No one likes a party pooper, but someone needs to interrupt the celebrating over Friday’s jobs report to remind everyone that prudence and wisdom demand people lay up in store for the bad times.
That isn’t happening, once again proving George Santayana’s observation that those who do not learn from the past are condemned to repeat it. The fallacy among people experiencing good times — repeated constantly through history — is that good times will last forever.
They won’t.
But you hold the key to getting your own household in order.
Despite a lot of good news right now — not the least being that payroll growth is gaining momentum, unemployment is down and the gap between the rates of unemployed whites and African-Americans is narrowing — the rules of economics have not changed. The party won’t last forever.
When the next downturn comes, it could be an extremely difficult one for many.
Here are some reasons for concern:
- The recently enacted federal tax cuts, while a short-term boost to economic output, have increased projected budget deficits, thus adding to a ballooning national debt. While the added economic output could reduce those projections some, governments ought to reduce deficit spending during good times. The inability to do so now could make it more difficult for the government to provide relief when the economy contracts. In addition, some economists warn that the cuts could overheat an already robust economy.
- Gas prices have risen in recent months. This may be temporary, but unrest in Venezuela and the Middle East could interrupt supply chains. Higher gas costs lead to higher prices for consumer goods, as well as less buying power for average Americans. Increased energy production in the United States may not be enough to reverse the market trend.
- The president recently announced steep new tariffs on steel and aluminum imports from many of the United States’ biggest allies. These nations have promised to retaliate with tariffs of their own. This likely will lead to higher prices for a variety of goods as well as job losses, especially for those involved with products that are exported.
- Finally, but perhaps most ominously, the personal savings rate has dropped among Americans. According to the website statista.com, which compiles data from a variety of sources, Americans set aside only 2.4 percent of their after-tax income in 2017. That is below the 3 percent level immediately preceding the Great Recession and far below the 11 percent rate in 2012. People tend to save less when times are good. They should do the opposite. Unlike the rest of the concerns, this is one you can control directly.
Friday’s Department of Labor jobs report was indeed positive. Employers hired 223,000 workers in May, and the unemployment rate hit 3.8 percent — the lowest level since 2000. Among African-Americans it is 5.9 percent. Retail, construction and health care led the way in the growth of jobs.
But post-recession economic growth already is nearly a decade old. Between 1945 and 2001, the average length of economic expansion was a little less than five years, according to government sources.
A Reuters poll of 100 economists, taken in May, found they believe there's a 31 percent chance of recession within the next two years. Of course, such predictions are notoriously inaccurate.
What is accurate to say, however, is that a recession will come, and those who have used the good times to save money, retire debt and accumulate real assets will fare much better than those who haven’t.