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The drowned heart of America

Bhuwan Thapaliya - 3/1/2011

“I miss my work,” says John King. “I want to return to my work.” That is easier said than done.

His job as an assistant manager in a little shopping mall near Hartford, Connecticut was gobbled up by recession and after numerous job interviews, he is still jobless. Fortune no longer seems to favor John and his nation, the mighty United States of America.

Consumers are tightening their belts in expectation of hard times, though the disposable incomes rose 0.7 percent in January, the most since April. Consumer spending cooled more than forecast in January as rising food and fuel prices but purchases rose 0.2 percent, according to figures from the Commerce Department.

“The biggest challenge that we’re seeing right now is that unemployment is way too high,” President Obama was quoted as saying by The Bloomberg, to the 23-member President’s Council on Jobs and Competitiveness. Much could go wrong, and probably will, but the American hope for a better future are not entirely dead.

Nothing lifts the economic spirit of the nation as decreasing unemployment and the increasing consumer confidence. Unemployment has been diminishing in the United States of America, though it is still 9 percent, but that is seen by many analysts as a welcome sign because consumer confidence and their job prospects are correlated.

“At the end of the day, people spend on how they feel about their job prospects, and additional gains in confidence are likely to provide further support for spending,” said Millan Moraine, senior U.S. strategist at TD Securities in New York according to the Bloomberg report.

And that’s good news for millions like John who are struggling for their very existence. But the sour truth however is this: It is likely to take many years before the jobless rate drops back anywhere near 5 percent, economists say. Federal Reserve Chairman Ben Bernanke assumed that it will take years for the unemployment rate to return to a healthy level of about 5.5 percent.

The IMF forecasts U.S. economic growth of just about 3 percent in 2011, with inflation very low and unemployment remaining above 9 percent.



Why is joblessness still so high in America?



“The prevailing view among policymakers is that unemployment is a painful reflection of the economy’s weakness. Americans are out of work because the slump was deep and the recovery has been lackluster. Stronger demand will eventually solve the problem,” according to The Economist.

Turning the tide in America’s economy could take years but America has already shown that it intends to try and the laborious process of overhauling America’s economy finally appears to be going somewhere.



American economy is moving from a post- crisis bounce – back phase of the recovery to slower but still solid growth.



Recovery alone, however, will not solve America’s two biggest economic problems: massive joblessness and the soaring government spending.



America’s unemployment rate would still hover over 9% at the end of 2011, assuming policies do not change. Cleary they should but the difficulty is that the bulk of American unemployment is not now cyclical, but structural.



In the past, may blue collar workers have found employment in factories, construction sites, retail shops and restaurants. But plants continue to relocate to China and India, where wages are cheap.

American housing crisis, following on from the credit crunch, has had a dramatic effect on America exports to the rest of the world. Export dependent industries were badly hit, and many manufacturing factories closed, with millions laid off.

However, as the economy is restructuring, it is almost certain that it will not be enough to absorb all of the work force

To make the matter worse – inflation is all set to flirt with the American consumers.

“Protests in Egypt, Bahrain, Libya and Tunisia drove oil above $100 a barrel in New York for the first time since October 2008, raising concern that energy prices will spark inflation,” according the report published by The Bloomberg. The threat of Inflation is real and this could impair America deeply as the incomes of many Americans are stagnant or falling.

“Altering that will require big investment, both public and private to improve productivity and augment the manufacturing statistics,” analysts are saying.

But such investments will be impossible to put into operation so long as deficits and the rising oil prices keep draining the pool of national saving and constraining government from spending more on where it matters much - education and infrastructure.

So just where is the balance?

The American government has made no secret that it is seriously alarmed by what is happening and is doing everything to stabilize the economy.

The 2011- 2012 period will be crucial for the America to achieve an economic “soft landing” and to fulfill its economic commitment. It is necessary to forecast economic trends and identify risks and challenges that America will face during this period.

However, to ensure a sound scenario, the government should make further efforts to handle efficiently some tough issues including rising income inequalities, development of small and medium sized enterprises, fiscal policy adjustment and low energy efficiency.

Yes, America has had an economically impotent last few years but the economy will bounce back for sure.