Tepid US Jobs Growth Fewer jobs and a soft economy. We are not back to normal

WASHINGTON – The weak US jobs report, coupled with downward revisions for the two preceding months, is a reliable, if disturbing, indicator of a slowing economy. And why is that America cannot get into full gear?

Consumers do not have money to spend

Very simple. America’s growth is led by consumer spending. (About 2/3 of GDP). But the average US consumer cannot spend much more. He is and will continue to be vastly over leveraged. He has used all the available credit, and more, while his/her income is not growing much.

Do keep in mind that the 2014 auto sales boom was due almost entirely to extremely generous financing packages. Indeed so generous that credit specialists talk about a “sub prime car loans crisis” in the making. In other words, expect many of these vehicles to be repossessed, because the buyers cannot make the monthly payments.

But now, after the car buying binge, this is it. Mr. and Mrs. America cannot buy much more on credit. And, with stagnating wages, they do not have any additional cash for big purchases.

Weak consumer demand, weak jobs market

From this perspective, it is clear that even abnormally low-interest rates cannot fuel new borrowing, and therefore any additional spending. In fact, low-interest rates do not make any difference. An already over leveraged US consumer will not get any extra credit, even if interest rates stay near zero.

With consumer demand stagnating, expect a stagnating jobs market. This is not a disaster, but it is bad news.

China dumping steel

To make things worse, we are about to be hit by a gigantic wave of under valued exports from China, and from other Asian producers (in Thailand, Taiwan and South Korea) that normally supply Chinese factories.

The Chinese bubble economy created an absurd level of industrial over capacity, especially in all sectors related to construction. Since the Chinese government is not about to shut down dozens and dozens of state-owned enterprises, expect a huge percentage of this over production to be dumped here, in America.

Under priced Chinese steel means unbearable pressure on American producers who cannot compete with ridiculously low-priced imports. While we can expect WTO litigation, (yes, dumping is against all internationally accepted trade rules, but the Chinese do it anyway), in the short-term besieged US manufacturers will react in the only way they can. They will cut production, and therefore jobs.

Weak outlook

So, here is the uninspiring picture. Yes, we have had a good year of jobs growth. But most of the new positions created during this recovery are low paying, or part-time. Meanwhile, we have now the lowest level of labor participation in over three decades. Which is to say that we are down to a 5.5% unemployment level only because millions of Americans dropped out of the labor market, and so they are no longer counted among the jobless.

This is the Obama economic recovery.

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