GDP growth slows: why Washington must repeal the sequester
GDP grew only 2.5 percent in the first quarter. It's evidence that the economy is slowing, the recovery is stalling, and Washington must repeal the sequester, Reich writes.
Economic forecasters exist to make astrologers look good. Most had forecast growth of at least 3 percent (on an annualized basis) in the first quarter. But we learned this morning (in the Commerce Department’s report) it grew only 2.5 percent.Skip to next paragraph
Robert is chancellor’s professor of public policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Clinton. Time Magazine named him one of the 10 most effective cabinet secretaries of the last century. He has written 13 books, including “The Work of Nations,” his latest best-seller “Aftershock: The Next Economy and America’s Future," and a new e-book, “Beyond Outrage.” His new movie, "Inequality for All," is available on Netflix. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.
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That’s better than the 2 percent growth last year and the slowdown at the end of the year. But it’s still cause for serious concern.
First, consumers won’t keep up the spending. Their savings rate fell sharply — from 4.7% in the last quarter of 2012 to 2.6% from January through March.
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Add in March’s dismal employment report, the lowest percentage of working-age adults in jobs since 1979, and January’s hike in payroll taxes, and consumer spending will almost certainly drop.
Median household incomes continues to decline, adjusted for inflation. Another report out today showed consumer confidence fell in April.
Second, the recovery continues to be wildly lopsided. The only thing really keeping it going is the rip-roaring stock market. But the stock market only boosts the wealth of the richest 10 percent of Americans, who own 90 percent of stocks (including 401-K retirement accounts).
But no economy can maintain momentum just on the spending of the richest 10 percent.
Third, American exports can’t possibly pick up the slack. In fact, they’re dropping. Europe is falling into recession because of austerity economics. Japan is still a basket case. China’s economy is slowing. Much of the developing world’s economy is dependent on exports to the developed world – so don’t hold your breath for developing countries to bail us out.
So what is Washington doing? Worse than nothing. It has now adopted the same kind of austerity economics that’s doomed Europe — cutting federal spending and reducing total demand. And the sequester doesn’t end September 30. It takes an even bigger bite out of the federal budget next fiscal year.
Earth to Washington: The economy is slowing. The recovery is stalling. At the very least, repeal the sequester.
You don’t have to be an astrologer to see the dangers ahead.
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