After two years of recovery, is the American economy back on the ropes?
Stocks are slumping today following weaker than expected employment data ahead of Friday's nonfarm payrolls report. Private payroll processor ADP reported that 179,000 private sector jobs were added in April, but that was less than expected. Meanwhile, the Institute for Supply Management's service sector index rose at the slowest pace in eight months in April. Are higher energy and food costs having an impact? That could be the case.
Barry Ritholtz of FusionIQ and author of The Big Picture blog, says there's no reason to panic. "Subpar GDP, very anemic job creation, slow deleveraging on both the governmental and consumer basis," is typical of a post-credit crisis recovery, he says, citing the work of Carmen Reinhardt and Ken Rogoff. "The only silver lining on that is corporate America is fairly deleveraged, and what debt they are carrying is at very, very low rates."
The biggest overhang for the economy remains a sluggish housing market, Ritholtz contends. "It's not going to be a bright spot in the economy and probably not for five to 10 years," he tells Aaron Task and Daniel Gross in the accompanying video.
Why? We still have millions of Americans who remain in homes they couldn't afford to buy. Ritholtz suggests half of the lot has already defaulted, but there's still a long way to go. Plus, housing prices are still too high.
Until these issues are worked out, the economy won't truly return to previous productivity levels, he argues.
