No Spurt, No Dip
12:00 AM, Dec 3, 2011 • By IRWIN M. STELZER
“[A] U.S. recession caused by the fiscal crisis in Europe would be very costly and could throw millions of Americans out of work.” So says the Center for Economic and Policy Research, a think tank that numbers Pulitzer Prize winning, generally liberal economists Joe Stiglitz and Robert Solow among its advisory board members. This is consistent with the story being put out by the White House. After three years in office, President Obama can’t credibly blame the nation’s economic difficulties on his predecessor—he owns the economy, as we say in Washington—and without George W. Bush to kick around anymore has selected a new villain: Europe. Weakness in our economy is due to squabbling European politicians, any strength to the wisdom of Obama’s policies. Or so administration spokesmen contend.
With U.S. money markets reluctant to perform their traditional role as suppliers of dollars to European banks, those banks were short of dollars to lend to corporations who borrow in the U.S. currency. So all the president’s men heaved a sigh of relief when Federal Reserve Board chairman Ben Bernanke lowered the rate he charges other central banks for dollars, and those banks lowered the rates they charge commercial banks in their countries for loans. The hope is that this coordinated effort will at least delay an impending financial disaster. In short, the Fed rushed in where the European Central Bank feared to tread.
In the long run, of course, the injection of liquidity won’t solve the problems of insolvent and unreformed eurozone economies. Bernanke has administered an aspirin to a patient suffering from a possibly terminal ailment, and by easing the pain might in fact have discouraged a needed, often promised but never implemented reform in life style.
In addition to worries about importing the woes of Europe, the Fed has to be concerned about Friday’s report that the economy created only 120,000 new jobs in November. Don’t be fooled by the drop in the headline unemployment rate from 9.0 percent in October to 8.6 percent last month. That was due in good part to a decline in what is called the labor force participation rate to its lowest level in 27 years (with the exception of one month), and, according to the Manhattan Institute’s Diana Furchtgott-Roth, to the addition of 50,000 retail jobs, filled by poorly educated workers who might become dispensable after the holiday rush. The headline unemployment number is, of course, the one that most concerns politicians whose eyes are on November 6, 2012, the day Americans will decide whether to send Obama and/or many incumbent congressmen packing.
Even before the new rather weak jobs report appeared, economists at the Organisation for Economic Co-operation and Development downgraded their U.S. growth forecast. Only six months ago the OECD guessed that the U.S. would grow at an annual rate of 3 percent next year. It now puts that figure at 2.1 percent, almost one-third lower.
Gloomier still is the Lindsey Group’s analysis of the jobs report. The consultancy’s economists believe that the labor market “seems to be signaling” that, unlike past recessions, the recent one will not be followed by a catch-up growth spurt, but will continue to plod along at something like its current rate.
This, despite some better news about the economy: Retail sales this past Thanksgiving weekend, which includes the mad dash for bargains on Black Friday, the day retailers’ red ink turns to black, came to $52.4 billion according to the National Retail Federation. That beats last year’s figure by 16.7 percent. Online sales jumped by 39 percent. With so many bargains on offer, analysts worry that the sales spurt might not do much to help retailers’ bottom lines. And the grinchy analysts are sticking with their forecast that, when the shops close on New Year’s Eve, total sales will have exceeded last year’s by a mere 3 percent. Like the signal from the labor market, the retail sales figures suggest no boom, but no recession either.