The new year is upon us very much married to the new downsized reality for the average American. The economy has reset, with those in finance running away with the brass ring, but many of the remaining workforce are living in a new world of lowered expectations, lower pay and contracted opportunities. This “job polarization” is the hidden statistic that lies beneath the stagnant or declining home values and the shrinking consumer confidence numbers.
Despite the robust holiday sales, the December 28th Forbes.com reports (with a hint of business optimism): “[T]he latest gauge of home prices showed further declines and the government's December reading on consumer confidence came in below expectations… The S&P/Case-Shiller 20-city index of home prices fell 1.3% in October from the month before, with the steepest declines in Atlanta (2.9%), Chicago (2%) and San Francisco (1.9%)… Consumer confidence came in at 52.5, below the consensus estimate [the projection of economics experts], but most market watchers consider retail sales a better indication of consumer attitudes than surveys…”
What’s going on here? Bottom line is that if people feel that they are going to make less money in the future, while their buying may explode on occasion in frustration to the new austerity that defines so many lives, the overall confidence vectors and home prices will reflect that pessimism. New Jersey’s Rutgers University – through their John J. Heldrich Center for Workforce Development – conducted a sample survey of American workers that began in August 2009 and produced two further analysis' of the same workers twice within the following 15 months. The December 31st New York Times summarizes: “Many, it turns out, had to switch careers an d significantly reduce their living standards.
“‘In many cases, these people are not very happy,’ said Cliff Zukin, professor of public policy and political science at Rutgers University and one of the authors of the study. ‘They’re the winners who got new jobs, but they’re not really what they want, and not where they want to be.’… As of November 2010, only about one-third [of those who were unemployed in August of 2009] had found replacement jobs, either as full-time workers (26 percent) or as part-time workers not wanting a full-time job (8 percent)… And of those who successfully found work, 41 percent had switched into a new career or field…. Some of these may have been workers who retrained for new fields they wished to enter, but many seem to have taken their new jobs out of desperation. Only a minority of those displaced workers changing careers — 22 percent — said they had taken a class or a training course before finding their new job.”
Unless you are locked in solitary confinement, you may have noticed the accelerating rise in prices in the grocery store and at the gas pump, a note that is further depressing expectations and confidence. “[E]conomists have calculated that every $1 increase in the oil price is subtracting $100bn from the US economy.” SeekingAlpha.com (December 27th). “Despite the great domestic harvests, the price of corn is up 44 percent in the past year. Milk is up 6.5 percent. Sugar, which has been running counter to other prices, is now in lock step . Sugar hit an all-time high of 24.9 cents a pound in December 2009, then retreated to 15 cents in May, but shot up to 22.68 cents in September… All of which is not to mention prices in fuel, steel and other factors relating to food processing and distribution.” Foodprocessing.com (November 8th). And it takes fuel to deliver all those goods to market!
The problem stems partially from weather pattern changes hitting many non-U.S. food producers particularly hard in 2010 plus this harsh reality: as economic success in countries like India, Russia, China and Brazil (the BRIC nations) adds millions and millions of new consumers buying themselves a vastly improved standard of living, the fundamental price vector for the commodities they are now able to demand will continue an ugly march upwards. The simple fact that China is now 50% buying more cars annually than its American counterpart tells it all.
For the average American worker/consumer, all this means uncertainty and lowered expectations. When patterns of consumption stabilize, when we have a feeling of what is really around the corner, consumer confidence will rise, reflecting that we really adjusted to the “big reset.” I suspect that this “acceptance into normal” is a long way away.
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