The worst is over and the recovery began in June. I'm from Brooklyn and I have a bridge for sale.
Let's take this one at a time. The worst is over. Tell that to the number of unemployed, a number that keeps increasing each month. We are now up to 6.7 million unemployed. Yet we are told that the unemployment rate is declining. That can only be possible in the U.S. if you are no longer counted as part of the potential labor force because you've stopped looking for work that doesn't exist. And if you are working in a job that you took just to keep food on the table, you are counted as employed.
In addition, let's discount those in part-time jobs who are seeking full-time employment. Also, it is important to note that one-third of those who are unemployed have been out of work for more than six months. Unfortunately, this is a new U.S. record — and not one anyone wants to be a part of.
Overall pay for those who have jobs has declined in a number of ways. Let's remember that no one reduced the fixed expenses of the household at the same time. First, companies have cut pay. Then there are cuts in contributions to payroll plans. Some companies have even moved to a four-day work week. Yet we can take comfort in knowing that the worst is over.
Plant closures that have occurred in many sectors of manufacturing leave an open wound in the affected communities. Not only are jobs lost at the plant, but also at all local businesses that rely upon the community's income stream to provide retail sales and tax revenues.
The number of municipalities that are at the edge of bankruptcy is at an all-time high. Thank goodness the stimulus package saved jobs in the public sector. The problem is that the flow of funds is temporary and the employment recovery to 2007 levels is not expected until 2018, according to some economists.
Oh, and here's another news flash: The recovery started in June. Retail sales were up 0.8% in June so we can assume that the recovery was under way. Not so fast. The retail sales for July declined from June, even with the Cash for Clunkers car-rebate program. Excluding auto sales, all other retail sales fell 0.6%. That is not consistent with the worst-is-over theme. The Cash for Clunkers program helps the auto industry a bit, but with limited funds to spend, where is the money going to come from to pay the cost difference? Note that payments will not be hitting the budget in any single month; they are in place for two to three years. Retail sales of other goods will necessarily have to decline, which will place an ongoing burden on existing retailers and commercial property owners.
In a recent survey, consumers reported that nearly half are brown-bagging their lunch to work rather than going out. Nearly two-thirds of the respondents to the same survey will not be taking a vacation trip this year. Businesses that rely on tourism to get them through the year will not know that the worst is over.
Those who have financed commercial property are now looking at the edge of the same precipice as those who had subprime mortgages. When commercial lenders finally adjust their books to reflect the losses in value of commercial property, where will the funds come from to invest in new commercial ventures? Surely, the funds will be available since the recovery is under way.