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News :: Economy : Labor : Political-Economy |
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Slower Growth Likely in 2005 |
Current rating: 0 |
by Mark Weisbrot
(No verified email address) |
14 Feb 2005
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The only thing worse than not sharing in the gains from growth is having even less growth to share. |
For all the perennial optimists who were hoping that this year would bring better economic times than the last, hope is not going to be enough. Which is too bad, because last year wasn't all that great for most Americans.
It's true that our economy (Gross Domestic Product or GDP) grew by 4.4 percent last year, which is the best growth performance for five years. But unfortunately these gains did not trickle down to the majority of our hard-working population. Real wages -- that is, what your wages can buy -- actually fell over the year.
That this is not a well-known fact is an indication of how little the interests of most Americans are taken into account in national economic news reporting and political discussion. Throughout most of American history, the majority of the labor force did indeed share in the gains from economic growth.
Our economy gained about 2.2 million jobs last year. This is similar to the 2.1 million annual average for the nineties -- but not very good for a year that followed three years of actual job losses.
The only thing worse than not sharing in the gains from growth is having even less growth to share. If the economy were able to keep growing at last year's pace, real wages would eventually rise. But alas this growth is not in the cards. The fourth quarter of last year saw only 3.1 percent growth. Before this figure was reported last month, economists were forecasting about 3.5 percent growth for 2005; these forecasts will now be revised downward.
But all this assumes that we are lucky. It is almost an axiom that if a rock sits long enough on the edge of a cliff, it will eventually fall over the edge. We have a big bubble in housing prices in the United States. We know this because house prices have risen by more than 40 percentage points beyond the rate of overall inflation since 1995.
This has never happened before, and there is no plausible explanation other than a speculative bubble. When this bubble breaks it will most likely cause a recession, just as the bursting of the stock market bubble in 2000-2002 triggered our last recession.
One thing that could burst the bubble would be a rise in long-term interest rates. These determine mortgage rates and are extremely low right now. The yield on 10-year Treasury notes is currently 4.2 percent, which adjusted for inflation is about 0.9 percent. Historically this real (inflation-adjusted) rate has been closer to 3 percent.
How long can these unusually low rates be maintained? The answer seems presently in the hands of Asian central banks, especially Japan and China, who are gobbling up U.S. bonds, not because these bonds are a good investment, but because they consider it in their interest to support the U.S. economy. We are running an unsustainable trade deficit, borrowing more than 6 percent of GDP from abroad. Our creditors will eventually lose some of their appetite for dollars -- but when?
Maybe all these big rocks will sit on the cliff for another year. But there are other reasons for pessimism. The most important source of demand since the 2001 recession came from homeowners who borrowed literally trillions of dollars when they refinanced their homes. That episode has about run its course, as have the tax cuts. Consumers are now buried under record levels of debt, with a savings rate near zero. The Fed has raised interest rates six times in the last seven months and will likely continue to do so every six weeks. All this makes it even more likely that last year will look good compared to 2005.
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Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. (www.cepr.net).
Center for Economic and Policy Research, 1621 Connecticut Ave, NW, Suite 500, Washington, DC 20009
Phone: (202) 293-5380, Fax: (202) 588-1356 |
Copyright by the author. All rights reserved. |
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Retail Sales Are Weakest in Five Months |
by AP
(No verified email address) |
Current rating: 0
15 Feb 2005
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WASHINGTON (AP) -- Retail sales fell 0.3 percent in January -- the weakest showing in five months -- as a big drop in demand for cars offset strength at clothing and department stores. Spending was powered mostly by consumers anxious to use holiday gift cards.
The Commerce Department reported that last month's decline in retail sales followed a huge 1.1 percent surge in December. Both months were heavily influenced by a swing in activity at auto showrooms.
In January, car sales fell by 3.3 percent, the biggest decline since last June. Car sales had surged by 4 percent in December as buyers had flocked to showrooms to take advantage of attractive incentive offers.
Excluding auto sales, retail sales rose 0.6 percent in January, twice what analysts had been expecting, after sales excluding autos had risen 0.3 percent in December.
Consumer spending, which accounts for two-thirds of total economic activity, is expected to remain solid this year but at a slightly slower pace than in 2004, reflecting in part a belief that activity will cool as the Federal Reserve keeps pushing up interest rates.
In other economic news, the Commerce Department reported that inventories held by businesses on shelves and backlots rose by 0.2 percent in December, a sharp slowdown from a 1.1 percent rise in inventories in November.
The slowdown reflected in part a big 1 percent jump in total business sales in December, a month when auto dealers brought back attractive incentive offers to reduce their overhang of unsold cars. This effort helped push down inventories of autos and auto parts by 1.2 percent in December.
For the entire year, business sales rose by a record 10.6 percent, more than double the 4.3 percent gain turned in during 2003. The sales increase was led by a record 13.8 percent jump in sales by wholesalers and a record 10.8 percent increase in sales by U.S. manufacturers. Sales at the retail level were up 7.8 percent.
Federal Reserve Chairman Alan Greenspan will deliver the central bank's semi-annual monetary report to Congress on Wednesday, an event being closely followed by financial markets anxious to discern whether the Fed plans to keep raising interest rates at a moderate pace of quarter-point moves in coming months.
The 0.3 percent drop in retail sales in January was the biggest setback since a similar 0.3 percent fall last August.
In addition to the 3.3 percent decline in auto sales, sales at stores specializing in products for the home also suffered setbacks. Sales at appliance and electronic stores were down 0.6 percent while sales at hardware stores dropped by 0.3 percent and furniture store sales dipped 0.1 percent.
Sales at clothing and clothing accessory stores jumped 1.8 percent in January while sales at general merchandise stores, a category that includes department stores, rose by 0.9 percent.
These solid gains were attributed in part to the fact that consumers who received gift cards as Christmas presents chose to redeem them during January clearance sales.
Department store sales were also bolstered by consumers attracted by a fresh assortment of spring clothes, which lured buyers despite late-month snow storms in the Midwest and Northeast.
Sales at restaurants, bars and coffee houses rose by 0.3 percent while grocery store sales were up 0.5 percent.
Sales at gasoline stations were up 1.8 percent in January, after having fallen 0.2 percent in December. Last month's increase reflected in part higher gasoline pump prices.
Copyright 2005 The Associated Press
http://www.ap.org/ |
