Economic Misery: The New Normal

michigan-unemployment-claims.gi.topThe weakest recovery in the nation’s history continues. On Wednesday, payroll processing firm ADP reported that private sector businesses created a disappointing 119,000 jobs in the month of April. Once again, to use a word that should embarrass those who support the Obama administration’s Keynesian economic policies, this meager total was “unexpected.” Economic “experts” surveyed by Reuters had predicted at least 150,000 new jobs. “Nearly every industry has seen slower growth since the beginning of the year,” said Moody’s economist Mark Zandi. “Smaller businesses are experiencing much weaker growth.”

Most of the jobs were created in the service industries, which added 113,000 positions, while goods production accounted for the other 6,000. Both figures represented 7-month lows in growth. Adding to the misery, ADP’s March total of 158,000 jobs gained was revised downward to 131,000, and the latest data show the manufacturing sector, which lost 10,000 jobs, has plateaued, or may be slowing down again.

The level of economic weakness is daunting. According to Bespoke Investment Group, the seven year stretch of Gross Domestic Product (GDP) growth below three precent, occurring from 2006 to the present, represents the longest one since 1929, the year which marked the beginning of the Great Depression.

Furthermore, despite a U3 unemployment rate of 7.6 percent, used by the Bureau of Labor Statistics (BLS) to calculate “official” unemployment, the U6 rate that far more accurately reflects reality, is 13.8 percent. The reason the U3 rate is misleading is because people who have given up looking for work aren’t counted as unemployed. Since America’s workforce participation rate is at its lowest level since 1979, reality is being manipulated to make the Obama administration’s dismal economic policies look better than they actually are.

Still more manipulation is being pursued by the feds. They are going to revise how GDP growth is calculated. Research and development spending, as well as the capital value of all “intellectual property,” such as books, movies, records, television programs and plays–produced since 1929–will be added to the total. Michael Pento, founder of Pento Portfolio Strategies, cut to the heart of the subterfuge. “When GDP numbers are chronically bad and the labor force participation rate is perpetually falling, our government will do the same thing they did for the inflation data–tinker with the formula until you get the desired result,” he explained.

Pento further notes that no amount of manipulation can obscure the reality that federal revenue intake has remained stagnant for six years, even as the national debt has soared by nearly $7 trillion. “It’s a shame they won’t just implement real measures to grow the economy like reduce regulations, simplify the tax code and balance the budget.”

For progressives, such solutions are completely antithetical to their desire for ever-expanding government. Despite historically anemic growth, and $7 trillion of additional debt that is nothing more than stimulus by another name, the Obama administration will continue to pursue such destructive policies.

Thus, it was no surprise that Federal Reserve’s Open Markets Committee (FMOC) voted 11-1 Wednesday to maintain their latest quantitative easing project that consists of keeping interest rates near zero and maintaining $85 billion of asset purchases ($45 billion in Treasurys and another $40 billion in mortgage-backed securities) per month. The one notable change: asset purchases would increase or decrease depending on economic conditions. “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes,” a statement said.

Moreover, they criticized the so-called budget cuts imposed by sequestration for holding back the economy. One is left to wonder what held back the economy for the four years preceding the $85 billion in automatic spending cuts. Those years included stimulus spending totaling more than $4 trillion in borrowed money. That “pump priming” was supposed to bring unemployment below 6 percent, a number as inaccurate as the Obama administration’s overly optimistic growth predictions that also fell short–unexpectedly–year after year.

Ken Griffen, head of the Chicago-based hedge fund Citadel, explains what companies do in an artificially created, low-interest rate environment. “As we’ve all learned over the years, if you reduce the cost of capital you increase your use of fixed assets and you take out jobs. Corporate America, seeing an ever increasing cost for its employee base and extraordinarily low interest rates, is taking every step it can possibly take to reduce employment, to build factories abroad and domestically to substitute technology and automated processes for people,” he contends.

The most onerous increasing cost for an employee base? Obamacare.

Beginning next year, companies with 50 or more employees in 2013 will have to provide health insurance for their workers. As Mark Zandi notes, business with 20 to 49 employees have cut hiring for three straight months, from 53,000 in January to just 17,000 in March. Other businesses are cutting back employee hours, because only full time workers–defined as those who work 30 or more hours a week–are required to be covered. The food service industry, which currently accounts for one out of every 13 jobs, has acknowledged that keeping shifts below 30 hours may be the difference between remaining open, or going bankrupt. Employers forced to reduce the hours of their workers are now known by a telling nickname: “The 29ers.”

Yet it is not just the food service industry that is hurting. The 22,000-member United Union of Roofers, Waterproofers and Allied Workers International who initially supported the healthcare law, is now calling for its repeal. The union contends the law will “jeopardize our multi-employer health plans, have the potential to cause a loss of work for our members, create an unfair bidding advantage for those contractors who do not provide health coverage to their workers, and in the worst case, may cause our members and their families to lose the benefits they currently enjoy as participants in multi-employer health plans.”

Another factor weighing down the economy is weak corporate sales growth. While company earnings haves been robust, sales have been dismal. According to Zacks Investment Research, 38 percent of the 271 S&P 500 companies reporting as of last Friday showed an overall sales decline of 1.45 percent. “The loss of momentum in the U.S. economy has been palpable, but what looks to be a soft patch in yet another 2 percent year for real economic growth now has the potential to morph into something more painful,” said RBC Capital Markets economists Tom Porcelli and Jacob Oubina in a report.

The report then spelled out where that pain would be felt. “What is important to consider on the back of these results is that employment tends to become the victim of a disappointing revenue backdrop,” it stated. “In other words, headcount tends to become the focus in any effort to extract savings and boost bottom line results.”

The bigger picture is even clearer. Despite the populist facade erected by this administration, Wall Street is doing record level business, even as Main Street remains mired uneconomic stagnation and enduring unemployment.

Friday, the “official” unemployment rate for April will be revealed. Measured within the context the smallest labor participation rate since 1979 it will also be irrelevant. Millions of Americans will remain victimized by a reprisal of the Keynesian economic philosophy that turned the 1930s into a lost decade of misery, desperation and despair.

“We have tried spending money. We are spending more than we have ever spent before and it does not work….we have just as much unemployment as when we started… And an enormous debt to boot.” Those words were spoken by the Treasury Secretary. Not Obama’s Treasury Secretary, Tim Geithner. FDR’s Treasury Secretary, Henry Morgenthau–in 1939. Thus, the “new normal” is a lot older than most Americans realize.

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  • http://www.adinakutnicki.com AdinaK

    There will be much more pain to come, and this is by duly deliberate design. Readers may wish – or not – to catch up to speed, at least to (best) prepare for the onslaught – http://adinakutnicki.com/2013/04/01/major-alert-f

    The implosion of the dollar is by evil design – believe it or not.

    Adina Kutnicki, Israel http://adinakutnicki.com/about/

    • Claudia L

      This is why YOU'RE really angry at OBAMA
      Because OBAMA read Israel the riot act about starting another that they expect the US to clean up after:
      "And while President Obama and his aides always acknowledge Israel’s right to defend itself, they put an emphasis on sanctions and diplomacy; Dan Senor, Mr. Romney’s senior foreign policy aide, went further on Sunday, suggesting that Mr. Romney was ready to support a unilateral military strike by Israel."

      “If Israel has to take action on its own,” Mr. Senor said in a briefing before the speech, “the governor would respect that decision.”
      http://www.nytimes.com/2012/07/30/us/politics/rom

      Both the Israeli and the U.S. intelligence communities say that Iran has not decided to acquire a weapon. Contrary to Netanyahu’s hysterical warnings of a pending existential threat (warnings that go back decades), Iran has been turning its enriched uranium into a form that, while suitable for producing medical isotopes, is unsuitable for making weapons.
      http://www.thenewamerican.com/reviews/opinion/ite

      Israel's WARMONGERING is over. YOU have attacked or invaded ALL of your neighbors and hate Hezbollah because they ran you out of Lebanon (where you didn't belong) in 2000.

      • defcon 4

        How strange that someone begins ranting and raving about Israel in an article about the US economy? Muslime much?

  • κατεργάζομαι

    The state of our economy has become a constructed fantasy created largely by Obama, and the mainstream media (MSM) dialectical narratives, aided by the FED's smoke and mirrors.

    Barack Obama and his minions in the administration as well as many Democrats in the Congress are often described as Socialists, technically Obama is a Fabianotallowed to print that word Socialist, as Mark Levin would agree.

    They have become the modern reincarnation of the fassscist mindset, without the militarism of Italy and Germany, that dominated Europe in the 1920s and '30s. At least not until the aftermath of the Boston bombings when we witnessed the chilling federal government's response to lock-down Americans as their response to a terrorist action and invoke warrantless searches, force citizens from their homes at gun-point and terrorize Americans.

    Obama's Fascist Economy @ American Thinker http://www.americanthinker.com/2011/09/obamas_fas

  • Claudia L

    YES! It started in 2006 and SORRY Obama isn't mopping up after Bush as quickly as YOU would like.

    The Republican business owners are doing the same thing as the Republican Congress is doing RUINING AMERICA with OBSTRUCTION cause they are angry about not making Obama a "1 term President" and they have to pay taxes FOR A CHANGE!

    The majority of that debt is from previous administrations and 2 BUSH WARS and an UNfunded Drug Program.

    • mkat68

      The real economic crash started in 2008 when the housing bubble – caused by Democrats in Congress forcing banks to make loans to poor risks – burst. And as for debt, Obama racked up more in four years than Bush did in eight, and still continues to pile it on! As for taxes, I am a Republican and have ALWAYS paid mine – and I'm sick of what my tax dollars are being used for by this wasteful tin-horn dictator you call the President. So get back on your "blame Bush" bandwagon and ride off already.

      • Questions

        The "diversity recession," as Steve Sailer calls it, was a product of Democrats and Republicans alike. Both are possessed of the delusion that there aren't consequences to drastically lowering credit standards to raise homeownership rates among blacks and Hispanics. Yes, Bill Clinton, Maxine Waters and Barney Frank were guilty; so were Jack Kemp, George W. Bush and Karl Rove.

        • http://www.youtube.com/watch?v=nLNn2YflwNs Roger

          Karl Rove speaks for very few real Republicans at the base.

          RINO's. Thats' the correct term.

    • Spider

      Six months to a year is a mop up – four years of no results is unmitigated disaster and incompetence.

    • patron

      Obama has presided over QE 1, 2, and 3, trillions of dollars printed by the Ben Bernake to magically turn out of work construction workers into machinists and welders. The failure of QE has been spectacular.

      He wasted a trillion dollar stimulus with Washington DC bureaucrats and politicians handing out billions to their donation bundlers. He bailed out the auto unions, Fannie, Freddie and continued the bailout of the investment banks where his allies like Warren Buffet made billions.

      Big government advocates stubbornly refuse to change in the face of disaster and failure because it's too easy to stay in power while destroying the political careers of people trying to make a difference.

      In the future our children will ask why did we squander such wealth so drug dealers can get free food stamps, and trial lawyers can sue doctors out of business. I'm going to point to moronic voters like the one above.

    • defcon 4

      LIAR, the majority of the national debt was piled up by Obama. Idiot.

    • Ellman

      You are deluded, uninformed and brain-washed Claudia, but there is no one who can help you, which is very sad indeed. If there are enough people in this country who think and feel as you do then the decline and destruction of this nation is but a matter of time and we are not talking hundreds of years but decades or less. Your only hope for liberation and understanding is to learn to think for yourself. Otherwise you will eventually start beheading people who disagree with you.

    • margaret388

      THE WORD THAT DESCRIBES YOU PERFECTLY I : STUPID.

  • SuicidePrevention

    Arnold, I have two points:
    1) Many of the miserable underlying trends started long before the great financial crash of 2008, but were
    hidden by the mortgage debt bubble that preceded the crash.
    2) The price of oil is more than 4 times higher than it was15 years ago. The U.S. economy is
    particularly sensitive to the price of oil. Think of the economic malaise of the 1970s. But, the price of
    oil came down through the 1980s. Such a drop in oil prices going forward may be unlikely due
    to geological fundamentals and increasing competition from China and other countries as consumers
    of oil.

    • patron

      Central bank inflationary policies have destroyed all capital, not just in the Western world but now in Asia including Japan and China. If the US continues to print $85 billion a month and incur a $1.2 trillion yearly deficit on top of rising taxes, we might as well use dollar bills as wall paper.

      The loss of capital harms the supply of oil more than it's natural availability. The earth has an abundance of energy. We will soon no longer have the financial structures to extract it, especially non traditional forms in kerogen and deep sea.

      We could have it easy, but Barak Obama, Harry Reid, Patty Murray, Dick Durbin and Charles Schummer would rather give free food and medicine to people who sleep untill noon, spend all their money on drugs, and breed a dozen children while parenting none.

      • SuicidePrevention

        Patron, are you saying we haven't been spending enough on developing new oil fields?
        It isn't true. Read http://aspousa.org/2013/05/interview-with-steven-
        Excerpt:
        …On the other hand, the cost of extraction and production has continued to increase. Last year costs increased somewhere between 10% and 13%, depending on who you talk to. Exxon’s costs rose about 7% in excess of its increase in revenues, which were also falling. And Petrobras’ costs were rising 10% to 13% faster than its revenues. So what we can see is that in the contest between technology and geology, in recent times geology has been winning. Oil has become more expensive
        to extract. …

  • patsjc

    Another excellent article from Arnold Alhert. Why don't the American people and women in particular understand the dangers of our economy. I suppose if they did they would not have voted for such a ignoramous as Obama.

    • denis

      because too many believe the main stream media who lie about everything negative towards Oblama. They would make Joseph Goebbels proud!!

  • defcon 4

    "service industries" would that imply jobs at places like Burger King, McDonalds, Arbys and Carl's Jr.?

    • http://www.youtube.com/watch?v=nLNn2YflwNs Roger

      I hear there are two openings for maids at the saudi compound in Virginia….

    • objectivefactsmatter

      ""service industries" would that imply jobs at places like Burger King, McDonalds, Arbys and Carl's Jr.?"

      Food service is apparently some times counted as a service but otherwise considered retail. I didn't know that. Read pages 44 and 49 to see the distinctions.
      http://www.bea.gov/industry/pdf/2012_industry_cod

  • http://www.youtube.com/watch?v=nLNn2YflwNs Roger

    This is the new normal as much as Boehner allowing obama anything is the new normal.

    Conservative values can turn this around, we don't need to accept defeat.

  • BLJ

    1) This economy is Obama's baby. All on him. Sorry libs.

    2) Obama is an economic illiterate.

    3) Obama's plan: More golf and vacations for him and the Beast.

  • 080

    Everyone talks as if we had an "economy". For example, define interest rates anyway you want. How does one account for what are really negative interest rates at the bank. The real definitopm pf interest rates os wjatever the Federal Reserve says. And what are "savings"? We have the Feds inventing them right out of your pocket.. All the economic categories are dissolving or have already disappeared. The reason is that "capitalism" no longer exists. Quantity has truned into quality. We have some kind of managerial system. What kind? Well the economic programs of the Socialist Party aroung 1912 is already in place.