Our Economy is Weakening and It’s Up to You to Save ItJames Cordelaine
Suppose you were looking forward to a shopping trip, but decided to cancel after you’d taken another glance at your available funds. Then imagine you heard a mystical voice out of the blue whispering the U.S. economy was depending on you not to cancel your plans.
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As ridiculous as this scenario seems, it’s a dilemma now facing American consumers. Like it or not, because of our wanton spending habits, we appear charged with holding up the economy and preventing it from slipping back into recession.
The problem? Experts tell us while consumer spending is up; all other economic indicators are abysmally lackluster. At an annualized rate of 1.2% between April and June, our economy grew at a much weaker rate than anticipated. In fact, we haven’t seen such lackluster growth since 2010. Housing, inventories, and business investment have all declined. In fact, you name the economic indicator – if it’s not related to consumer spending, Deutsche Bank has documented it’s weaker for the first time since the recession ended in 2009.
But balancing an economy on consumer spending is treacherous business. Without improvement in these other sectors, consumers will lose confidence and – eventually – stop shopping till we drop; conceivably pushing ourselves into another recession in the coming months.
Deutsche Bank economist Joseph LaVorgna is worried about two gaping weaknesses – business spending and housing. New-equipment expenditures declined 3.5% percent in the second quarter, and are down now almost 2% in the past year. Spending on structures declined almost 8% in Q2, and 7% over the last year. Residential housing fell just over 6% in the last quarter.
While the economic statistics LaVorgna cites certainly seem discouraging, they don’t yet seem cataclysmic. But another group of economists has a much more sobering and dismal take on the problem.
Lawrence Summers, Secretary of the Treasury during the Clinton administration, doesn’t view the problem as one of business cycles or waves of boom times and recession that periodically come and go. He feels we’re stuck in a virtual era of “secular stagnation,” a phrase he resurrected for his speech in 2013 before the International Monetary Fund (IMF).
Coined by economist Alvin Hansen in 1938, he characterized secular stagnation as “sick recoveries which die in their infancy and depressions which feed on themselves and leave a hard and seemingly immovable core of unemployment.” While he clearly had the recent Great Depression in mind, his concept fits the economy of 2016 uncannily.
What sprung America from the Great Depression was World War II. But the nation’s ticket out of subsequent secular stagnation in the forties was the post-war baby boom. Where there’s population growth, there’s demand for goods like housing, cars, and other consumer goods. Businesses need to invest and expand their payrolls to manufacture these items.
But now that baby boomers are retiring, our country’s biggest group of consumers needs fewer things. This during a period of slower population growth and consequent flagging demand. Thus, according to the theory of secular stagnation, all the Fed tweaks and fine presidential campaign speeches will not lift our nation out of its economic doldrums. We could well be faced with a shrinking economy for a very long time.
No matter who’s right, we’re all old enough to realize we personally can’t spend our way out of a financial crisis. It’s one thing to worry about our nation’s economy, but what we need to focus on is our own. Now is the moment we need to be securing what we’ve saved, battening down the hatches, and preparing to ride out whatever comes. If others want keep shopping that’s their choice. You have a retirement of thirty years or more to survive, in health and dignity, and now’s the time to get down to planning your strategy,