It is becoming increasingly apparent that the gains from America’s productivity-led recovery have been unevenly distributed. Corporate profits are strong, and business investment leapt by almost 9% in the spring. But pay has lagged behind, and the wages of production workers have stagnated. Of course, through its tax cuts, the White House has done its best to provide what employers will not—a substantial boost to take-home pay. But the effects of those tax cuts are beginning to fade, just as prices at American petrol pumps rise.
What consumers do not earn, or receive back from their government, they must borrow. Household debts grew by more than 10% in the first quarter, and now add up to more than 115% of disposable income. HSBC, a bank, says that the recovery is built on “marshlands of debt”. With interest rates now rising, this ready source of spending power may be about to dry up. Indeed, the beige book reports that borrowing by homebuyers declined in San Francisco and New York, two of the hottest property markets in the country.
Friday, August 06, 2004
Supply-side, debt driven economics does not work. After the latest US jobs reports states that only 32,000 jobs (vs. the 250,000-300,000 expected) were created last month, The Economist states it head on: