I’ve had a couple of late nights at work this week and haven’t been keeping up on the news as well as I like to, but I wanted to point you to dakinikat’s excellent post at The Confluence on the German and French recoveries as compared to ours. Both Germany and France passed stimulus packages in February, jsut as the United States did. So why are they recovering so much quicker than we are? It probably has to do with how the stimulus was targeted.
One of the primary impacts of the U.S. stimulus is that it has allowed states to maintain some services by replacing lost revenues. This is different, however, from boosting employment. You’ll also notice that many of the direct spending measures are still in the wings. This is unlike those of our two European friends who released funds immediately and directly.
At a time when consumer spending is the key to recovery in our country, our supposed ‘recovery’ will be both jobless and wageless, according to Nourielle Roubini.
For the labor market to stabilize, job losses need to slow to 100,000 to 150,000 per month, and jobless claims need to fall to around 400,000. Payrolls alone don’t reflect the strength of the household sector. Labor compensation and work hours also function as indicators, and both of these have slowed sharply in recent months. Even as borrowing conditions remain tight and home prices continue to fall, the dip in labor compensation will continue to constrain consumer spending, notwithstanding any fiscal stimulus.
In a severe, consumer-led recession like this one, the labor market is a leading (rather than lagging) indicator of economic recovery, and the consumer still drives the U.S. economy (private consumption still makes up over 70% of GDP). A slowdown in the pace of job losses from 650,000 to 250,000 is welcome, but in no way offers comfort about a prompt comeback of the U.S. consumer. This raises concerns about the strength and sustainability of any economic recovery that most people are expecting in the second half of 2009, and beyond.
And those of us who still have jobs? Benefits or wage cuts.
Companies need a certain head count to run their businesses. After cutting jobs, companies are increasingly reducing compensation and work hours to keep a lid on labor costs. Labor compensation slowed significantly to 0.4% in Q2 2009, after slowing to 0.3% in Q1 2009. The slowdown in wages and salaries (0.4%) and benefits (0.3%) is significant, especially in the private sector (0.2%). Private sector labor compensation slowed to 1.5% in the 12 months ending June 2009, the smallest increase on record. Firms are reducing benefits significantly in the service sector while employers in manufacturing are largely cutting wages.
All the happy talk in the world isn’t going to make it so, and a recovery on paper, or only for a few, is not a recovery. It’s still about the jobs and so far what we’re doing isn’t stopping the bleeding. I love dakinikat’s conclusion:
Can we continue to live in denial that some of the industrial plans, export/import management strategies, and policy priorities of our European cousins may actually have viability? We need a Brain Trust, not unlike FDR’s, to determine what works and what doesn’t work for others. This is especially true for health care policy and something akin to a national industrial plan. There are many things (globalization, illegal immigration, lack of unions, outlandish executive compensations and return to capital, etc.) that are sapping the real wages of many workers. In an economy dependent on 70% spending by households, this is a zero sum game. If we continue on this path we will undoubtedly become the largest developing economy in the world. That’s right, not advanced economy, but developing economy. Something has to give. Something has to change.
If the President is truly interested in providing hope and change, then it is about time he quit relying on the advice and consent of the very people and industries that have led us down this garden path. In his campaign speeches, he reminded us that the same tired old solutions and people had brought us to edge of this abyss. Why then, does he continue to hold hands with the same enablers?
Preach it sister. The solution really does require a solid, secure, and large middle class.