While any positive economic news is welcome, many in Washington and elsewhere are way too optimistic about a recovery. Until consumer spending and job growth turn positive, things are going to be painful.
Regarding consumer spending, Baseline Scenario critiques a post in the LA Times discussing a new Bank of America Merrill Lynch report “The Myth of the Overlevered Consumer.” The Times writes:
The consumer debt problem in the economy really is a debt problem for the middle class. The need to work off a chunk of that debt will sap middle-class families’ spending power for perhaps years to come.
By contrast, the upper 10% of income earners face a much smaller debt burden relative to income and net worth. Those people should have ample spending power to help fuel an economic recovery.
Using 2007 data from the Federal Reserve, BofA Merrill defines the middle class as people in the 40%-to-90% income percentiles. It defines lower-income folks as those in the zero to 40% income percentiles, and the wealthy as those in the top 10%.
Baseline Scenario:
There are a lot of moving parts going on with the interaction between the top percents and the middle class, inequality and collapse, but it isn’t hard to see a story where the stock market picks up, housing is in decline for a decade, and we have a jobless recovery. [bold by me]
Baseline Scenario goes on to quote A Detailed Look At The Stratified U.S. Consumer from Zero Hedge:
…while average house prices are still dropping countrywide, with some regions like the northeast, and the NY metro area in particular, still looking at roughly 40% in home net worth losses, 90% of the population will be feeling the impact of an economy still gripped in a recession for a long time due to the bulk of its assets deflating. The other observation is that only 10% of the population has truly benefited from the 50% market rise from the market’s lows: those better known as the Upper class.
Meanwhile, use of the term “jobless recovery” continues to grow. Earlier this year, I published this graph showing slowing post-recession job growth rates over the last half century. For example, from the end of the 2001 recession, it took 30 additional months before we stopped losing jobs. Hopefully, the economy is hitting bottom; however, it is going to be many years before we get folks back to work again. Adjust business strategies accordingly!
Topics: Economy, Jobs, Middle class
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