Commentary: Americans still find little about the economy to cheer them up

The Kansas City StarFebruary 12, 2013 

You hear a lot from analysts that the economy is finally turning a corner. The strengthening of the house market does give a sound reason for saying so.

But to many people it feels less like turning a corner and more like going around a bend. A bend in a river. Heading upstream.

Those of us aboard the recovery boat are awash in conflicting data about the state of the economy.

The latest big and bad number, the Q4 GDP, surprised everybody by showing that the economy shrank 0.1 percent. Because of a big drop in defense spending, analysts shrugged it off as an anomaly, and it’s likely to be revised upward.

The stock markets are surging, with the Dow Jones industrial average doing the jig around the 14,000 mark. In January, the Dow gained 6 percent while the S&P 500 rose 5 percent. It was the best January in 15 years, with both indices pushing close to their 2007 highs. And good Januaries often mean good years.

It also doesn’t appear equities are overvalued yet. The Wall Street Journal reported that the S&P was recently trading at 13 times expected earnings. In October 2007, it was trading at 15.2 times; in March 2000, 25.6.

Still, a pall has come over many Americans, weighed down by fear over the fiscal cliff and the end of the 2 percent payroll tax cut. Now comes the dread of another big budget battle.

In the Conference Board’s January preliminary measure, consumer confidence fell to 58.6, well below the consensus estimate of 65.1 and December’s 66.7. Just last October, it hit its recovery peak, 73.1.

In a survey released last week by the John J. Heldrich Center for Workforce Development at Rutgers University, a majority of Americans said they thought it would be at least six years before the economy was all the way back. Three in 10 said the economy would never fully recover from the Great Recession.

Obviously the bubbling market is not helping our mood.

Much of the market gain over the past two years has been driven by good and sometimes stellar corporate profits. But profits have not come from increased demand; rather they’re a result of cutbacks and technological and other efficiencies.

The latest market surge, analysts say, is being driven in part by investors tired of the super low interest rates on bonds and CDs. Some economists are warning that the money flood unleashed by central banks around the world is beginning to inflate financial asset prices.

No matter why the markets are up, companies still aren’t hiring in big numbers. Yes, the monthly jobs reports show consistent gains, and there’s a spot of good news regarding long-term joblessness. But the pace of job creation — roughly 180,000 jobs a month — is hardly inspiring.

A report last week by Harvard’s Institute of Politics looked at how bad the job market was for a key group, those under 30, or the Millennials. Just 62 percent are working. Of those, half are stuck in part-time jobs.

Consumers won’t feel better until the job market substantially improves. Many analysts say the economy needs to produce 300,000 new jobs a month to do that.

Other data also are giving off conflicting signals. Here are five indicators I monitor and update for readers now and then.

Business spending: The Q4 GDP report did record that investment in equipment and software jumped 12.4 percent. That countered a 2.6 percent drop in Q3 and was the third-largest increase since the recovery began.

Yes, business spending on equipment and software shows that companies are continuing their relentless efficiency drives rather than creating jobs. But it also indicates they finally might be expecting increased demand.

Office space. Businesses don’t think they need more office space yet. If you don’t need offices, you don’t need people.

In preliminary Q4 data by Reis Inc., the vacancy rate fell a tick to 17.1 percent. Its slow decline since it peaked at 17.6 percent in late 2010 shows just how sluggish the recovery is.

Oil: This indicator has reversed polarity. For a couple of years, I viewed higher prices for oil and gasoline as a sign of economic improvement — that needing to move more goods around would drives up prices.

But I had started to hope that the energy boom in the United States would lead to a decoupling of U.S. gasoline prices from world economic and geopolitical factors. And that the resulting decline in prices would help counter the end of the payroll tax cut.

Gasoline did fall to near $3 a gallon, but concerns over Middle East turmoil have driven prices back up. Consumers aren’t going to get a break.

Interest rates: Although the U.S. economy is running well below capacity and the Fed is buying $45 billion in Treasuries every month, the 10-year T-note has risen above 2 percent. This could be a sign that bond investors expect the economy to continue to improve and thus expect more, but not too much, inflation. In any case, naturally rising interest rates would be a sign that the economy is returning to normal.

The number of long-term jobless: Of the 12.3 million out of work, 4.7 million are considered long-term unemployed, jobless at least 27 weeks. But — here’s more on that spot of good news for the unemployed — in January the average duration of joblessness fell to 35.3 weeks, the shortest since 2010. In December, the share of jobless people out of work six months or longer declined to under 40 percent for the first time in three years.

A study by the Federal Reserve Bank of San Francisco contends that the number of long-term jobless is falling because people are finding work, not because they’ve been giving up and leaving the labor force.

Still, there are too many people of working age, an estimated 7 million, who have simply dropped out of the labor force. The 63.6 percent labor force participation rate remains well below the 66 percent to 67 percent range it reached in the late 1980s.

Whatever the conflicting data lead you to think about the state of the overall economy, the real economy for most people centers on jobs. Let’s hope that President Barack Obama in his State of the Union Address tonight offers the jobless, especially the long-term unemployed and those out of the labor force, a better lifeline than he has so far.

We need more people in the recovery boat pulling the economy upstream.

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