Roman emperors kept their masses quiet with bread and circuses (panem et circenses). Today the Republican Party is providing the circuses through its presidential nominating process, while the Democrats are providing the bread: the food stamps and other taxpayer-supported programs for approximately 50 million Americans, including over 7 million receiving unemployment checks. The illusion of another "morning in America" being just around the corner is created by the optimism naturally radiated by a president and an administration asking for four more years, buttressed by various federal, fiscal, monetary, and bailout programs and higher levels in the stock market spurred by low interest rates. The prospect of prosperity all this engenders is an illusion. The U.S. economy has never really emerged from the Long Recession. It was much sharper than anyone comprehended, including the administration.
That was understandable, given the pandemonium of the financial meltdown it inherited. But the fact remains that, in the administration's fourth year, major sectors of the economy, including residential fixed investment, commercial construction, and inventory-building, are going nowhere. American families have suffered a huge meltdown of household net worth of more than $9 trillion since the 2007 bubble peak and a decline of almost $2.4 trillion in the third quarter of 2011 alone, the steepest decline since the fourth quarter of 2008.
At this stage of the cycle, the economy is normally accelerating at a 5-plus percent pace. Not so now. It has slowed to a 2 percent rate. Usually we would be debating what kind of V-shaped recovery we are experiencing, and whether the rise of the upward diagonal threatens inflation. We do not have the elastic rebound that occurred in the early 1970s when a 3.2 percent decline from 1973 to 1975 (Nixon-Ford) was followed just four quarters later by a 6.2 percent bounceback. In the early 1980s (Reagan), we had a 2.7 percent peak-to-trough decline in gross domestic product, which was followed by a 7.7 percent recovery in the first four quarters of the expansion period. This time, the annual rate of GDP growth since the recession ended is 2.4 percent (with inventory growth making up one third of this cycle), despite a stimulus program that was unprecedented in size. This is the weakest recovery ever in terms of the growth rate in real final sales, employment, housing, and organic personal income, not to mention that every measure of consumer and small business sentiment is locked in recession terrain. If this were a normal post-recession recovery, given the fiscal and monetary stimulus, GDP growth would be approaching 8 percent now.
In today's political situation, with gridlock in Congress, there are not too many tools left in the toolbox. During the years surrounding the Great Depression, people could look around at the Golden Gate Bridge, the Hoover Dam, LaGuardia Airport, and so on, and see something for their money. Not this time. If anything, the failure of the president's $787 billion stimulus has discredited deficit spending altogether. On the monetary side, the administration's program was based on the hope that the Federal Reserve's increases in liquidity and record low interest rates could buy time, that something might reignite the economy and growth could be sustained without reliance on government steroids. There, too, the upside has been disappointing. Fed Chairman Ben Bernanke himself acknowledges that the pace of expansion has been "uneven and modest by historical standards."
What of the shopping rush we were told about? As reported by David Rosenberg, chief economist of Gluskin Sheff, retail sales in January illustrate how the economy is undergoing the slowest, weakest recovery from any recession in the last 60 years. When you strip out the stuff that is not discretionary spending, such as food and fuel, sales barely rose, increasing by less than 0.1 percent versus an average of 0.5 percent over the prior three months; it was the weakest showing since last May.
And nonseasonally adjusted retail sales actually showed the steepest decline since 2006. The holiday shopping season was dismal, with core sales up only 0.2 percent in November and declining by 0.4 percent in December. In real terms, sales may have actually contracted at the beginning of 2012. Not since the end of World War II has U.S. consumer spending been sluggish for so long. With oil prices poised to break the $4-a-gallon threshold soon, this may continue; tens of billions of dollars are being siphoned from consumers' pockets into their gas tanks.