In this week’s address, President Obama touted the economic gains made in 2014, claiming “America’s coming back.” But is it really, or are we in for a rude awakening?
“About a year ago, I promised that 2014 would be a breakthrough year for America. And this week, we got more evidence to back that up,” the president said. “In December, our businesses created 240,000 new jobs. The unemployment rate fell to 5.6 percent. That means that 2014 was the strongest year for job growth since the 1990s. In 2014, unemployment fell faster than it has in three decades.”
Without a doubt, 2014 was the best year for job creation since the Great Recession ended in 2009. In fact, the December jobs report from BLS actually showed 252,000 jobs, not the 240,000 the president cited from the private-sector ADP report.
But the report was welcome news to some economists, and a mixed-bag to many others. The headline numbers had little to do with either side’s sentiment. Unlike the typical trend under Obama’s tenure, job creation in December was a bit more broad-based, not the part-time and low-paying positions that make up 70 percent of new jobs the president touted in his weekly address.
“Over a 58-month streak, our businesses have created 11.2 million new jobs,” Obama said. “After a decade of decline, American manufacturing is in its best stretch of job growth since the ‘90s. America is now the world’s number one producer of oil and gas, helping to save drivers about a buck-ten a gallon at the pump over this time last year.”
While unemployment declined by 0.2 percentage point to 5.6, the labor participation rate ticked down to 62.7 percent, reaching another 30-plus year low. The employment-population ratio, a less-cited but equally important gauge, was an abysmal 59.2 percent for the third consecutive month. Wages are still stagnant and, unfortunately, most economists expect the labor market to lose steam in 2015.
While trade was a net plus to U.S. economic growth during most of last year, accounting for a sizable number of total GDP, most economists agree it will be a drag in the final three months of 2014.
Regarding the president’s claim on manufacturing, sector data in December were less than positive, to say the least, beginning with the New York Federal Reserve’s business activity index shrinking for the first time in nearly two years. The Philadelphia Federal Reserve said that their regional survey of factory activity slowed significantly in December, while the Institute for Supply Management-Chicago Business Barometer showed regional Midwest business activity index tanked to its lowest reading since July (Read More On Manufacturing Data).
The ISM closely watched index of growth in the dominant U.S. services sector — the sector responsible for a significant portion of the very jobs the president mentioned — also missed economists’ expectations for December, hitting a 6-month low across the board. The Institute for Supply Management said subindexes on employment, orders and business activity all declined, but two subindexes in the survey — prices and order backlogs — actually fell below 50, which indicates economic contraction.
Worst still, and ahead of projections, China surpassed the U.S. as the worlds largest economy, the International Monetary Fund said in early December. The IMF recently released the latest numbers for the world economy, stating that China will produce $17.6 trillion in terms of goods and services, juxtaposed to $17.4 trillion for the U.S. economy.
And China’s rising economic power wasn’t the only thing that overtook the U.S. economy in December, either. The national debt surpassed $18 trillion for the first time ever with no end in sight, according to the U.S. Treasury Department. It jumped over $40 billion in just two days to kick off the month, pushing over the grim benchmark.
Meanwhile, the Congressional Budget Office (CBO) is projecting crippling levels of U.S. national debt under the status quo, and even President Obama’s proposed budget. While the White House frequently touts recent deficit reductions, the claim is misleading for several reasons. It is only in the short-term that budget deficits are projected to decrease, but in the long-term they are projected to explode.
“Such high and rising debt would have serious negative consequences,” the CBO said. “Federal spending on interest payments would increase considerably when interest rates rose to more typical levels. Moreover, because federal borrowing would eventually raise the cost of investment by businesses and other entities, the capital stock would be smaller, and productivity and wages lower, than if federal borrowing was more limited.”
The Federal Reserve, though citing the lessening of “slack in the labor market,” has finally come to grips with the danger of keeping interest rates at near zero. Despite the wet blanket of debt, they will inevitably — because they have no choice — raise rates sometime in mid-2015, a move that will push both public and private borrowing costs higher and drag equities down, damaging the savings of average Americans.
However, while Wall Street and the investor class are prospering from risky monetary policy, the financial damage to Americans a la the CBO’s debt crisis projections will be unimaginable. Yet, the president announced this week a plan “to make community college free for two years, make mortgages more affordable and accessible for creditworthy families, and support manufacturing.”
In 2014, or as Obama put it, America’s “comeback” year, student loan debt ballooned to nearly $1.5 trillion. The Consumer Financial Protection Bureau (CFPB) said student loan debt now represents 6 percent of the wet debt-blanket over the economy, a consumer debt second only to mortgages, and the vast majority are backed by the U.S. government through banks like Sallie Mae, or since 2010, by the Department of Education.
According to a new report from the CFPB, obtaining a student loan hasn’t been a real problem for students pursuing higher education. Paying them back on the other hand has been a serious problem, as PPD previously reported (Read More On Student Load Debt Dangers).
Finally, the housing market, the sector that kicked off the Great Recession, is fundamentally weak and headed in the wrong direction. Why? Because the government via the Obama administration is repeating the same mistake that led to the financial crisis in the first place.
The National Mortgage Risk Index (NMRI) for Agency purchase loans rose in November to 11.69 percent, up from the average of 11.29 percent for the prior three months (revised). The risk indices for Fannie Mae, Freddie Mac, the FHA, and the VA all hit series highs in November.
“The increase in risk for all the major government agencies over the past two years is cause for concern,” said Stephen Oliner, co-director of AEI’s International Center on Housing Risk. “This is especially true for FHA loans, which would experience a tidal wave of defaults if we have another severe financial crisis.”
Even with increased government involvement, which once again is artificially injecting risk into the market, it is barely propping up sales. Yet, the president’s plan is to do more.
“Because America is coming back,” he said. “And I want to go full speed ahead.”
Full speed ahead where? Off another economic cliff? Next time we may not even be able to crawl our way back to mediocrity where we are now.
Does that sound like “America’s resurgence is real” to you?
UPDATE: This tweet says it all:
@Peoples_Pundit Obama is full of bullspit! I'll tell you what is real, on Monday I lost a good paying job that I had for 7 years. Obama lies
— K.W. Johnson (@doulos4) January 11, 2015