On July 26th, I blogged about the fattest canaries in the coal mine – the richest consumers in the U.S. marketplace – voting their insecurities about economic recovery by reducing their average consumption expenditures from May to June by almost 18%. Bottom line, if the rich don’t have enough confidence to spend money on consumer goods, most certainly no one else does. And if folks are not willing to buy, employers are still sittin’ on cash (July 28th blog), unwilling to hire now matter how much cash they have on hand from profits, or if the government were dumb enough to cut their taxes and make the deficit worse (it won’t be, even though government can be pretty stupid) to give them more cash.
As the August 21 Washington Post discovered in a series of interviews with CEOs in the Chicago heartland, a mood the Post believes is fairly reflective of the nation as a whole, business just doesn’t see that needed spike in consumer spending anywhere on the horizon: “Corporate profits are soaring. Companies are sitting on billions of dollars of cash. And still, they've yet to amp up hiring or make major investments -- the missing ingredients for a strong economic recovery… They blame their profound caution on their view that U.S. consumers are destined to disappoint for many years. As a result, they say, the economy is unlikely to see the kind of almost unbroken prosperity of the quarter-century that preceded the financial crisis…
“Across the industrial parks and office towers of the Chicago region, in a more than a dozen interviews, senior executives said they see Americans for years ahead paying down debts incurred during the now-ended credit boom and adjusting spending to match their often-reduced incomes. .. [When many businesses do decide to make] an investment, it's usually designed to lower the need for labor. Instead of expanding capacity, such as building a bigger distribution center and having to hire more workers to fill it, [one CEO] is looking to serve existing customers more efficiently… [E]xecutives now project more gradual economic growth and are making less ambitious investment decisions.”
More canaries are at work signally a contraction; smaller investors are leaving the stock market in droves: “Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Inv estment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds… If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked… After past recessions, ordinary investors have typically regained their enthusiasm for stocks, hoping to profit as the economy recovered. This time, even as corporate earnings have improved, Americans have become more guarded with their investments.” New York Times (August 21st).
On August 24th, figures by the National Association of Realtors showed a precipitous drop in the sale of existing U.S. homes – a 27.2% plunge in July from June numbers (the mid-West dropped 35%!) – reflecting a vastly worse-than-expected (17% was the projection) reaction to the removal of the first-time homebuyers tax credit. This was the lowest level of such sales since 1995 and represents a 25.5% drop from a year ago. With 32% of the sales based on foreclosures and other distressed sales, the numbers show terrified consumers, worried about job growth and other economic fundamentals. The press has been rife with reports that real estate is unlikely to recover its status as America’s savings account… ever again.
This economic meltdown is different. Even during and after the Great Depression, the United States was poised for exponential growth – from excess electrical capacity to the utter WWII destruction of infrastructure from our likely competitors in Europe and Japan. Our rising competitors today – the so-called BRIC nations (Brazil, Russia, India and China) – are building modern infrastructure almost as fast as our older industrial capacity and national infrastructure grows obsolete with the passage of time. As we cut our educational budgets at every level to meet the financial crisis, our competitors are ramping up their capacities. What appears to be sinking into the American psyche is a belief that global economic power is being permanently reset, and that the U.S. is the country with the most to lose. Is a “jobless recovery” a recovery at all? I noted to a friend of mine that if one were really to examine the pre-recession growth years in the U.S., the numbers pretty closely mirrored the increase in our population, not true growth for everyone.
Have the chickens of over-borrowing and over-expectation come home to roost? Are we truly a nation stepping into a bottomless decline… or at least a decline that would parallel Britain’s fall from grace following the industrial revolution? My personal belief is that many vital and entrepreneurial Americans will step up and create magnificent new industries, products and services… rising to the top of global markets based on this “spirit of American innovation”… but that a lot of Americans won’t be a part of that new prosperity, their skills outdated and their pay demands out of step with global competition. I see success, but in an increasingly polarized society.
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