The Coming Double-Dip Recession

On June 1, stock markets in New York and around the world declined in levels not seen since summer 2010. Days and weeks immediately ahead will likely register even further significant market declines, as the obvious becomes increasingly evident: the US and other major global economies are once again on the cusp of a significant slowdown.

In a recent post a few weeks ago, entitled "Why March-April's Job Gains Will Collapse This Summer," this writer warned that the official hype about job recovery promoted by the business press and distorted US government data was grossly inaccurate. Behind the false jobs data lay a growing picture of imminent economic relapse. The US Labor Department's jobs numbers due this Friday, June 3, will likely further corroborate this view.

But the coming economic slowdown is not simply a result of the failure to create a sustained recovery of jobs in the US for the past two years of so-called economic recovery. Nearly all economic indicators have been deteriorating since the beginning of 2011, even though policy makers and Wall Street investors have been diligently ignoring the fact.

Consumption growth, which represents 70 percent of the US economy, early in 2011 fell by half compared to the previous period in 2010, from 4 percent to 2.2 percent. Real spending, adjusted for inflation, has been mostly flat so far in 2011. Rising gas prices have accounted for 60 percent of consumption gains in 2011. Escalating prices for food, health care, local taxes and education costs have taken a further toll. The wealthiest 10 percent of consumer households now account for 60 percent of spending - buoyed by the past year of stock market gains that are now about to be reversed. High-end retail stores, like Tiffany's, rake in record sales while low-end retailers like Wal-Mart struggle for sales. Apart from the wealthiest households, there has, thus, been no real sustained recovery of consumer spending in the US economy for the past two years. Retail sales have fallen the last three months in a row. And the lack of job growth, falling home values, rising core inflation (food and energy) and declining real incomes for the 95 million households earning less than $100,000 a year means a "flat" scenario, at best, for consumer spending for 2011.

Housing, which accounts for another 10 percent of the US economy, is in a deep depression, a condition comparable only to the 1930s. So, no help here. Housing starts, sales, building permits are off by 75 percent from 2007 highs. After having dropped by 25 percent in the first phase of the recession, then briefly leveling off, home prices are in decline once again. Another 15 percent drop is predicted. There's never been a sustained recovery from any of the ten post-1945 US recessions without a housing recovery; and the latter is clearly more unlikely than ever today, given the nearly ten million foreclosures and 16 million - i.e. more than a third of the total - homes in negative equity.

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