Retail sales drop; latest sign of weak recovery

Photo by Sean Gallup/Getty Images

Retail sales fell for the third consecutive month in June, the latest sign of the U.S. economy is only inching along in the recovery process. Sales dropped 0.5 percent last month and if that weren't enough, the three-month losing streak was the first since 2008, a rather ominous sign.

You can't blame consumers, who are spooked by the current state of affairs. It's tough to rationalize spending when the jobs market is stuck; the total economy is growing by a scant 1.9 percent annually; housing is only just starting to bottom after peaking six years ago; and daily reports out of Europe put the global economic recovery at risk.

With those worries swirling, consumers are still focused on chipping away at debt. Remember that the financial crisis of 2008 may have started with an asset bubble in housing, but that bubble was accelerated by the debt bubble that accompanied it. Private sector debt rose from 112 percent of GDP in 1976 to a peak of 296 percent in 2008. The ratio had fallen to 250 percent by April, which is where it was in 2003, but it's clear that the private sector has a long way to go in the deleveraging process.

Harvard economist Kenneth S. Rogoff calls the recent period "the second great contraction," the first being the Great Depression and one from which "there is no quick escape...the real problem is that the global economy is badly overleveraged." My colleague Alain Sherter notes that one way to accelerate the deleveraging process is to transfer wealth from creditors to debtors. "The government would write down the value of distressed mortgages in return for a share of the upside when home prices rebound." But with a political system deadlocked and worries about the nation's $15 trillion debt heightened, the possibility of fast-tracking deleveraging seems remote.

When Rogoff and his co-author Carmen M. Reinhart wrote their seminal work on financial crises, "This Time is Different: Eight Centuries of Financial Folly," there seemed to be disbelief that advanced economies like the U.S. and Europe would encounter a similar pattern. Even some economists were slow to acknowledge that the recession that the economy just suffered was quite different than those in the past. (They appear to have gotten on board with the idea: a survey by the National Association for Business Economics found that economists are worried about narrowing corporate profits; the potential impact of Europe's financial crisis; and the impending fiscal cliff.)

No matter how much we think we have learned from the past, there is no escaping that "financial crises are protracted affairs." According to Rogoff and Reinhart, the post-crisis slow-growth period usually lasts as long as the boom that preceded it, though sometimes even longer. The U.S. housing boom spanned 7 years (prices doubled from 2000 - 2007), which means that a best-case scenario could mean that it will be June 2016 before the economy returns to pre-recession levels of growth, employment and output.

[lami987]

With so many businesses and romney wannabes outsourcing jobs, too many Americans just can't find any job. Regardless of what some politicians say but consumers are the job creators. Not big businesses or small businesses or wealthy Americans. Jobs are created only when consumers buy. Businesses lay off workers if consumers do not buy regardless of how much money businesses have.

[democracy8]

When companies that are making record-breaking profits cut the pay of top execs before they lay off the working folks, I'll consider spending more.

[hypnotoad72]

I think the core issues need to be looked at, as summarized in greater detail here:

http://www.csmonitor.com/Business/2012/0612/How-skewed-is-America-s-income-inequality-Take-our-quiz/Median-income/

http://www.realitybase.org/journal/2009/3/10/the-american-dream-died-in-february-1973.html

http://motherjones.com/kevin-drum/2010/01/vicious-cycle-stagnant-wages

http://anti-union.blogspot.com/2008/11/greedy-american-union-auto-workers-and.html

http://www.mydd.com/story/2007/2/7/184312/5388

http://hubpages.com/hub/HowH1BVisaFRAUDiskillingAmerica

http://www.lawyersandsettlements.com/case/hiring-illegal-immigrants.html

[hillzhavays]

by qyeteye July 16, 2012 3:37 PM EDT
Just a reminder people.

"The strategy of being obstructionist can work or fail... and so far it's working for us. Democrats are the ones taking the blame for not getting anything done." - Trent Lott, RollCall, 04.18.07
_________________________________________

Just a reminder to you, q, that quoting only that which helps your argument, and only that, leaves you open to looking like an idiot when someone posts the rest of the quote, which indicts your own party:

For [former Senate Democratic Leader Tom] Daschle (S.D.), it failed. For [then-Senate Minority Leader Harry] Reid, it succeeded, and so far it's working for us." - the rest of the quote, Trent Lott 04.18.07

[dustin93sc]

Poor retail sales result in higher unemployment figures. Let's see how Obama explains that to the American Voters.

[hillzhavays]

dustin, don't you know? There IS no unemployment problem and businesses are recording record profits. In fact, we are in the middle of an economic boom. The GOP has subverted the Liberal Media onto their side.

How do I know all this? I have it all on good authority from a number of comments that I have read on this site. It has to be true.

[hypnotoad72]

See my links above, but are you better off now than you were, oh, 30 years ago?

[mentalist65]

I don't buy products from countries that exploit labor. Put more USA made products on the shelves and I'll buy more.

[hypnotoad72]

"But products will cost more!"

People say that, forgetting corporations offshore jobs to pocket the difference for themselves, and plenty even take corporate welfare from taxpayers.

We've suffered enough. They made the mess, they should be taking the hit as well.

[qyeteye]

Just a reminder people.

"The strategy of being obstructionist can work or fail... and so far it's working for us. Democrats are the ones taking the blame for not getting anything done." - Trent Lott, RollCall, 04.18.07

Vote for a responsible Congress when tired of obstruction and you will probably see better headlines.

[Forbus56]

Spin it, baby!

[hypnotoad72]

Then you won't want to read the details in this article:

http://thinkprogress.org/politics/2011/04/14/158424/republican-leaders-debt-limit-hypocrisy/

Neither will the GOP, given the sources cited can't exactly be pegged as "liberal"...