What happened to our economic recovery? Recent days have seen a slew of negative economic news:
• U.S. single-family home prices dropped 0.2 percent in March from February, as measured by the S&P Case-Shiller composite index of 20 metropolitan areas. “The price index was below the low seen in April 2009 during the financial crisis,” reported Reuters.
• GDP growth slowed to 1.8 percent in the first quarter of 2011 from 3.2 percent in the last quarter of 2010.
• Just 38,000 private-sector jobs were created in May, down from 177,000 in April, ADP Employer Services reported Wednesday.
• The Dow Jones industrial average plunged 279.65 points, 2.2 percent, on Wednesday, with some analysts blaming the news on the job creation report, as well as a growing uncertainty about overall economic conditions.
“The numbers are looking weird,” Esmael Adibi told us. Adibi is director of the A. Gary Anderson Center for Economic Research and Anderson Chair of Economic Analysis at Chapman University. He’s preparing for the school’s 2011 Economic Forecast Update on June 16.
He said the number to watch now is today’s federal government report on payroll jobs. “ADP is a payroll processing company,” he said. “The federal number usually is different. But clearly, it won’t be strong on Friday.”
He said that most economic data now indicate a slowdown in the economy. Causes include the increase in gasoline prices, which means “people are spending less” on other things; and the continued global economic turbulence from the Japanese earthquake-tsunami-nuclear disaster.
“The concern is whether this slowdown will continue,” Adibi said.
For us, this is a wakeup call that the economy still is far from being on track to a sustained recovery, and even could slip back into recession. That $14 trillion federal debt weighs on the economy, as does the $1.6 trillion estimated deficit for the 2010-11 fiscal year, which ends Oct. 1.
Voices on the left are advocating programs such as Works Progress Administration-style hiring by the government for the long-term unemployed and even another round of Quantitative Easing, or stimulus, by the Fed, a program scheduled to end June 30.
These are not fiscally prudent ideas.
A better path would be to get back to the financial fundamentals of a government that lives within its means and doesn’t take on more than it is chartered to do. Congress should pursue spending reductions along the lines of Tennessee Sen. Rand Paul’s proposal to cut $500 billion in spending now, with the remainder of the $1.6 trillion current annual deficit eliminated entirely in five years. The Patient Protection and Affordable Healthcare Act, or Obamacare, should get a 100 percent waiver, and the Bush tax cuts, set to expire in 2013, should be made permanent.