Unemployment and Consumer Spend Highlight Stimulus Policy Failures

It seems that with rising unemployment and ever tighter budgets, American consumers missed the message that we are in an economic recovery. We hear talk of the recession “bottoming out” or that economists see this or that “good sign” or that the Treasury Secretary has “green shoots” in his sights. The fact is, all these people talking about how the recession is ending would have just as much success predicting what the economy will do if they slaughtered a goat and tried to read the entrails. 

If you want to know what the economy is really up to, go to the people who are there, in the trenches, each and every day. Talk to the people who are on the unemployment lines, the salespeople in shops—people who live with the recession and must cope with it every day—not the bureaucrats and statisticians in Washington trying desperately to spin the numbers, including this group and excluding that in order to be able to report something that the Administration wants to hear. After all, since they have spent all that money to prop-up the economy, President Obama and his congressional allies are looking for some return on investment. 

Sad to say, there really isn’t any such return, at least not yet, and there is nothing to support the claim that the stimulus and bailouts were responsible for the few bright spots we see now. In fact, given that one of the big selling points of the stimulus was that unemployment would not exceed 8%, and that figure was a sad underestimation, calls into question rest of the basis for the stimulus as well as its results. In other words, what else to Obama and his people get wrong? Let’s look at the recent unemployment and retail sales figures, as well as a global survey of corporate Chief Financial Officers (CFOs), to see what is happening. 

Unemployment

Today, the headlines told us that the number of new claims for unemployment benefits moderated somewhat. That is good. The nation is still bleeding jobs, just now quite as much. One can call that a step in the right direction, but it’s hardly reason to break out the champagne. The next part of the message, that there was a drop in the number of continuing claims, has been heralded as a sign that unemployment is bottoming out, but is it? Consider how the unemployment figures exclude those who have fallen off the unemployment benefit rolls, discouraged workers who feel that there is no work available for them and others that are not in some way plugged into the system. Were these people to be counted, the percentage of unemployment would be much higher than the 9.4% currently being reported. 

This is what makes that report that continuing claims have dropped so disturbing. Nowhere in the stories will you read that the drop is due to new employment, though it is inevitable that some of these people were hired and are thus no longer unemployed. That would be a real indicator that the economy is improving, but no one is saying it. That silence in the cause of the drop in continuing unemployment claims indicates that many of these people are no longer filing because they have simply run out of benefits, which not only runs counter to what the Administration wants to say, but also means that as consumers, these people are pretty much out of the game and that is bad news for small businesses. 

Nobody is Buying

Consumers without money can hardly live up to the name, can they? May and June saw modest gains in retail activity, but then July, which economists expected to show a gain of 0.7%, came in with a drop of 0.1%. This may not seem like much, but consider what happened in June: Unemployment hit 9.5%. In July, it fell to 9.4%, but it is doubtful that figure included the growing ranks of discouraged workers. So, what do we have? We have record unemployment coinciding with a drop in consumer spending. 

Explain to me why there is not a connection. True, Washington economists with their equations and theories will say that the connection is only superficial and then provide all sorts of reasons and excuses. They would call the connection between the two—unemployment and poor retail sales—anecdotal. The problem with anecdotal evidence, however, is that it tends to be based on things that happen, rather than numbers on a spreadsheet. The logic here is pretty hard to refute: 

People with jobs = people with money = active consumers = retail sales 

Simple and straightforward, and it doesn’t even include those who have jobs but are cutting their spending and saving more out of fear of becoming unemployed. Is it any wonder, any surprise, that retail spending is down? Of course not! Moreover, most folk who have to deal with this recession think it’s not going anywhere anytime soon. 

Survey: Recession May Last another Year

People are worried, and with good reason. A Duke UniversityCFO Magazine survey of 1,268 CFOs representing a broad range of global public and private companies, asked them about their expectations for the economy. The expressly pessimistic results include:

  • 35% say the US Economy will begin to recover in 2009, with the remaining 65% expecting the recession to last well into 2010.
  • The CFOs expect employment to fall in the US by 5.6% over the next year and that this will be in addition to wage freezes or cuts, and work hour reductions. 

All told, the majority of CFOs around the world see this recession, the mounting unemployment and the weak consumer spending to continue well into next year, a sentiment shared by the general public, which is acting accordingly. People are saving their money at record rates because they have no faith in the economy or in the Obama Administration’s efforts to fix the problems. More and more, people are coming to understand that the only way they will get out of their financial problems is to rely on themselves and to be very conservative with their money. 

This should not be a surprise, the same thing happened during the Bush stimulus. The Washington economists thought people would rush out and spend the money. Instead, they saved it and paid down debt. People are doing the same thing now, and while individually it is economically prudent, it does nothing to stimulate the economy. 

But it is a surprise. The economics that the Obama Administration used to craft its policies, the economics Obama and his liberal cohorts all so faithfully believe in—the discredited Keynesian economics—only work when consumers act in the best interest of everyone except themselves. It assumes that people will spend and spend the same in good times and bad, and that they will spend in order to stimulate commerce. It doesn’t happen that way. When the future is so uncertain, spending dries up. When the government increases its size and power at the expense of those who create jobs, spending dries up. People who can hang onto their money because they do not know what will come next. 

The Bottom Line

This is where we are today in America, after less than a year in office, Obama has forced policies on the nation that cost astronomical sums and harm business, one result of which is to further drive up unemployment; leading the people to minimize their spending and for what? He and his congressional counterparts do it simply to indulge the ideological desires of their liberal fellow-travelers. I say this because they are neither blind nor stupid and they would have to be both to miss the damage they are doing. Obama’s massive stimulus plan has proven to be a dismal failure and his healthcare plan, if enacted, will only cost more jobs, though possibly not as badly as his cap and trade energy plan; further damaging sales as disposable income dries up even more, lost to tax-driven raises in the cost of goods and services. 

When the recession ends, if it does in the foreseeable future, it will not end because of the programs that Barack Obama has foisted upon the American people, it will be in spite of it.