The June jobs report hit like a hammer this morning, with the unemployment rate rising to 9.2%. But that is not the only bad economic news hovering over America. Housing also continues to falter, and to make matters worse, the Federal Reserve has downgraded its outlook on GDP growth for the next year. It all begs the question, what is going on?
This month's issue of Ahead of the Curve dives into the debate and tries to get a sense of the problems facing the economy by taking a snapshot look at unemployment, housing, GDP, Wall Street, and the Federal Reserve.
In summary, the unemployment rate ticked up last month in part because the government has been shedding workers as stimulus money runs out, making the jobs numbers somewhat bittersweet for those that want to reduce the size of government. However, while there is growth in private sector employment, the rate of growth has been falling for the past few months to nearly zero. This may be attributed to a serious misalignment of workers and employment opportunity given that the Bureau of Labor Statistics reported last month there were 3 million job openings unfilled. Apparently only Texas and England are hiring right now.
Economic growth fell from 3.1 percent at the end of 2010 to 1.9 percent in the first quarter of 2011, leaving many in fear of a double-dip recession. But it doesn't really matter if we hit an official double-dip or not. Whether the economy is growing at 2 percent or declining at 2 percent, it is still going to feel like being forced to watching The English Patient on repeat without end.
Over in the housing market, prices are still inflated, Fannie Mae and Freddie Mac are being virtually ignored by Congress, and there is a 6 million strong supply glut of homes, including the shadow inventory. A schizophrenic Wall Street has about a third of banks loosening their credit standards in the past year, while at least 30 percent of banks still are hesitant to lend to consumers. We need more lending to spark economic growth, but businesses are more interested in getting rid of debt than they are looking to borrowing money. Finally, the Federal Reserve has trapped itself by leaving interest rates too low for too long. If the Fed lets rates rise, all the mortgage debt they've been buying will start to loose value and the cost of borrowing for the Treasury Department will rise by trillions of dollars. The artificially low interest rate policy must change, but Chairman Bernanke insists on keeping the status quo for a while.
The answer to how we fix these problems is as deep and complex as the issues themselves. However, there are ways, beyond just cutting taxes, in which the government can take action to get recovery going. It starts with a robust free trade agenda and taking an axe to America's nanny state regulatory environment.
To read the the in-depth commentary covering all of these topics, including more details on the way out of this mess, see here: A New Blueprint for Recovery.