I read an article in today’s New York Times titled “U.S. Job Losses Rise in June as Unemployment Reaches 9.5%.” [1]
Job losses are not slowing down.
The unemployment and underemployment (those who are working but not working full-time) rates continue to rise.
Here’s what got me:
The so-called underemployment rate — which captures not only the jobless but also those working part time because their hours have been cut or they cannot find a full-time job — increased to 16.5 percent.
Some economists contend that as long as such numbers prevail, millions of Americans will continue to hunker down, withholding their dollars from car lots, shopping malls and other places of business, thus constraining hiring at auto plants and retail shops and elsewhere.
“It looks really bad,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “People can’t spend when they don’t have the money.”
Actually people can and did spend a lot of money they didn’t have which is one reason consumer spending accounts for such a large portion of our economy, the national savings rate is low (until very recently), and our debt levels (personal & government) have risen dramatically. [2]
Again, from the same article:
Consumer spending amounts to 70 percent of overall American economic activity. In recent times, Americans have found myriad ways to fuel spending even as incomes for many households have stagnated, borrowing against the once-rising value of homes and tapping credit cards.
Now, millions of households owe more to the mortgage lender than their house is worth. Millions more have exhausted their credit. The paycheck has returned as the primary source of spending. Yet, as the June jobs report reinforced, paychecks are eroding even for those who have jobs.
Exactly!
That’s why the fact people are saving more & spending less is a great thing for the long-term health of our economy.
If we stay on track our economy will transform from a consumer spending & debt driven system to a production and savings one.
The short-term effects of such a seismic shift in our way of life will be painful: businesses that rely on Americans spending more than they have will not survive.
But in the long run (and no we’re not all dead in the long-run; somebody will have to pay the bills eventually), as the health of any economy is a function of a country’s ability to produce economic goods and services in excess of consumption, not spending money we don’t have is good news for the US economy.
