Apr 23

Written by: Russ Henke
4/23/2008 4:55 PM 

Well, the US economy sure hasn’t improved any since my last blog entry in February 2008. Unfortunately, we are all sinking deeper into W’s second recession.

Rising gasoline prices again tightened the squeeze on US drivers on Earth Day April 22, 2008, jumping for the first time to an average $3.50 a gallon of regular across the country - with no sign of relief. (Drivers here in the San Francisco Bay Area paid an average of $3.98 a gallon for regular).

Crude oil set a record for the sixth day in a row on April 22, this time closing at $117.48 a barrel on the New York Mercantile Exchange. Diesel prices at the pump also struck a record of $4.20 a gallon, according to AAA and the Oil Price Information Service. That will add add to truckers' costs and drive up the price of food, clothing and other goods shipped by truck.

It’s difficult to find good news anywhere across the US economic landscape.

For example, it was revealed today (April 23) that Toyota took the global sales lead from General Motors in the first quarter, selling 2.41 million vehicles in the January-March 2008 period, compared with General Motors’ 2.25 million.

US venture capital investments fell to $7.1 billion during the 2008 first quarter, from $7.5 billion during the same period in 2007, according to the National Venture Capital Association and PricewaterhouseCoopers. The number of initial public offerings backed by venture capitalists, is also way down. Only five companies - just one a technology company - went public in the first quarter, the lowest quarterly figure since 2003.

The euro set another record high on Earth Day, crossing US$1.60 for the first time. The US dollar also fell against the Japanese yen and the British pound.

Then take the US labor market … please! The Labor Department reported on April 4, 2008 that US employers slashed 80,000 more jobs in March 2008, the most in five years and the third straight month of losses. At the same time, the national unemployment rate rose from 4.8% to 5.1%, the highest in 2.5 years. This report underscored the damage that the ongoing US crises in the housing, credit and financial sectors have inflicted on companies, jobseekers and the US economy as a whole. “The labor market has indeed turned south,” said Joel Naroff, president of Naroff Economic Advisors. “That (the labor market) was the one last bastion of hope to stay out of a recession. Now the question is how deep and how long it (the recession) will last.”

US job losses were widespread in March 2008. Construction and manufacturing again racked up big losses. Those losses overwhelmed any meager gains in non-value-added sectors, including in education, leisure, hospitality and government.

Job cuts in both January and February 2008 turned out to be deeper than originally reported. US employers dispensed with 76,000 workers in each month. Moreover, the elimination of 80,000 jobs in March was the most since March 2003, when the US labor market was still struggling to recover from W’s first recession in 2001.

And if the most recent so-called ‘good times’ have really ended, they were never that good to begin with! Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account! The median US household earned $48,201 in 2006, down from $49,244 in 1999, according to the US Census Bureau.

Over the last year, the number of officially unemployed in the US has risen by 500,000, while the number of people outside the labor force — neither working nor looking for a job — has risen by 1.3 million! Employment has risen by 100,000 over the last year, but even that comes with a caveat: there are also 600,000 more people who are working part time because they cannot find full-time work, according to the US Labor Department.

But, hey, those rebate checks are a-coming! The Treasury Department will begin sending out rebate checks — of up to $1,200 for couples, plus $300 per child — in May 2008, as part of the much-heralded ‘stimulus package.’ In fact, the IRS has spent $42 million of your taxes merely to send us all letters to tell us the checks are coming, for crying out loud. These rebates will fix everything, right?

The Fed has already cut its benchmark short-term interest rate six times since September 2007, and more cuts are planned. These cuts will probably not work any better that the previous ones. The Fed’s problem is that its main weapons against a downturn — lower interest rates and easier money — are ill-suited to a crisis that stems from collapsing confidence about unregulated credit quality. And meanwhile, good luck if you are trying to live off your personal savings – your interest rates are far lower now and inflation is rampant – a deadly one-two punch.

Indeed, the Fed has taken a number of really extraordinary actions recently — slashing interest rates, providing financial backing to JP Morgan’s takeover of troubled Bear Stearns, and opening an emergency lending program for ... big investment houses. These actions have helped the stock market some, but the vast majority of US people remain in trouble.

Oh yes, since my last blog entry, the self-inflicted US war in Iraq entered its sixth year with no end in sight. I share with you a quote from Nobel Prize-winning economist Joseph Stiglitz at a congressional hearing on February 28, 2008: “Because the Bush administration actually cut taxes as we went into the current Iraq war, when we were already running huge deficits, this war has, effectively, been entirely financed by deficits. The national debt has increased by some $2.5 trillion since the beginning of the Iraq war, and of this, almost $1 trillion is due directly to the Iraq war itself ... By 2017, we estimate that the national debt will have increased, just because of the war, by some $2 trillion.”

One last factoid: Crude Oil was ~$20 a barrel when W first took office in January 2001.