Wednesday, August 31, 2016

How Badly Did Washington/Obama Butcher The Economic Recovery?

We have often pointed out that Obama’s economic policies, strategies, tactics and results have generally been very anemic. Overall economic growth has been historically tepid, food assistance rolls have stayed way too high, the labor participation rate is at 45 year lows resulting in a real unemployment rate that is closer to 10% than 5%, and wager and household income growth has been stagnant. He doubled the overall national Federal government debt with little to show in return for this wasteful spending. He achieved these horrid economic results despite the following tail winds:
  1. He implemented a failed $830 billion economic stimulus program.
  2. He had the advantage of record low energy prices for a long period of time.
  3. The Federal Reserve pumped up the economy by flooding the market with trillions of fake dollars.
Shows how really bad your economic management skills are when you cannot boost the economy to any great degree with these factors working in your favor.

Rather than referring back to our past writings about the economy, let me summarize some economic analyses that was recently published on the NewsMax website where writer Andrew Schrage did some research and found “10 Reasons The Economy Isn’t As Good As It Seems.” We have touched on some of these areas previously but let’s review everything that Mr. Schrage found:

1) Labor Participation Rate - This important labor measurement has been declining throughout the Obama Presidency despite the end of the recession. This measure tracks the proportion of employed or unemployed (actively seeking work) individuals against the total population of working-age, non-disabled people. According to the Federal Reserve, the labor force participation rate has declined from a long-term high of 67.3% in early 2000 to 62.8% in July 2016. This is lower than at any point since the late 1970s when the country was stuck in Jimmy Carter’s stagflation years.

While some of the drop in labor force participation is because some Baby Boomers are retiring voluntarily, much of the drop is a result a sluggish recovery. People have gotten so discouraged after losing their jobs to the recession and other factors that they stop looking for work and drop out of the workforce. Thus, we now have a record number of adults in this country that are not working and not contributing to the economy or society.

This in turn makes most people misread the traditional unemployment rate, the so-called U3 rate. This measure does not take discouraged workers into consideration and thus underestimates the real unemployment rate. Since these discouraged workers are still unemployed, even if they have stopped looking for work, the better measure of unemployment in this environment is the U6 rate which takes into account these discouraged workers. And the U6 rate is still at a very depressing and disappointing level that is closer to 10% than the 5% or so of the U3 rate.

2) Under Employment - One of the other problems with the U3 unemployment measure is that it does not capture the people that want a full time job but have to settle for a part time job. That reduces the U3 unemployment rate but masks the reality that the job market is unable to generate enough full time, robust jobs for those that want one, forcing them to settle for part time work, and reduced take home pay, only.

3) While more people have found jobs since the recession ended, both part time and fulltime positions, the proportion of workers who have been without a job for 27 consecutive weeks or longer, the definition of long term unemployment, has been stuck well above the long term average. The long term unemployment rate is now still higher than at any point between 1994 and 2007, through both good and bad economic times.

This presents a long term problem since many of the long term unemployed cannot get a job now because they have been unemployed for so long and hiring managers and hiring companies tend to avoid potential hirees that have been out of work for so long. This makes the long term unemployed even longer term unemployed. And as a person spends more and more time unemployed they eventually give up looking for a job which further depresses the labor participation rate discussed above.

All of this results in an economy that is losing the opportunity to hire motivated and skilled workers that would help boost economic growth and make for more fulfilling lives. But not much of that is happening under the economic policies of this administration.

4) Stagnant wages and incomes - Probably one of the most depressing aspects of this so-called recovery is that on average, Americans are not moving up and earning more money over time. Wages and household incomes have been mostly stagnant since this recovery started, a highly unusual trait of a recovery, especially coming off a recession that was so bad.

Even Politifact, a well known liberal and Democratic Party leaning organization, supports this assertion, claiming that inflation adjusted median weekly earnings fell by about 1% from 2009 and 2015, the time after the recession ended. In addition, Politifact found that median household earnings, adjusted for inflation, fell 4% over that same time frame. Americans are working just as hard and getting less buying power for their efforts.

5) Rising poverty levels and government assistance levels - The Census Bureau estimated that the country’s poverty level rose by more than a full percentage point after the recession ended in 2009 through the middle of 2014. Historically, one usually does not see a rise in poverty rates as an economic recovery takes hold.

Similarly, the U.S.Department of Agriculture found that the number of Americans needing food assistance every month rose by 39% from 2009 when the recession ended to 2014, five years into the recovery, or so-called recovery.

6) Collapsing oil and commodity prices - while many people and industries got a positive nudge from lower prices for oil, gas, and other commodity prices, other workers and industries got walloped when energy prices suddenly collapsed. Oil and fracking companies laid off relatively high paid workers when the price of crude oil dropped from near $100 a barrel down below $40 a barrel. Less revenue meant less employees needed and that negative impact rippled through the economy, especially in the high energy producing states in the midwest. 

Adding insult to injury, unexpectedly these job losses were not totally offset by increased hiring in other industries since the additional money in consumers and businesses pockets as a result of lower energy costs only partly made its way back into the economy. 

7) Weak retail sales - Continuing on the last sentence of consumers keeping their money in their pockets, according to Trading Economics, U.S. retail sales growth since the collapse of oil prices has been very tepid. In the past when, oil prices dropped, retail sales surged. For whatever reason, consumer spending, which accounts for about two thirds of the U.S. economy, has been very conservative leading to anemic overall economic growth.

8) Strong U.S. dollar - I call this the “queen of the pigs” theory. While our economic activity has been pretty bad, the economic activity in the rest of the world has been far worse. As a result, we are relatively strong compared to the rest of the world which has made the U.S. dollar’s value rise against other currencies. This makes our exports more expensive and less attractive which hurts our domestic manufacturers and depresses our economic growth.

For example, about two years ago, one euro was worth about $1.40 but now that exchange is down to about $1.10. This makes traveling around the world for U.S. tourists very cheap but does little for our domestic economy.

9) More queen of the pigs talk - Russia and Brazil are in recession, the entire Eurozone is growing just over 1% a year, Canada is being hit hard with low oil prices, and Chinese growth has dropped considerably from the the sky high rates it had been enjoying over the past decade. All of this results in less demand for U.S. goods and services.

10)  Global politics and security - What happens around the world today quickly and directly can impact the U.S. economy. The Ebola outbreak in 2014 slammed U.S. airline stocks. Terrorist attacks shake confidence and reduce tourism and consumer spending. And with the growth and power of ISIS and the worldwide refugee crisis, uncertainty, never a friend of economic growth, is still high.

Here are several other economic factors and realities, that the article did not cover, which should give one pause:
  • We are well past the average time between recession and recovery so the likelihood of the next recession, which will happen if history is any indicator, is past due.
  • The Federal Reserve has allowed interest rates to stay at historic lows so that if a new recession rises up the Fed has little left in its toolbox to fight that new recession.
  • Several govenrment and private surveys have found that over 40% of U.S.households do not think they could afford an unexpected $500 out of pocket expense (e.g. a car repair, a new appliance, etc.) without suffering some financial hardship.
  • More people in their 60s continue to work than ever before on a percentage basis, indicating they are feeling uncomfortable about retiring and feel the need to continue to work.
  • More people in their 20s are living at home on a percentage basis than ever before, indicating that they cannot find a job that they feel would justify moving out and living on their own. By not forming new households at the historic rate and staying home, the economy suffers.
  • Mr. Schrage points out that “57% of respondents in a 2014 NBC News-Wall Street Journal poll falsely believed that the United States remained in recession,” despite being five years officially out of the recession.This lack of confidence results in reduced spending and investment and anemic economic growth.
  • The Obama administration has added thousands and thousands of new regulations on business which will continue to be an economic drag for years to come.
And through all of this, Obama continues to publicly claim he saved the economy from destruction and all is well. But even liberal friendly Politifact cannot save him from this delusion: “According to Politifact, falling unemployment, consistent job growth, and rising per-capita gross domestic product fail to offset a host of less-rosy metrics indicating that the economy is actively deteriorating on many fronts, such as historically low labor force participation and high long-term unemployment rates.”

And this was accomplished with the three strong tailwinds we listed above which makes these poor economic results even worst on a relative basis. All of which reinforces our long standing assertion that we are being served by the worst set of politicians ever to serve this country from an economic, foreign affairs, and morality perspective. 

Maybe we can do something about that in November because keeping the same tired people with their same tired ideas in power does not seem to be working.

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