OPINION:
The Conference Board’s latest monthly consumer confidence survey contained little good news. The index fell to a six-month low, from 66 in April to a hair above 60 in May. Although this result came as a surprise to the economists, it should have been expected. American consumers intuitively know what’s going on. They see a moribund housing market and inadequate job creation leaving the unemployment rate in the 9 percent range. There’s little reason for optimism now unless the federal government gets its fiscal house in order.
Housing prices hit a new low in April, right in the middle of the spring buying season, dropping to more than a quarter below where they were last year and a third below the 2006 peak. Robert Shiller, the co-founder of the Case-Shiller Index, is cheerily predicting further declines. He has a point. If the decline in price is due to an increase in efficiency in the housing market, it would be a positive result in the long run. That’s cold comfort for homeowners facing the consequences of a burst bubble caused in large measure by ill-considered government intervention in the housing market.
The labor market looks no better than the housing market. The U.S. economy created 244,000 jobs in April (the latest Department of Labor figures available) but that wasn’t good enough. The unemployment rate edged up from 8.8 percent to 9 percent that month. Payroll data suggest that the May jobs number will be even more dismal - around 180,000, and just 38,000 of those are in the private sector.
The most troubling figure is the 5.8 million Americans who have been unemployed for more than 27 weeks. These are the people who are considered long-term unemployed, and they have a special set of problems. Long-term unemployment places much greater financial stress on the person who is jobless than a short spell in the unemployment lines. It is also associated with loss of skills, which makes it that much harder for that person to find another job. None of this bodes well for when companies are ready to hire again, which, given the pervasive uncertainty, is not likely to be soon.
Congress and the administration need to provide certainty about the regulatory and tax environment so that businesses will have the confidence they need to make plans for expansion. Republicans have put forth the budget by Rep. Paul Ryan, Wisconsin Republican, to deal with the government’s runaway spending problem, but Democrats who control the Senate aren’t interested. In fact, Senate Majority Leader Harry Reid, Nevada Democrat, has declined even to present a budget in the Senate.
When lawmakers borrow heavily from private-sector markets to feed their trillion-dollar overspending habit, less capital is available to the rest of the market. That’s one of the ways in which the policy impasse on Capitol Hill is sapping energy out of the economy and hope out of consumers. Unless there are some credible signs of fiscal responsibility soon, the high unemployment rates might be here to stay.
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