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Tuesday, February 25, 2014

The U.S. Economy: Kidding Ourselves

The White House keeps telling you that unemployment is going down (“It’s under 7%!”) and Wall Street wants you to think the economy is coming back (“The Dow just passed 16,000!”)

It’s time for a reality check. These two institutions want to persuade you that things are getting better -- spreading good news is great politically and drives up markets -- but they aren’t living in the world that you and I wake up to every day.

My simple point to readers is this: You can’t possibly believe the U.S. economy is in a sustainable recovery when:

Business deaths now outnumber business births. According to the U.S. Census Bureau, the total number of new business startups and business closures per year -- the birth and death rates of American companies -- have just crossed for the first time since the measurement began. Here, I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are now being born annually nationwide, while 470,000 are dying annually nationwide.

Up to 2008, startups outpaced business failures by about 100,000 per year. But in the past six years, that number turned upside down. As you read this, we are at minus 70,000 in terms of business survival.

Small business is dying in this country, and this will have catastrophic consequences for our economy and way of life. Up to 50% of all jobs are in small businesses and approximately 65% of all new good jobs are created by them, according to the Small Business Administration. Without startups and growing small businesses, nothing will fix America’s economic energy, let alone create new good jobs.

What’s worse, the country’s leadership isn’t doing much to revive the entrepreneurial spirit of small businesspeople. More than half of U.S. small-business owners say healthcare costs (54%) and taxes on small businesses (53%) are hurting their operating environment "a lot," making these the top two concerns among eight issues tested in a Wells Fargo/Gallup Small Business survey. In such an environment, entrepreneurs wait. They draw their heads back in and take fewer risks, because they’re unsure of the future. That lack of confidence causes everything to stop -- especially good jobs and economic growth.

The federal government’s unemployment rate has little bearing on reality. Sure, unemployment “dropped” to 6.6% recently. Notice anyone in your neighborhood or at your workplace celebrating? It’s becoming common knowledge -- even to a lot of people who don’t follow this stuff closely -- that the official U.S. unemployment rate doesn’t count people who are so discouraged that they’ve quit looking for work. The rate doesn’t begin to reflect the suffering and depression of the more than 20 million Americans who are out of work or underemployed.

Let me put it this way: If the unemployment rate is really going down, then why did the issue become the new No. 1 problem facing Americans today? And why did Federal Reserve Chair Janet Yellen, in her first congressional testimony this month, say, “Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high”? She also said, “…the recovery in the labor market is far from complete. The unemployment rate is still well above levels that Federal Open Market Committee participants estimate is consistent with maximum sustainable employment.”

Americans aren’t looking for part-time, crappy jobs, and they aren’t looking for more free time to paint or read. They want the respect and dignity of a full-time, good job. The problem is, U.S. adults with full-time jobs as a percentage of the U.S. adult population right now is 42% -- the lowest monthly average since Gallup started our Payroll to Population (P2P) metric in March of 2011. 

GDP growth continues to fail expectations. Many economists, both left- and right-leaning, predicted U.S. GDP would grow 3% last year. It only grew 1.9%, which was even worse than the 2.8% growth in 2012 -- so the pie shrunk. Now we’re seeing predictions of 3% growth this year. Here is the big question: Based on what?

Seriously, what is driving the upbeat predictions this time? A technology boom we haven’t yet heard about? Automobile exports? Fracking? The return of manufacturing jobs? Millions of “shovel-ready” government projects?

Reality check: The three most important indicators to watch in gauging whether or not America will ever recover from the 2008 financial crash are: if business births begin to outnumber business deaths again, the steady growth of full-time jobs as a percent of the population (P2P), and significant GDP growth.

On all three indicators, America is failing this morning.


Anonymous said...
February 25, 2014 at 4:29 PM  

This is a spot on U.S. trend and it doesn't appear to have a silver lining in the near future.
The Chinese maybe screwing up by being intrusive into international business operation, combined with Chinese labor costs increasing i.e. Foxconn International and Honda to mention just two that responded to the growing number of Chinese worker suicides and worker strikes resulting in an increased wage rate of 47%. The business environment in China is getting less competitive with America except for the areas of clothing which will be likely off shored to a juvenile developing country.
Lenovo , Caterpillar, Honda and Siemens, Rolls Royce, GE, NCR and Ford have plans to move back to the U.S. but it can’t be too soon! The U.S. government needs to create a business airlift and get these companies as operational ASAP! We are indeed becoming a NATO country – No Action, Talk Only!

Craig said...
February 26, 2014 at 6:23 PM  

As always, so well said. Thank you.

John Koudela III said...
April 5, 2014 at 7:25 AM  

Remember 2016 is coming up and that election will be the most brutal of all....the next president will have to take the hard line including against the highest investing lobbyists to fix America....or we all face the inevitable: a total collapse....including the stock market, mutual funds, most notably global influence. THIS country cannot afford nor survive another term marred by the damages of the last four. In this next election the future of both the republican and democratic parties are on the line.Let's just hope not at the cost of every single American citizen.

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