The recent GDP report shows a much weaker economy than expected, and uncertainty in Washington could slow the economy even more. As unlikely as it appeared at the beginning of the summer, when the Fed was forecasting 3.5 % growth, we seem to be slipping toward another recession, or at least a quarter of negative economic growth.
The GDP report for the second quarter was horrible at only 1.3% and came with a sharp downward revision from 1.9% to a miniscule .4% rate for the first quarter. The biggest surprise was real consumer spending which contracted at an annual rate of 1.3%, the first decline since the second quarter of 2009. Even bright spots like business spending and exports grew at a slower pace. Government spending fell 1.1% as state and local spending fell faster than the increase in Federal spending.
Housing is depressed, 15 million people are unemployed, and there are signs of slowing in manufacturing. The ISM Manufacturing Index fell 4.4 percentage points to 50.9 in July from 55.3 in June, the lowest in a year. And there are continued signs of possible downgrades in Europe, most recently Spain, that could spread throughout the European and U.S. banking systems, tightening credit, and further slowing the Eurozone economies. Even in Asia, we are seeing clear signs the Korean economy is slowing sharply, and some slowdown in China as well.
We are flirting with a "double dip" recession unless we make economic growth our top priority.
The agreement on the debt ceiling bill, even if one has reservations, is a step in the right direction because it decreases the size of government without raising taxes. While this takes a big uncertainty off the table, it does leave behind the negative effects of fiscal austerity and a huge loss of credibility for Washington. I see no strong driver of economic growth coming out of the debt ceiling agreement.
The one huge positive force in the U.S. economy that could propel growth is the private sector's productivity and earnings performance and the cash that it has generated. Because of the extraordinary job done by American manufacturing and the private sector, we have seen roughly $2 trillion in cash on corporate balance sheets. Moreover, earnings growth for the S&P 500 companies is on track to deliver a gain of 18% for the first half of the year, and these strong earnings will continue throughout 2011. The backbone of our country is the productivity and earning performance of these companies, and the results have been the key driver of the economic growth we have managed to achieve.
It is time we recognized that the key to economic growth is manufacturing and the private sector, and not Washington. What Washington needs to do now is turn to pro-growth policies such as expanding trade and exports, investing in education and innovation, pro-growth tax reform, and a moratorium on new regulations. If we can move forward on these pro-growth measures in a bipartisan way, we can get back on track to increase productivity, become more competitive, create jobs and reduce the deficit.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute.
Patrick Sharma: Can We Focus on Unemployment Now?
"It is time we recognized that the key to economic growth is manufacturing and the private sector, and not Washington." - Shows exactly where Jasinowski's priorities are.
Unfortunately because economics is such a fuzzy matter, it's easy to push seemingly logical systems - like "supply-side" crap Jasinowski is pushing. What good $2 trillion in cash sitting in corporations' coffers id doing us? Who is going to manufacture anything when the buyers don't have money? Who is going to hire people if there is no need in manufacturing more goods?
The only people that believe in "supply-side" economics are those who profit from it, it's obvious why this guy is pushing it. And the awful thing is that he probably sincerely believes in it. Hopeless!
Jasinowski
Somedfay, it's gonna dawn on you all that you still do want to sell things to American people, and if they can;t buy it....
or maybe not, cause you do it all in China anyway now, and the China market can absorb everything you make for years to come, right?
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We ordinary people were already hanging by our fingernails at the edge of an economic abyss and the government just shoved us off the precipice.
We are sliding towards a depression.
The key to economic growth is first demand for goods and services, which will create jobs in the private sector. It is to get the banks to loan to small and medium size business so they can hire to accomodate the demand. We are still in a recession and the economy is weak. The consumer has no money to spend or is unwilling to do so. Business is contracting expenses. That only leaves the government to create jobs. Those jobs must be created now and not in sime nebulous future based upon some fuzzy 'pro growth policies'.
At this point it needs to start being called what it is a depression.
Where was a recovery?
Expand trade and exports---Great, but how? And we really want exports in particular---with ambiguous talk about "expanding trade" in general, we could mean mostly more imports which will hurt the trade imbalance.
Investing in education and innovation---How, when we are cutting back everything in sight, are we going to find money for that? I believe we should have a second stimulus, much larger than the first, for this sort of investment. But to get something like this to gain support in this climate requires a herculean leadership effort, not just an item in a trade association's wish list.
Pro-growth tax reform---I would hope that this means tax increases on Mr. Jasinowski's member companies, like General Electric, that pay no taxes at all. But I fear it's really corporate-speak for the opposite---Mr. Jasinowski's members expect to use their clout to reduce any taxes they still continue to pay.
A moratorium on new regulations---How is freezing things the way they are now going to cause anything to change? And in any case, it's nonsense for industry to claim that over regulation is the cause of economic stagnation.
Mr. Jasinowski of course wants what is best for his member companies, but that is not necessarily what is best for the country, and we should temper his remarks with this in mind.