Federal Reserve documents stagnant state of United States economy
21 July 2015
The United States Federal Reserve Board last week released its biannual Monetary Policy Report to Congress, supplying an assessment of the state of the American economy and laying out the main bank’s financial policy moving forward. The report, along with Fed Chair Janet Yellen’s testimony prior to both the Houseyour house of Representatives and the Senate, as well as a speech by Yellen the previous week in Cleveland, present a grim image of the truth behind the official talk of financial “recuperation.”
In her ready remarks to Congress last Wednesday and Thursday, Yellen stated, “Looking forward, potential customers are beneficial for further enhancement in the US labor market and the economy more extensively.”
She stated her assurances that while the Fed would likely begin to raise its benchmark federal funds rate of interest later this year from the 0.0 to 0.25 percent level it has kept given that shortly after the 2008 financial crash, it would do so only slowly and gradually, keeping short-term rates well listed below historically regular levels for an indefinite period.
This was an expected, but however welcome, signal to the American monetary elite, which has actually enjoyed an amazing increase in corporate profits, stock values and personal wealth since 2009 thanks to the flood of essentially totally free cash supplied by the Fed.
However as Yellen’s remarks and the Fed report show, the explosion of asset values and wealth accumulation at the really leading of the financial ladder has actually taken place along with an intractable and continuing depression in the real economy.
In her ready testimony to the Homeyour home Financial Services Committee and the Senate Banking Committee, Yellen kept in mind the following functions of the efficiency of the United States economy over the very first six months of 2015:
* A sharp decline in the rate of economic growth as compared to 2014, including a real contraction in the very first quarter of the year.
* A substantial easing (19 percent) in average regular monthly job-creation, from 260,000 last year to 210,000 hence far in 2015.
* Declines in domestic spending and commercial production.
In her July 10 speech to the City Club of Cleveland, Yellen pointed out an even longer list of unfavorable indices, consisting of:
* Growth in real gross domestic product (GDP) considering that the official start of the recuperation in June, 2009 has actually balanced a simple 2.25 percent annually, a full one portion point less than the average rate over the 25 years preceding what Yellen called the “Excellent Economic downturn.”
* While producing employment across the country has increased by about 850,000 because completion of 2009, there are still almost 1.5 million fewer production tasks than just prior toprior to the economic downturn.
* Real GDP and commercial production both decreased in the first quarter of this year. Commercial production remained to fall in April and Might.
* Residential construction (despite incredibly low home mortgage rates by historical requirements) has actually continued to be “rather soft.”
* Productivity development has actually been “weak,” mostly due to the fact that “BusinessCompany owner and managers … have not significantly enhanced their capital expenses,” and “Businesses are holding huge amounts of money on their balance sheets.”
* Showing the general stagnancy and even downturn in the real economy, core inflation rose by only 1.2 percent over the previous YEAR.
The Monetary Policy Report issued by the Fed includes facts that are, if anything, even more disconcerting, including:
* “Labor performance in the business sector is reported to have decreased in both the 4th quarter of 2014 and the first quarter of 2015.”
* “Exports fell significantly in the very first quarter, held back by lackluster growth abroad.”
* “Overall building activity stays well below its pre-recession levels.”
* “Because the economic crisis began, the gains in … nominal compensation [workers’ incomes and advantages] have actually fallen well brief of their pre-recession averages, and growth of genuine compensation has actually fallen shortdisappointed productivity growth over much of this period.”
* “Overall business financial investment has actually rejected as investment in the energy sector has actually plunged. Company investment fell at a yearly rate of 2 percent in first quarter … Company investments for structures beyond the energy sector likewise decreased in the first quarter …”
The report integrates the Fed’s estimates for US economic growth, released following the June conference of the centralreserve bank’s policy-setting Federal Free market Committee. They consist of a downward modification of the projection for 2015 to 1.8 percent-2.0 percent from the March estimate of 2.3 percent to 2.7 percent.
That the US economy remains to stagnate as well as contract is indicated by two surveys released recently while Yellen was testifying prior to Congress. The Fed reported that factory production failed to increase in June for the second straight month and output in the automobile sector fell 3.7 percent. The Commerce Department reported that retail sales unexpectedly fell in June, decreasing by 0.3 percent.
These stats follow the employment report for June, which revealed that the share of the US working-age population either employed or actively trying to find work, knowncalled the labor force involvement rate, fell to 62.6 percent, its lowest level in 38 years. Throughout the month, some 432,000 people in the US gavequit trying to find a job.
The dreadful figures on company investment are maybe the most telling indicators of the underlying crisis of the capitalist system. The Fed report attributes the sharp decrease up until now this year mainly to the remarkable fall in oil prices and resulting contraction in investment and construction in the energy sector. However the plunge in oil rates is itself a symptom of a basic downturn on the planet economy.
Additionally, a dramatic decrease in efficient financial investment is typical to all the major industrialized economies of Europe and North America. In its World Economic Outlook of last April, the International Monetary Fund for the first time since the 2008 financial crisis acknowledged that there was no prospect for an early return to pre-recession levels of economic growth, connecting this bleak prognosis to a general and noticable decline in productive investment.
The American phenomenon of record stock values sustaining an ever greater concentration of wealth at the extremely leading of society, while the economy is starved of productive financial investment, the social facilities falls apart, and working class living standards are driven down by entrenched joblessness, wage-cutting and government austerity policies, belongs to a broader worldwide procedure.
The financialrecession in the US and internationally is not just a conjunctural decline. It is a systemic crisis of global commercialism, centered in the US. A specifying expression of this crisis is the supremacy of monetary speculation and parasitism, to the point where a narrow worldwide financial aristocracy ransacks society’s resources in order to further improve itself.
While the economy is starved of productive financial investment, entirely parasitic and socially destructive activities such as stock buybacks, dividend hikes and mergers and acquisitions go back to pre-crash levels and moving towards new heights. United States corporations have actually spent more on stock buybacks so far this year than on factories and devices.
The intractable nature of this crisis, within the framework of capitalism, is underscored by the IMF’s updated World Economic Outlook, released previously this month, which projects that 2015 will certainly be the worst year for financial growth considering that the height of the economic crisis in 2009.