With unemployment standing at 9.6%, it has been anything but a joyous Labor Day for workers in the U.S.
Economists, pundits and market watchers are making much of the desultory job creation in this (to date) lackluster economic recovery.
Numerous factors are at work, hindering new job creation, including (1) continued inventory reduction in the housing sector; (2) ongoing deleveraging of consumers’ balance sheets; (3) shrinking tax receipts and growing unfunded pension and other liabilities of Government — Federal, State and local — forcing spending cutbacks; (4) the reluctance of the banking system to lend to worthy customers because of their own concern about existing loans on their balance sheets and, perhaps the most worrisome of all; and (5) the high cost of labor relative to capital.
Recessions almost always result from correcting excess inventory in the economy. During the last recession, about a decade ago, the glut was focused largely in the technology and telecommunications industries. The recession that we are now having such difficulty exiting was fomented largely by an excess in consumer debt levels. Much of that excess leverage on the consumers’ balance sheets represented mortgage debt, which created a secondary bubble in residential housing. Thus, we have experienced a major double whammy, resulting in a deep recession simultaneously in two very large sectors of the U.S. economy — finance and housing.