August 5, 2011 Patrick Oliver-Kelley

US companies are reluctant to hire because of weak consumer demand.

America’s economic recovery in the first half of this year was much weaker than assumed. Official data showed GDP rising by just 1.3% at an annual rate in the second quarter and by a revised 0.4% in the first three months.

Even with Congress lifting the debt ceiling, the stain will linger. The US has always paid its bills. Moody’s threat to put under review the triple ‘A’ rating of US sent shudders into the bond market. Fed Chairman Bernanke outlined more stimulus options such as a return t monetary easing, or further buying of assets in another round of monetary quantitative easing . An economic spillover could still happen. More than one in three of the unemployed workers in several of the largest U.S. states have been out of a job for more than a full year. Across the country, long periods of unemployment have been more prevalent recently than during previous recoveries going back longer than economist would like to look.

The poison and crud from the recession finally worked its way through the economy, they said. Almost! Corporations were flush with cash and ready to hire. Financial institutions were swimming in profits and ready to lend. Almost! Housing prices took a beating, but homes were affordable again, and families who had spent two years shedding debt were itching to buy something big. Almost!

So how did 2011 turn out so poorly? Eight months on, unemployment is still above 9%. Small business sentiment, which fell for the third consecutive month in May, is lower than a year ago. Real wage gains still look like a pancake, and the American Consumer — the world’s greatest engine of growth — is tight pocketed.

Economists at the IMF like to talk about a global “two-speed recovery.” That means China is battling inflation with 9% yearly growth, while Europe and the U.S. are fighting double-dips with sub-2% growth. But there’s a two-speed recovery at home, as well. Financial companies and multinationals are enjoying record profits, and the stock market has recovered better than most analysts expected.  Almost!

But the wealth isn’t trickling down. Small businesses which account for 99 percent of all companies and two-thirds of all hires are selling into a weak consumer market. Banks know it, so they’re withholding loans. It’s a cappuccino economy: The top is as frothy as the bottom is static.

At the top of the economy, financials and multinationals are growing, but they’re making do with fewer workers. At the bottom of the economy, small businesses aren’t growing, and they’re not hiring workers. Two speeds, one reality: It’s hard out there for a worker.

We are ready for revival. No Almost about it!

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