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Reich: Economy Heads for Double Dip as Warning Signs Ignored

Friday, 01 Apr 2011 03:17 PM

Despite happier economic news such as falling unemployment rates and swelling corporate earnings, the most important economic indicator out there suggests the country is at risk of falling back into a recession, says economist and former Labor Secretary Robert Reich.

Consumer confidence, which slipped in March after five straight months of improving thanks to inflation and joblessness worries, is the one index that merits serious attention.

"Consumers are 70 percent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the lowest point of the Great Recession," Reich writes in the Christian Science Monitor.

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Robert Reich (AP Photo)
"We’re heading in the direction of a double dip – but you’d never know it if you listened to the upbeat messages coming out of Wall Street and Washington," wrote Reich, now a professor of public policy at the University of California at Berkeley.

The economy is expected to grow between 2.5 percent and 2.9 percent, although growth of no less than 4 percent is needed to really right the economy in view of the depth that it plunged.

"Consider that back in 1934, when it was emerging from the deepest hole of the Great Depression, the economy grew 7.7 percent. The next year it grew over 8 percent. In 1936 it grew a whopping 14.1 percent," wrote Reich, who served in three national administrations and was a secretary of labor under President Bill Clinton.

Furthermore, real hourly wages and housing prices continue to drop, which does not bode well at all for the economy.

The government, meanwhile, cannot step it up enough.

"There’s no possibility government will make up for the coming shortfall in consumer spending. To the contrary, government is worsening the situation," Reich writes.

"State and local governments are slashing their budgets by roughly $110 billion this year. The federal stimulus is ending, and the federal government will end up cutting some $30 billion from this year’s budget."

Wall Street profits soared to $426.5 billion last quarter, according to the Commerce Department, with a big chunk of earnings taking place overseas.

"The only group that’s optimistic about the future are CEOs of big American companies. The Business Roundtable’s economic outlook index, which surveys 142 CEOs, is now at its highest point since it began in 2002."

Republicans are attacking deficits and fear focusing too much on jobs and wages could sway voters to demand more from Washington, Reich says, adding deficit reduction won’t seriously dent unemployment.

Democrats, meanwhile, also don't want to sound alarm bells and want voters to believe the economy is on the upswing.

While the job market may seem bleak and the path to recovery is not without clouds on the horizon, some good jobs news is trickling in, others point out.

Fewer Americans are filing claims for jobless benefits, with the number of applications for unemployment insurance payments falling Thursday by 6,000 to 388,000 during the week ended March 26, a one-month low, Bloomberg reports.

The U.S. economy added more jobs than forecast in March and the unemployment rate unexpectedly declined to a two-year low of 8.8 percent, a sign the labor-market recovery is gathering speed.

Payrolls increased by 216,000 workers last month after a revised 194,000 gain the prior month, the Labor Department said Friday.

The Bloomberg Consumer Comfort Index rose to minus 46.9 last week from a seven-month low of minus 48.9, the newswire adds.

"We have an economy that is growing solidly," says Jim O'Sullivan, chief economist at MF Global in New York.

"Continued strength in manufacturing is the bottom line here. All numbers are pointing to improvement in the labor market."

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Despite happier economic news such as falling unemployment rates and swelling corporate earnings, the most important economic indicator out there suggests the country is at risk of falling back into a recession, says economist and former Labor Secretary Robert...
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2011-17-01
Friday, 01 Apr 2011 03:17 PM
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