Nouriel Roubini: A Tale of Two American Economies "most of America is facing a near-depression"

[Better Believe It]

A Tale of Two American Economies
The smaller one is slowly recovering, but the larger one is still in a deep downturn
By Nouriel Roubini
November 18, 2009



While the United States recently reported 3.5 per cent GDP growth in the third quarter, suggesting that the most severe recession since the Great Depression is over, the American economy is actually much weaker than official data suggest. In fact, official measures of GDP may grossly overstate growth in the economy, as they don't capture the fact that business sentiment among small firms is abysmal and their output is still falling sharply. Properly corrected for this, third-quarter GDP may have been 2 per cent rather than 3.5 per cent.

The story of the U.S. is, indeed, one of two economies. There is a smaller one that is slowly recovering and a larger one that is still in a deep and persistent downturn.

Consider the following facts. While America's official unemployment rate is already 10.2 per cent, the figure jumps to a whopping 17.5 per cent when discouraged workers and partially employed workers are included. And, while data from firms suggest that job losses in the past three months were about 600,000, household surveys, which include self-employed workers and small entrepreneurs, suggest a number above two million.

Moreover, the total effect on labour income – the product of jobs times hours worked times average hourly wages – has been more severe than that implied by the job losses alone, because many firms are cutting their workers' hours, placing them on furlough or lowering their wages as a way to share the pain.

Moreover, income and wealth inequality is rising again. Poorer households are at greater risk of unemployment, falling wages or reductions in hours worked, all leading to lower labour income, whereas on Wall Street, outrageous bonuses have returned with a vengeance. With the stock market rising and home prices still falling, the wealthy are becoming richer, while the middle class and the poor – whose main wealth is a house rather than equities – are becoming poorer and being saddled with an unsustainable debt burden.

So, while the United States may technically be close to the end of a severe recession, most of America is facing a near-depression. Little wonder, then, that few Americans believe that what walks like a duck and quacks like a duck is actually the phoenix of recovery.

Read the full article at:

http://www.theglobeandmail.com/news/opinions/a-tale-of-two-american-economies/article1366935/

[inna]

1. kick for Roubini

[truedelphi]

2. You do not need to be a top economist to understand this

All you need is to be part of the 17.5 percent unemployued to grok that the recovery is mostly Wall Street.


Even though it is our damn tax dollars funding it.

[Garam_Masala]

3. And those 17.5% have relatives and friends

who also are spooked by the lack of jobs.