The Once and Future Dips of the US Economy

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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 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.”

And more thoughts…

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. 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 Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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Comments

  1. “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!”

    My tea leaves at the bottom of the cup say no recovery in the US of A until at least 2018. Lots more up and down periods between but the general trend is going to be downward for another 5 or 6 years. I can not see a change in fundamentals occuring before that to alter my beliefs. I expect Gold to peak around 2016/2017.

    Stillgotshoeson
    June 7, 2011
    Reply
  2. I would suggest that the downward trend will last a lot longer than 5 or 6 years. We are at the beginning of what John Michael Greer terms the Long Descent which will last for centuries, just like the collapse of the Eastern Roman Empire. Of course by failing to recognise and understand this we are going to make the ride down a lot more uncomfortable than it needs to be.

    We live in interesting times.

    Reply
  3. There are a few interesting factoids floating around that might give an idea of what the world is in for. There is a predicted world population crash before the end of the century, down to around 2 billion as a result of mass starvation and war (although disease is a much bigger killer than wars have ever been). This prediction is based on peak oil, basically. Climate change, whatever that means, will likely contribute by causing volatility in farming output and so an inability to plan ahead adequately for famine. The problem is that it’s difficult to know who to believe on oil reserves, because it’s part of a speculative game.

    However, oil production may not ultimately be the problem, but a collapse in manufacturing of industrial equipment such as farming equipment, fertilisers and so forth could just as easily cause such a world famine. The scary thing about that is that such an event can be caused through human intervention alone…

    The aims of Wall Street bankers appear to be to reduce wages in the US to approach those of China. “Wage Parity” you could call it, but essentially they aim to drop the living standards to 2nd world status in the US, because they can see no further use for the undereducated peasants that live there now. The philosophy is a mix of slave-era intustrialism and depopulationism.

    Time to go back to the veggie patch :)

    Reply
  4. Comment by leckos on 8 June 2011:

    I would suggest that the downward trend will last a lot longer than 5 or 6 years.

    At some point it will bottom and I expect that to be another 5 or 6 years…
    It may then languish there for a very long period of time..

    Stillgotshoeson
    June 8, 2011
    Reply
  5. 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.

    “pessimism is at its lowest in more than two decades” that must mean that everyone is “optimistic” … I love it when clever people confuse themselves with double negatives.

    Reply

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