Back in January I wrote that this stimulus plan was not going to save us from a recession. If you doubted my prognosis, today’s unemployment and retail sales numbers were an exact confirmation of what I wrote.
Consumers are finding that their paychecks are not keeping up with rising food and gas prices. They are also dealing with tighter credit, a housing slump that does not look like it will be ending anytime soon and a weaker job market. Such fears have dragged down consumers’ outlook for the economy to the lowest level in decades, according to the Conference Board.
A report on unemployment Thursday underscored the woes in the job market. The Labor Department reported that the number of newly laid-off people signing up for jobless benefits last week climbed to its highest point in more than six years as companies cut back. New applications for unemployment insurance rose by a seasonally adjusted 7,000 to 455,000 for the week ending Aug. 2, putting claims at their highest level since late March 2002.
Most analysts understand that when new unemployment claims average over 400,000 a week, we are in a recession. I believe the recession actually started in January and will continue for another 9-12 months. WalMart noticed that sales dropped in the last week of July, either because the stimulus checks had been spent or their customers had the normal end of month “run out of money” effect. The more serious problem is the Hidden Unemployment in which people who would like to work full time are having to take part time jobs. In effect this would push the real unemployment rate over 10%. The only saving grace from this quarter’s GDP numbers was that the cheap dollar helped exports, but our favorite Cassandra, Nouriel Roubini makes a fairly compelling case that we are about to enter a global recession. That will surely cut exports.
As I have said all along, the end of the Presidential campaign in late October will be played out against a backdrop of an angry country, with lots of unemployment and an even deeper downturn in retail sales. Despite Phil Gramm’s entreaties, it will not be a “mental recession”. I don’t see how the Republicans can win in that “throw the bums out” atmosphere.