Economist Robert Reich said the United States is sliding into a double-dip recession because the labor market continues to deteriorate.
“The private sector added a measly 41,000 net new jobs in May. But at least 100,000 new jobs are needed every month just to keep up with population growth,” he wrote on his website.
The average length of unemployment continues to increase, rising to 34.4 weeks, up from 33 weeks in April.
“More Americans are too discouraged to look for a job than last year at this time,” wrote Reich, now a professor of public policy at the University of California at Berkeley.
Such discouraged job hunters totaled 1.1 million in May, an increase of 291,000 from a year earlier.
“Why are we having such a hard time getting free of the Great Recession? Because consumers, who constitute 70 percent of the economy, don't have the dough,” wrote Reich, who served in three national administrations and was a secretary of labor under President Bill Clinton.
“They can't any longer treat their homes as ATMs, as they did before the Great Recession,” he wrote.
He also said that companies won't rehire workers if there's not enough demand for their goods and services.
“The only reason the economy isn't in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can't continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories),” he wrote.
“Oh, and, yes, all those Census workers (who will be out on their ears in a month or so).”
He warned that all those supports will soon end and “then we're in the dip.”
To avoid this, he offers two solutions. For the short term, he suggests more stimulus — especially extended unemployment benefits and aid to state and local governments “that are whacking schools and social services because they can't run deficits.”
He said, however, that “the deficit crazies in the Senate, who can't seem to differentiate between short-term stimulus (necessary) and long-term debt (bad) last week shot it down.”
His long-vision solution is “a new New Deal that will bolster America's floundering middle class.”
He calls for expanding the Earned Income Tax Credit and extending it up through the middle class.
“Finance that extension through higher marginal income taxes on the wealthy, who have never had it so good,” he wrote.
But not everyone agrees with him.
While admitting that the current market downturn “may have legs,” Charles Schwab Chief Investment Strategist Liz Ann Sonders doesn’t expect a double-dip recession.
In fact, Sonders thinks a few bullish signs have emerged for stocks.
“I believe we’ll see growth estimates pared back for the second half of this year and next year,” Sonders writes in her latest market commentary on Schwab’s site.
“And the market’s correction may have legs. But the economy is now moving from recovery to expansion and they’re harder to stall. And, thanks to the correction, valuation has improved and excessively bullish sentiment is no more. The wall of worry is back — and that’s not a bad thing.”
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