The Once and Future Dips of the US Economy

Last week, it looked as though a tide might have turned. The Dow fell another 97 points on Friday. And the 10-year US Treasury note rose to yield less than 3%.

What will happen next? We don’t know. But it wouldn’t be a bad thing if investors took a beating. At least, the rest of the country would probably like to watch.

Yes, dear reader, pity the proletariat!

While investors have recovered most of their ’08-’09 losses, the poor working stiff is still getting it in the chops. He doesn’t own stocks. He owns a house. And housing just keeps going down.

His earnings have been going down too.

He’d better get used to it. If we’re right, he won’t have to worry about just a ‘double-dip’ but about a triple-dip…a quadruple dip…and maybe even a quintuple-dip. Forget recovery. What we’re talking about is an on-again, off-again slump that will last for a decade or more. Heck, it’s already in its fifth year!

Why so?

Everything that has happened over the last 4 years confirms that our “Great Correction” hypothesis was right. This economy is going through major adaptations, adjustments and rehabilitation. And by the look of things, it’s going to be in an out of rehab for a long time.

The latest reports show:

1) No real growth
2) No real recovery
3) No end to the unemployment problem
4) No bottom in the real estate crisis
5) No benefit from QE2

The numbers that came out on Friday were just more bullets shot into a corpse. We knew the economic recovery was dead. But the non-farm payroll numbers killed it again anyway.

The Labor Department reported 54,000 new jobs in May. If this were a real recovery, the number would be over 150,000. Instead, this number shows that the actual number of people with jobs is increasing, not decreasing.

So, the people who live by the sweat of their brow are left idling on the seats of their pants. They have no jobs. And the hope of finding a decent job is receding.

Not only are there few jobs, real wages are going down too. And never before have American working classes taken home such a small portion of national income.

Here’s more from USA Today:

Squeezed on both sides by stagnant wages and rising prices, consumers believe the chances of bringing home more money one year from now are at their lowest in 25 years, according to analysis of survey data by Goldman Sachs.

Goldman’s economist Jan Hatzius looked at the University of Michigan and Thomson Reuters poll, which asks consumers whether they believe their family income will rise more than inflation in the next 12 months. Hatzius applied a six-month moving average to smooth out the data and found that wage pessimism is at its lowest in more than two decades.

“Households are already very pessimistic about future real income growth,” wrote Goldman’s economist to clients. “A slowdown in job growth would presumably translate into a further deterioration in (expected and actual) real income growth. This would heighten the downside risks to our current forecast that real consumer spending will grow 2.5 percent to 3 percent over the next year and might call for another downward revision to our forecast for US GDP growth in 2011 and 2012.”

Real hourly wages have dropped 2.1 percent on an annualized basis over the past six months, a rate of decline not seen in 20 years, according to Goldman. This analysis is backed up by the other most-watched consumer survey from the Conference Board, which indicated earlier this week that the proportion of consumers expecting their incomes to increase was below 15 percent in May.

“The crawl out of this economic ditch is going to be long and slow,” said Patty Edwards, chief investment officer at Trutina. “Even if they’re employed, many consumers aren’t earning what they were two years ago, either because they’re in lower-paying jobs or not getting as many hours.”

We’re not going to get carried away by envy and stuff-lust. Not here at The Daily Reckoning.

But what about other people? The base emotions are always present. Every once in a while they get the better of us.

Walking to our pick-up after work yesterday, we saw a bumper sticker on a parked car:

90% of the wealth is owned by 10% of the people
When will you get your share?

Who knows what it meant? We hoped the driver would show up so we could ask.

But the germs of jealousy and class hatred must be growing. And you can hardly blame the poor proles. They haven’t had a real pay raise since the Carter Administration. They’re getting a little tired of waiting. And now their earnings are going down rapidly.

And it’s not going to get better anytime soon. Because, if we’re right, we’re already in a double-dip recession. That is, properly adjusted for first quarter consumer price inflation, the economy is not growing at a 1.8% annual rate; it’s shrinking at 1.8%.

And if we’re right, this double-dip will be followed by a period of weak growth…followed by a triple dip. And then a quadruple dip. And then a quintuple dip.

Why all the dips?

Stay tuned.


Bill Bonner
for The Daily Reckoning

The Daily Reckoning