US slowdown intensifies global economic crisis

By Patrick Martin
28 April 2012

US economic growth slowed in the first quarter of 2012, with gross domestic product rising by only 2.2 percent, according to figures reported by the Department of Commerce Friday. The figure was well below the consensus forecast of 2.6 percent among corporate economists surveyed by Dow Jones Newswires.

The figure suggests that job creation in the United States will remain in the doldrums, and that the unemployment rate may rise above the current official level of 8.2 percent, after falling from 9.1 percent over the past six months.

It comes as the global capitalist economy continues to stagnate, with the major economies of Europe—Germany, Britain, France, Italy and Spain—all either entering a double-dip recession or on the brink of doing so. Japan is also in recession, and economic growth in China and India has slowed significantly, well below the 10 percent rates of recent years.

World capitalism remains poised on a knife-edge, threatening a renewed global financial crisis that could be triggered by potential shocks, whether debt defaults by Greece and a half dozen other countries in the eurozone, a financial implosion like the Lehman Brothers collapse in 2008, or the outbreak of war in the oil-rich Middle East or some other international flashpoint.

The Commerce Department report shows that the United States cannot serve as an engine of global economic recovery, as it did in decades past. American corporations are awash with cash—an estimated $2 trillion at least—but they find it more profitable to buy back their own stock than to invest in production.

The agency said the slowdown in US GDP growth “primarily reflected a deceleration in private inventory investment and a downturn in nonresidential fixed investment.” In other words, it was the byproduct of the refusal of major corporations to build new buildings or buy computers and equipment.

The category of “nonresidential fixed investment” actually showed a decline of 2.1 percent in the first quarter of 2012, compared to a rise of 5.2 percent in the fourth quarter of 2011. Businesses also slowed their accumulation of inventory, evidently anticipating they would have difficulty selling any excess goods.

Another major contributor to the slowdown was a 3.0 percent decline in government spending, as local, state and federal governments have all cut back. This follows a 4.2 percent drop in government spending in the fourth quarter of 2011.

Concluding a two-day meeting of the US central bank, Federal Reserve Board Chairman Ben Bernanke said there would be no additional efforts to stimulate job creation. The Fed projects unemployment to remain at 8 percent through the end of this year, declining only to 7 percent in 2013 and 6.7 percent in 2014.

This means that millions of workers will remain jobless more or less indefinitely. Nearly 25 million workers are either unemployed, underemployed or have dropped out of the labor force because they cannot find work. According to a report last week by the Associated Press, more than half of all college graduates younger than 25 years old are either unemployed or underemployed.

At a press conference concluding the session, Bernanke rebuffed comments from liberal critics who had urged action to stimulate the economy and create jobs. “The question is, does it make sense to actively seek a higher inflation rate in order to achieve a slightly increased pace of reduction in the unemployment rate?” he asked. “That would be very reckless.”

The Fed chairman was arguing that inflationary policies would not achieve a significant increase in jobs, tacitly declaring that the central bank could not compel corporations to hire workers if there was no prospect of making a profit from their labor.

Moreover, according to press accounts, there is considerable opposition among the Fed governors to any further measures to loosen credit, with some officials wanting to raise interest rates above the current near-zero level to demonstrate determination to fight inflationary pressures—i.e., to prevent workers from demanding wage increases.

The US Labor Department reported Thursday that new applications for unemployment benefits remained virtually unchanged last week at 388,000, down only 1,000 from the previous week, which was the highest since January 7. The weekly figure had fallen to 355,000 at the end of March, then jumped by 30,000 a week throughout the month of April, in part because of large numbers of layoffs of public school employees.

Other US economic reports were as gloomy as the GDP figures. The Commerce Department reported April 25 that durable goods orders fell 4.2 percent in March, the biggest decline since January 2009, when the US economy was in free fall. The agency also revised its February durable goods estimate downwards, from a 2.4 percent rise to a 1.9 percent rise.

Last week the Federal Reserve reported that US factory output fell in March, and that new home starts had also declined. Manufacturing output fell 0.2 percent, the first decline in four months.

The Obama White House described the GDP report as “encouraging,” while admitting the obvious: “additional growth is needed to replace the jobs lost in the deep recession that began at the end of 2007.” An Obama spokesman aboard Air Force One confined himself to truisms, saying the US economy was “moving in the right direction” but that President Obama believed “there is more work to do.”

The presumptive Republican challenger to Obama, former Massachusetts’s governor Mitt Romney, blasted the administration’s record on job creation, but offered no proposals except further tax handouts and deregulation for US corporations that have not created any net new jobs in more than a decade.

Neither of the two main parties of big business, the Democrats or the Republicans, proposes any program to create millions of new jobs, under conditions where there are five million more American workers officially unemployed than in 2008, and another five million workers who have left the labor force because they have given up on finding jobs.

According to a report earlier this month by Bloomberg News, 70 percent of all job gains in the past six months were in four sectors—restaurants and hotels, health care, retail trade, and temporary employment—where low wages prevail.

Corporate America has deliberately created a massive army of unemployed so as to further depress wage rates. In a newsletter to major investors, JPMorgan Chase chief investment officer Michael Cembalest wrote, “US labor compensation is now at a 50-year low relative to both company sales and US GDP.”

While wages stagnate or decline outright, corporate profits soar. The net income of the companies in the Standard & Poor’s 500 index has risen 23 percent since 2007, while their cash reserves have soared 49 percent. According to a report by the Wall Street Journal last week, these companies have increased the annual revenue generated by their employees from $378,000 per worker in 2007 to $420,000 per worker in 2011.

Needless to say, there has been no such increase in the wages and benefits paid to the workers.