Economy grows, but not enough for jobs

| Saturday, Aug. 18, 2012, 8:49 p.m.

Economists, investors and even the Federal Reserve are concerned about poor economic growth.

Fearing a recession, savers are hoarding cash. They see the Fed flooding the world with trillions of synthetic dollars, and many are buying gold as insurance against monetary chaos while hedging against inflation. This has driven precious metals prices higher when, in the face of a possible new recession, they should have fallen dramatically.

Great uncertainty exists. But are things really that bad? What do the underlying indicators tell us?

The economy is recovering slowly at a rate of about 1.5 percent, as measured by the nation's gross domestic product, or GDP. And the economic growth is almost 2 percent above pre-Great Recession levels in 2008. Since then, almost 4 million jobs have been created. Industrial production has recovered almost to pre-recession levels. While this is all good news and may delay further action by the Fed to stimulate the economy, it is not the whole news.

While growing, the economy is doing so at a subdued and decreasing rate. In the past six months, the rate of growth fell by almost 40 percent.

In addition, job creation has fallen dramatically. Jobs are crucial to long-term consumer demand, which generates about 70 percent of economic activity. Despite creating the almost 4 million jobs added, there are still 5 million fewer jobs filled than before the recession.

About 46 million Americans are on food stamps and 150 million, or almost one half of the population, are in some form dependent on government spending. This puts enormous pressure on politicians to increase deficits and taxation while supporting a Federal Reserve stimulus policy that debases the currency, robbing citizens of purchasing power.

Average wages, although more than 12 percent higher than at the recession's trough, are still about 3.5 percent below their 2008 high. And government Social Security handouts, including food stamps, are up by almost 20 percent in just the past year.

Despite government aid, consumer demand has remained muted and has lifted real wholesale and retail sales by only 12 percent, leaving them at 4 percent below their 2008 peak.

While industrial production is still about 3.5 percent below its 2008 peak, it has held up remarkably well. This may be caused in large part by a weaker dollar, increased demand from emerging economies overseas and a slight increase in domestic borrowing.

Can this weak recovery continue, translate into jobs and lead to renewed consumer demand?

The level of the new orders to be reported in the next Purchasing Managers Index will provide a sign. Unfortunately, five of seven recent surveys of manufacturing activity indicate a downturn. This happened last in early 2008.

European economies are careening toward a depression, Japan's remains stagnant and China's is weakening, which is probably drawing down activity in major nations such as Russia, India and Brazil.

The American economy is growing. It may be enough to discourage additional stimulus from the Federal Reserve, but it is unlikely to create enough jobs to revive healthy consumer demand.

John Browne, a financial analyst and former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Email him at:

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