Posted on Jun\u00a02,\u00a02013<\/h4>\n\n<\/p>\nBy Robert Reich<\/p>\n
This post originally ran on Robert Reich\u2019s Web page<\/a>.<\/i><\/p>\nEconomic forecasters exist to make astrologers look good. But the recent jubilance is enough to make even weather forecasters blush. \u201cJust look at the bull market! Look at home prices! Look at consumer confidence!\u201d<\/p>\n
Please.<\/p>\n
I can understand the jubilation in the narrow sense that we\u2019ve been down so long everything looks up. Plus, professional economists tend to cheerlead because they believe that if consumers and businesses think the future will be great, they\u2019ll buy and invest more \u2014 leading to a self-fulfilling prophesy.<\/p>\n
But prophesies can\u2019t be self-fulfilling if they\u2019re based on wishful thinking.<\/p>\n
The reality is we\u2019re still in the doldrums, and the most recent data gives cause for serious worry.<\/p>\n
Almost all the forward movement in the economy is now coming from consumers \u2013 whose spending is 70 percent of economic activity. But wages are still going nowhere, which means consumer spending will slow because consumers just don\u2019t have the money to spend. <\/p>\n
On Thursday the Commerce Department reported that consumer spending rose 3.4 percent in the first quarter of this year. But the personal savings rate dropped to 2.3 percent \u2013 from 5.3 percent in the last quarter of 2012. That\u2019s the lowest level of savings since before the Great Recession. You don\u2019t have to be an economic forecaster, or an astrologer, to see this can\u2019t go on.<\/p>\n
Yes, home prices are rising. The problem is, they\u2019re beginning to rise above their long-run historical average. (Before the housing crash they were were way, way above the long-run average.) So watch your wallets. We\u2019ve been here before: The Fed is keeping interest rates artificially low, allowing consumers to get low home-equity loans and to borrow against the rising values of their homes. Needless to say, this trend, too, is unsustainable.<\/p>\n
What about the stock market? It\u2019s time we stopped assuming that a rising stock market leads to widespread prosperity. Over 90 percent of the value of the stock market \u2013 including 401(k)s and IRAs \u2013 is held by the wealthiest 10 percent of the population.<\/p>\n
Moreover, the main reason stock prices have risen is corporate profits have soared. But that\u2019s largely because corporations have slashed their payrolls and keep them low. Which brings us full circle, back to the fundamental fact that wages that are going nowhere for most people.<\/p>\n
Not even fat corporate profits are sustainable if American consumers don\u2019t have enough money in their pockets. Exports can\u2019t make up for the shortfall, given the rotten shape Europe is in and the slowdown in Asia.<\/p>\n
So don\u2019t expect those profits to continue. In fact, the new Commerce Department report shows that corporate profits shrank in the first quarter, reversing some of the gains in the second half of 2012.<\/p>\n
And, by the way, the full effect of the cuts in government spending hasn\u2019t even been felt yet. The sequester is going to be a large fiscal drag starting next month. <\/p>\n
Look, I don\u2019t want to rain on the parade. But any self-respecting weather forecaster would warn you to zipper up and take an umbrella. Don\u2019t be swayed by all the sunny talk. There are too many storm clouds ahead. <\/p>\n
Robert B. Reich, chancellor\u2019s professor of public policy at UC Berkeley, was secretary of labor in the Clinton administration. Time magazine named him one of the 10 most effective Cabinet secretaries of the last century. He has written 13 books, including the best-sellers \u201cAftershock\u201d and \u201cThe Work of Nations.\u201d His latest, \u201cBeyond Outrage,\u201d<\/a> is now out in paperback. He is also a founding editor of The American Prospect magazine and chairman of Common Cause.<\/i>\n<\/p>\n ![\"\"](\"http:\/\/www.truthdig.com\/images\/eartothegrounduploads\/shutterstock_32613460_copy.jpg\")
<\/p>\n
By Robert Reich<\/p>\n
This post originally ran on Robert Reich\u2019s Web page<\/a>.<\/i><\/p>\n Economic forecasters exist to make astrologers look good. But the recent jubilance is enough to make even weather forecasters blush. \u201cJust look at the bull market! Look at home prices! Look at consumer confidence!\u201d<\/p>\n Please.<\/p>\n I can understand the jubilation in the narrow sense that we\u2019ve been down so long everything looks up. Plus, professional economists tend to cheerlead because they believe that if consumers and businesses think the future will be great, they\u2019ll buy and invest more \u2014 leading to a self-fulfilling prophesy.<\/p>\n But prophesies can\u2019t be self-fulfilling if they\u2019re based on wishful thinking.<\/p>\n The reality is we\u2019re still in the doldrums, and the most recent data gives cause for serious worry.<\/p>\n Almost all the forward movement in the economy is now coming from consumers \u2013 whose spending is 70 percent of economic activity. But wages are still going nowhere, which means consumer spending will slow because consumers just don\u2019t have the money to spend. <\/p>\n On Thursday the Commerce Department reported that consumer spending rose 3.4 percent in the first quarter of this year. But the personal savings rate dropped to 2.3 percent \u2013 from 5.3 percent in the last quarter of 2012. That\u2019s the lowest level of savings since before the Great Recession. You don\u2019t have to be an economic forecaster, or an astrologer, to see this can\u2019t go on.<\/p>\n Yes, home prices are rising. The problem is, they\u2019re beginning to rise above their long-run historical average. (Before the housing crash they were were way, way above the long-run average.) So watch your wallets. We\u2019ve been here before: The Fed is keeping interest rates artificially low, allowing consumers to get low home-equity loans and to borrow against the rising values of their homes. Needless to say, this trend, too, is unsustainable.<\/p>\n What about the stock market? It\u2019s time we stopped assuming that a rising stock market leads to widespread prosperity. Over 90 percent of the value of the stock market \u2013 including 401(k)s and IRAs \u2013 is held by the wealthiest 10 percent of the population.<\/p>\n Moreover, the main reason stock prices have risen is corporate profits have soared. But that\u2019s largely because corporations have slashed their payrolls and keep them low. Which brings us full circle, back to the fundamental fact that wages that are going nowhere for most people.<\/p>\n Not even fat corporate profits are sustainable if American consumers don\u2019t have enough money in their pockets. Exports can\u2019t make up for the shortfall, given the rotten shape Europe is in and the slowdown in Asia.<\/p>\n So don\u2019t expect those profits to continue. In fact, the new Commerce Department report shows that corporate profits shrank in the first quarter, reversing some of the gains in the second half of 2012.<\/p>\n And, by the way, the full effect of the cuts in government spending hasn\u2019t even been felt yet. The sequester is going to be a large fiscal drag starting next month. <\/p>\n Look, I don\u2019t want to rain on the parade. But any self-respecting weather forecaster would warn you to zipper up and take an umbrella. Don\u2019t be swayed by all the sunny talk. There are too many storm clouds ahead. <\/p>\n Robert B. Reich, chancellor\u2019s professor of public policy at UC Berkeley, was secretary of labor in the Clinton administration. Time magazine named him one of the 10 most effective Cabinet secretaries of the last century. He has written 13 books, including the best-sellers \u201cAftershock\u201d and \u201cThe Work of Nations.\u201d His latest, \u201cBeyond Outrage,\u201d<\/a> is now out in paperback. He is also a founding editor of The American Prospect magazine and chairman of Common Cause.<\/i>\n<\/p>\n <\/p>\n