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Janet Yellen speaks
http://www.federalreserve.gov/newsevents/speech/yellen20160606a.htm
Last December, the Federal Reserve decided to raise its policy interest rate for the first time
since the Great Recession. At the time, the Fed thought that the US economy was starting
to expand at a sufficiently fast rate that it would suck up all the unemployed and create
conditions for increased demand and rising prices. Janet Yellen, the Federal Reserve chief
explained that the US economy “is on a path of sustainable improvement.” and“we are confident in
the US economy”. It was expected the Fed would proceed to raise interest rates by up to 1% point
in 2016 in order to control inflation and avoid sharp wage rises.
Well, over six months later, the Fed has not raised interest rates again. And the reason is
clear: US economic growth, far from being on a ‘path of sustainable improvement’, has been
slowing. In the first quarter of 2016, real GDP growth rose only at an annual rate of 0.8%.
And today, Yellen told the World Affairs Council in Philadelphia that the latest jobs growth
figures had been disappointing, and while she remained optimistic, there was little ground for
raising interest rates yet. Indeed, new jobs rose just 38,000 in May, half the consensus
forecast of 160,000. The US labour market, far from ‘tightening’, is beginning to weaken.
The Fed’s labour conditions index was revised down to -3.4 from -0.8 in April while May reading
came in at -4.8, confirming accelerating decline in conditions. This rate of decline has in the past
presaged a new economic recession.
And according to a survey of mainstream economists by the National
Association of Business Economics, US economic growth will slacken in
2016 to its slowest pace in four years, to just 1.9%, compared to a previous
forecast of 2.5%.
Sure, the unemployment rate in May fell to 4.7%, the lowest since
November 2007, but it did so for the wrong reasons as household
employment barely rose. It’s just that the labour force shrank 458,000
as people are giving up looking for a job. The labour participation rate
(the number of people working compared to those of working age),
which had been picking up slightly, pulled back again.
There are currently 7.4 million American adults officially unemployed,
but add in the underemployment in other words, that number is much
closer to 20 million. Full-time employment declined 59,000 on top of
a 316,000 plunge in April. Those working part-time for economic
reasons — actually preferring full-time employment but no such luck
— jumped 468,000 in the sharpest increase for any month since
September 2012.
Janet Yellen may think the US economy is getting better but the
experience for Americans is different. Student loan debt has never
been higher. Food stamp applications are at a record high, healthcare
costs continue to mount, inequality increases while average family
incomes fall.
The percentage of men aged 25 to 54 (prime working years) not working is at an all-time high. Real median
household income (using the fake understated CPI) is still 1.3% LOWER today than it was in 2007. Wages
continue to stagnate in the 2.3% range, while real inflation for real people in the real world exceeds 5%.
Growth in the productivity
of labour is the benchmark for US economic
growth. It declined at a 1.7% annual rate in Q4 of last year and
followed that up with a 1.0% drop in Q1.
Productivity is in decline because business investment growth has
been weak. As I have argued before, business investment growth
ultimately depends on the profitability of capital and profitability has
remained low. And now total profits are falling. The NABE
economists reckon corporate profits will fall this year for the first time
since 2011, when they declined 2.9 percent.
https://thenextrecession.wordpress.com/2016/05/11/us-economy-slows-too-much-saving-or-too-littleinvestment/
I have argued in previous posts that the US economy will head into a new recession within the
next year or two. According to JP Morgan, the US investment bank, the probability of a recession
occurring within the next 12 months has never been higher during the current economic
recovery. "Our preferred macroeconomic indicator of the probability that a recession begins
within 12 months has moved up from 30% on May 5 to 34% last week to 36% today,".
https://thenextrecession.wordpress.com/2016/02/16/is-the-useconomy-headed-into-recession/