Jobs Data Shows Nation Lurches Towards Deflation
Posted by Michael A. Kamperman on July 2, 2009
The U.S. lost another 467,000 jobs in June. The unemployment rate rose to 9.5%. While the headlines were bad enough, the devil was in the details. According to the U.S. Department of Labor statisticians, the number of people in the labor force shrank by 155,000 even though the population grew by an estimated 203,000. People are giving up looking for work. The number of people working for federal, state, and local governments shrank by 52,000. Tax revenues for state and local governments are falling. The State of California alone is trying to close a $27 billion projected budget shortfall for the new fiscal year that started yesterday with some combination of program cuts (jobs). The average work week went down to 33 hours per employee. For the first time in a long time average hourly earnings were unchanged from the previous month. The clincher is the average weekly paycheck fell by $1.85 to $611.49. Finally, the number of people unemployed 27 weeks or more rose by 433,000 to 4.4 million. To put that stat into English, well over half of the people that lost their job last November have been unable to find a job.
With weekly wages now beginning to fall the ability of people to pay back their debts is diminishing. And these are the people that still have a job. The natural reaction to working in an environment where you are uncertain about keeping your job, and you know there are no raises, is to save more and spend less. The natural reaction to being unemployed for more than 6 months is to lower your sights and to look for a position that pays less and is in a less desirable working environment. Real wages fell during the great depression and it was one of the main reasons the economy was never able to fully recover. The U.S. is now on the cusp of declining wages. If hourly earnings actually begin to decline along with the number of hours worked, then shaking off deflation will become extremely difficult.
There is an available solution. The Federal Reserve could print enough money to buy up almost all of the outstanding U.S. Treasuries. Additionally, the federal government could establish a “bad bank” and take all of the toxic real estate related securities off the books of the banks and replace them with a long term loan of freshly printed cash. The banks would then have time to pay off their problem assets and they would have cash to lend into the real economy. The federal government could also guarantee newly issued state municipal debt and new mortgage-backed and auto-backed securities. The U.S. does not have to suffer and see its economy slide into the abyss. But we will continue to sink until our leadership in Washington quits staring like a deer in the headlights at the economic crisis and gets moving.
