The U.S. has been in official recovery mode since June 2009. But, with millions of Americans still without work and a housing market that continues to take a beating, you may not know that things are looking up.
There's a reason for that disconnect, says economist Gary Shilling of A. Gary Shilling & Co: The U.S. is experiencing a "two-tiered recovery" that consists of the haves and have-nots.
"The last few years we had a revival of all the markets that were crushed during the recession…and anybody that was participating in that — in and out of Wall Street -- has done very well," he tells Aaron and Henry in this interview. "But the rest of the economy has pretty much been lagging and those are the people that are reflected in the high unemployment rate," which stands at 8.9 percent.
Not only is a high jobless rate taking a toll on the majority of Americans, those on the bottom continue to face "depressed pay…and falling house prices," he writes in his latest Insight research note.
He goes on to make the following points in his newsletter:
Income: The top 20% of house holds share of income has been rising since the data began in 1967. The other four quintiles share have consistently fallen…. Note, however, that a falling share of income is not the same as an absolute fall in income. Nevertheless, the real median income per household actually fell 5% between 1999 and 2009.
Depressed Pay: Those who were employed at least three years, lost their jobs between January 2007 and December 2009 and are now employed full-time, 54.9% are earning less than before and 35.8% have suffered 20% or greater income declines.
Employer Cost-Cutting: Serious cost-cutting by American business has been going on for years, importantly in reaction to the international competition brought on by globalization.... Business has been improving productivity and cutting costs for years by not hiring new people as output expands rather than laying off existing employees. After rising in the Great Recession, layoffs have returned to their flat trend while job openings have jumped. But new hires have been relatively flat. Why?
With so many unemployed, businesses can be choosy and take their time in hiring. [But] many of the unemployed probably lack the skills needed for the available jobs. With the collapse in housing stocks and drastic decline in commercial construction, many mechanics are mismatched to job openings.
Housing: The massive overhang of excess house inventories, the mortal enemy of prices, suggests another 20% fall in prices, resulting in a 43% peak-to-trough total decline. This decline would return prices adjusted for general inflation as well as for the tendency for houses to get bigger and, therefore, more expensive over time to their century-long flat trend….. With that further drop in prices, we estimate that about 40% of mortgages will be under water, up from 23% in the fourth quarter 2010. At that point, few will be able to get above water by repaying their mortgage principals.
As you can imagine, there is no easy way out of this. Even more so now with Congress more divided than ever on whether to cut spending or spend more on stimulus programs aimed at helping working men and women in this country.
Tell us, do you agree with Shilling's assessment?