors will have to climb out of deeper holes.
As someone who always touts the merits of a strong King Dollar, why am I complaining now that we have one? That’s my second reason for the latest economic stall: King Dollar is not being accompanied by lower tax rates.
