Mort Zuckerman: Three Ways to Revive Our Sluggish Economy

The U.S. economy has never really emerged from the Long Recession.


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.

[See a collection of political cartoons on gas prices.]

People were cheered by the headlines touting the 200,000-plus increase in non-farm payrolls for January. Let's look deeper at the statistics. Seasonal adjustments generally produce a net slide of 2.9 million jobs in January, but this time the fall in the number of jobs was "only" 2.65 million and, abracadabra, we "created" over 200,000 jobs. What passed for job increases on a seasonally adjusted basis, however, was due to the less than normal winter layoffs, thanks to warmer weather that enabled people to keep working. We have managed to recoup a mere 3.3 million jobs from the 8.8 million lost in the recession that theoretically ended three years ago. The employment to population ratio slid last year to 58.5 percent, approaching a 30-year low, revealing just how much slack there is in the job market.

American incomes continue to fall. The income of the average American household is less than 1 percent greater than it was in 1989. Despite the creation of 1.6 million non-farm jobs in the past year, real personal disposable income is down 0.1 percent. As Rosenberg notes, never before has it dipped below zero on a year-over-year basis without an overall contraction in the economy. Real median household income remains 7 percent lower than it was in December 2007, and it remains 3.9 percent lower than in June 2009, the official end date of the recession. Wage growth has also come to a halt. For the first time since World War II, former labor secretary Robert Reich has written, there was a decline in aggregate wages and salaries in the seven quarters after a recession, and inflation-adjusted wages for all employees fell 1.1 percent. We now have five unemployed job seekers on average vying for every job opening. Almost half of the unemployed have been looking for a job fruitlessly for over six months.

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The damage to household balance sheets is 10 times as much as it was during the mid-to-late 1970s, another comparable weak period for the economy, according to Bloomberg Markets magazine. We are amid the worst private balance sheet contraction since World War II, a condition that depresses profits, asset values, and incomes—a deleveraging that is going to continue, since consumer indebtedness is still high relative to disposable income. The great fear for millions of people now must be the ever-worsening prospects for a comfortable retirement. Many of them find their debt loads are not sustainable either by incomes, which are declining in real terms, or by falling asset values.

No wonder the consumer confidence index in January, in fact, sank to 61.1 from the revised 64.8 in December. All spending intention components fell, according to the January reading of the Conference Board consumer index, including home-buying plans, appliance-buying plans, and auto intentions.

In other words, this is an economy on major life support with zero economic momentum. This reflects a growing concern about higher energy costs, the end of inventory accumulation, the slowing in capital spending, a flat trend in consumer spending, and the ongoing fiscal burden from both federal and state governments. That's not to mention the possibility of a major bump because the Europeans just cannot get their act together, so we have the danger of financial contagion and a potential slide in our exports.