During the 1992 presidential election, campaign strategist James Carville coined the phrase, “It’s the economy, stupid” positioning Bill Clinton as the understanding and compassionate candidate. Using the prevailing recession to their advantage, the Clinton campaign successfully unseated George H.W. Bush.
Now in 2013, nine months after America’s most recent presidential election, pundits position the smallest percent of improvement as a strong economy. However, business leaders should not be fooled; the economy remains relatively weak and the core problem is still jobs.
Figure 1: The S&P Index is at an all-time high, but it took the U.S. five years to return to this level.
Figure 2: Housing starts are up from their 2010 lows, but are still less than 50% of their 2006 highs.
Figure 3: Home equity values have increased, but are marginally above their 2007 values without creating the “wealth effect” that contributed to consumer confidence before the recession.
Figure 4: Following the start of the “Great Recession” consumer debt decreased as consumers paid down credit card balances and mortgage foreclosures cleared the housing markets. However, reductions in mortgage debt are offset by an increase in student loan debt which is over one trillion US dollars (much considered at high risk of default).
Figure 5: Unemployment (U3) has slowly decreased to 7.6% from a high of 10% in 2009. However, unemployment (U6) remains stubbornly high at 14.3%.
The U6 unemployment rate counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts “marginally attached workers and those working part-time for economic reasons.” Some of the part-time workers counted as employed by U-3 could be working as little as one hour per week. And, “marginally attached workers” include those who have become discouraged and stopped looking, but still want to work.
70% of the U.S. economy is consumer spending. Given the true unemployment rate (U6), limited wealth effects and persistently high level of consumer debt, the US economy will remain in low gear for the foreseeable future. Real job growth is the key to increasing consumer spending for the 15% of the population that remains underemployed. It’s still jobs!