Star-spangled camper … a homeless man in a temporary tent city in Sacramento, California Photo: Getty
The continuing fear of job losses in the US means consumers are saving rather than spending – denying fuel to the retail engine of the economy.
EVEN in the affluent US capital, a city that has been relatively insulated from the worst recession since Great Depression, the beggars are visible. They sleep on the street just a block from the White House and at major intersections they wait for fellow Americans to come to a standstill and spare a dollar.
Many carry signs telling their personal story: laid off, returned Iraq vet, lost the house and the job, got sick and no health care.
A year after the US financial markets went into a tailspin, its economy is showing tentative signs of a weak recovery but unemployment continues to rise, though not at the terrifying rate of six months ago, when 600,000 people a month were joining the jobless lines.
Something else has happened in America as well. The era of easy credit that fuelled two decades of mostly spectacular growth is over, not just on Wall Street. The American consumer has started saving. Mortgages, personal loans and even credit cards are harder to get. Consumer credit was down 5.2 per cent annualised between April and June. Revolving credit, which includes credit cards, was down 9 per cent.
The turbocharged consumer market that powered the American economy since the 1980s has run out of puff. These combined, related factors – people don’t spend if they fear for their jobs – are likely to define the US recovery. It will be slow and painful.
The jobless rate rose to 9.7 per cent in August and is expected to peak above 10 per cent in the months ahead. It is already there in at least 15 states and some economists predict it could be five years before the US economy generates enough jobs to overcome those lost and to employ the new workers entering the labour force.
This fear of job losses is likely to keep consumers’ wallets in their pockets. Without a return to spending – retail sales make up 70 per cent of the US economy – it seems inevitable the recovery will be slower than in the past.
So what are the positives? Retail sales have shown signs of improvement and the federal stimulus package is working its way into the economy.
The retail figures for August were up 2.7 per cent, the biggest jump since January 2006, and vehicle sales up 11.9 per cent.
Excluding vehicles, retail sales were up 1.1 per cent – the comparable figure in July was a 0.6 per cent decrease – but the boost was due in part to higher petrol prices at convenience stores. Most analysts are cautious about popping the champagne corks too early and will wait for a stronger spending trend to emerge.
In the housing market – which helped spark the crisis – there are tentative signs of stabilisation. Home foreclosures dipped slightly in August from July but are still 18 per cent above a year ago. The highest foreclosure rate is in Nevada, with one house in 62.
On home prices, the Case-Shiller Index has shown increases for May and June after 37 months of decline. The number of home sales has risen too.
”The only doubts about it are the market is rather abnormal now with all these foreclosure sales,” said Robert Shiller, who helped develop the index.
Falls in house prices have been huge – in some markets as much as 50 per cent. Many Americans, perhaps a quarter of those with mortgages, owe more than their homes are worth.
The Obama Administration’s ability to stimulate the economy further is severely curtailed by its huge budget deficits – and Congress has run out of patience with financial bail-outs.
“I don’t think we are out of the woods yet,” President Barack Obama said this week. “We need to be careful about taking the crutches away from the patient too early.”
