ShareThis
by Don Azarias
July 1, 2011
If the United States’ economy is not heading toward a double-dip recession, as some economists and analysts are suggesting, then it’s another unsolved puzzle for them because there are signs that the economic recovery is losing strength. And it’s for that reason that the stock market rally had fizzled and pushed indexes down for five straight weeks, the longest losing streak since mid-2008.
The recently-released employment report that showed sluggish job growth triggered another big round of stock sell-off preceded by Dow Jones Industrial Average (DJIA) worst drop in nearly a year. The Dow lost 97.29 points, or 0.8 percent, to close at 12,151.26. The Standard & Poor’s 500 index fell 12.78, or 1 percent, to 1,300.16. The Nasdaq composite fell 40.53, or 1.5 percent, to 2,732.78. Each index lost 2.3 percent for the week.
The slumping economy continues to wreak havoc on the markets. It’s impacting mostly airline’s, bank’s and other blue chip stocks. Analysts for airline companies cut profit estimates by half. Stocks of big banks like JP Morgan Chase, Wells Fargo, Citigroup and Bank of America are also falling amid concern that the Federal Reserve may require them to set aside more cash to increase their reserves for potential loan losses. That would mean less money to lend and will surely hurt banks’ bottom line. Analysts for the group also blame disasters in Japan, EU’s economic crisis, unrest in the Middle East and higher fuel prices.
The stock market is in dire need of good news to sustain its rally. However, bad economic news keeps coming in from across the Atlantic and the Pacific with no relief in sight. And the high unemployment rate and housing crisis that continue to bedevil the U.S. economy only exacerbate the economic downturn. When will this economic crisis end? Although the National Bureau of Economic Research (NBER) declared that the Great Recession ended in June, 2009, it seems like we are still in the midst of a recession. While most economists are saying that the economic crisis is over, majority of the American people are not buying it.
With high gas prices limiting the buying public’s ability to fully open their wallet would mean weaker retail sales. And with companies still reluctant to hire, the budding economic growth is unable to take roots because, as I have stated, time and time again, consumer spending accounts for 70 percent of the U.S. economic activity. Minus consumer spending, there will be no economic growth. Also adding to the economic misery is the continued weakness in the housing market. Home prices have sunk to their lowest since 2002. Since the bubble burst in 2006, prices have fallen more than they did during the Great Depression.
Like what the government had done in the early days of President Barack Obama’s administration, don’t expect another round of stimulus spending. The Fed has already slashed interest rates near zero and has said it will end its bond-buying program on schedule at the end of this month.
For the readers’ information, stocks started strongly at the beginning of 2011, hitting their highest levels in nearly three years in late April. But the market has been on a downward spiral as of late and analysts see it as troubling signs for the economy.
According to the Labor Department report, employers added only 54,000 new workers in May, the fewest in eight months and well below what analysts were expecting. Private companies hired the fewest new workers in nearly a year. The unemployment rate rose to 9.1 percent from 9 percent.
Economists and analysts are closely watching the Labor Department’s monthly jobs report and determined that there’s, indeed, a slowdown in the U.S. economy. High gas and food prices have cut consumers’ spending and the earthquake and tsunami disaster in Japan have hurt U.S. manufacturers by slowing down deliveries of industrial parts.
Left with a few options and his poll numbers taking a nosedive, Obama expressed concern about the sudden slowdown in the economy but said he is not worried about a double dip recession and the nation should “not panic.” The president spoke about the new economic trouble in detail for the first time since a report late last week showed job growth had slowed sharply in May. “I am concerned about the fact that the recovery that we’re on is not producing jobs as quickly as I want it to happen,” Obama said. “We don’t yet know whether this is a one-month episode or a longer trend.” He tried to reassure Americans worried about high unemployment and expensive gas that the nation is on a slow, if not steady, path to recovery. Sounds familiar? Of course, it’s another one those political discourses with the 2011 elections on the horizon.
To further compound Obama’s problems, Federal Reserve chief Ben Bernanke, speaking in Atlanta recently, acknowledged the economy has lost momentum but didn’t say anything about any Fed’s intervention to prevent further damage to the struggling economy. And with lawmakers fighting a partisan battle over the nation’s budget deficit and long-term debt, don’t expect another round of major federal stimulus bill like the one passed by Congress in 2009. The Republican lawmakers are firm in their stand that expensive programs and entitlements being espoused by Obama and his Democratic allies have to be cut. Still, the Democrats remain cool and adamant toward a compromise.
Obama has a very good reason to be worried because his own re-election chances are very much tied to the turnaround of the U.S. economy. According to a Washington Post-ABC News survey, the public disapproval of Obama’s handling of the economy has reached a record high, 59 percent.
The poll found that Obama and former Massachusetts Gov. Mitt Romney are tied among all Americans in a hypothetical race for president. It gave Romney a slight edge, less than the margin of error, among registered voters.
Although Osama bin Laden was eliminated under his watch, Obama is well aware that he can’t rest on his laurels. Come 2012 the American voters would have already forgotten about bin Laden. The economic turnaround, employment, Social Security and Medicare benefits will be their main concern. They will clamor for jobs, jobs, jobs as the United States’ stellar AAA credit rating teeters on a potential downgrade. Failure on the part of Obama and his Democratic allies to resolve these issues before the elections could spell trouble for them. It could doom their political aspirations and find themselves unemployed like millions of Americans but, of course, with better pension and health care insurance benefits.
Is it any wonder that the economic crisis is the least of those political leaders’ worries? Go figure.