The latest job loss figures have been greeted by many in the Media as a good sign – only 540,000 (almost) jobs lost! It could have been worse, say the pundits. And look at those bank profits, and the Dow is back up to the mid- 8000’s – why, this thing is blowing over and pretty soon all will be right with America’s and the world’s economies again! Whew, that was pretty dreadful, no?
Not so fast. The Newspeak term for we are seeing is “Green Shoots,” everywhere, signs of Spring, or plants growing back after a devastating fire, like the one ravaging Santa Barbara last week and over this past weekend – their third major firestorm in some 9 months. But, in an economy that needs to add hundreds of thousands of jobs every month just to stay even with population growth, should we really be popping champagne corks over only 540,000 jobs lost in April? 5.7 million Americans without jobs likely did not go shopping last weekend.
I don’t mean to be Mr. Gloom & Doom here, but, the national unemployment figure is now 8.9%, and we know that is a tidied-up, statistically stretched measure, at best. The real numbers, especially in California, or among the twenty- and thirty-something’s, or among African Americans and other minorities, or in some Mid-West urban areas, are all now well over 10%, and steadily climbing every month.
But, employment is a ‘lagging indicator,’ right? Meaning, that everything else will get much better, our 401K’s will all be at least 301K’s again, but we can expect that job losses and unemployment will continue growing, all because some economists tell us over and over that, even when the Recovery officially rears its head and our economy is actually growing again, employers big and small will all remain extra-cautious about expanding their work forces. Well, that is some comfort to go along with those ‘Green Shoots’ and this Spring re-awakening. Even Ben Bernanke is now forecasting brighter days ahead, maybe by this year-end.
Or, are we, in the months since December 2007 when this thing officially started melting down, simply getting used to it – like Japan was forced to do for its Lost Decade of the 90’s and into this century?
Nobody questions now that this downturn is really the worst since the 1930’s. The rise in the Dow, from the 6000’s in February to the mid-8000’s now, may, or may not, be the real Recovery in its early stages, but, the 14,000’s height of the Dow is still a long way away. It is good to remember that, when California’s real estate market last really plummeted in the early 90’s, it was not until the early 2000’s that prices actually recovered, and even later before some of the early 90’s heights were reached again, before everything went bananas in the 2003-2006 period again. Unprecedented booms and busts, exaggerated highs and depressing lows – is that our perpetual cycle from now on?
The major banks have mostly passed their Stress Tests, but somehow we still don’t know how bad the damage on their balance sheets really is, or what the real value of those funky derivatives and Collateralized Debt Obligations, really is. The Stress Tests were not conducted in the open, or in a particularly transparent fashion, and incredibly, the results were then the subject of negotiations with the major banks, who wanted the numbers to look as positive as possible under all the circumstances. This is not the kind of rigorous audit that some were expecting.
Meanwhile, the behind-the-scenes lobbyists are already working hard to make the world safe again for even more exotic financial instruments to be sold worldwide to buyers who have no clue exactly what is inside the box of paper that they are buying. The financial industry may not be nearly as healthy now as their P.R. departments and some of the Media want us to believe. Residential real estate always perks up in the Spring when people enjoy the nice weather after being cooped up inside over the Winter, at least in places other than Southern California, where they really have Winters. Historically low mortgage rates also help with that, and so do the flood of cheaper, foreclosed, REO properties on the market, as they do seem like bargains when 2009 prices are compared to those of the 2003-2006 period, but the latter, seen through the rear view mirror, were pretty distorted, at best. Commercial real estate is in big trouble if you haven’t noticed, and shopping centers now struggle with the loss of key tenants, while retailers hang on by their fingernails.
We need to be cautious about this creeping, renewed optimism. ‘Green Shoots,’ if real, are very fragile plants. Systemic problems which brought our financial system crashing down last Fall, are still serious, systemic problems. Covering serious systemic problems over with happy talk, singing ‘the worst is really over now,’ and convincing ourselves that we have finally seen the real bottom of this downswing – these may not be helpful, even though so obviously encouraging, after so much bad news daily, and for so very long.