In January, only 51% of manufacturers reported a rise in new orders, vs. 64% in December. Not only did the U.S. economy stop hiring in December, with just 74,000 workers added to payrolls; it stopped ordering new equipment. The drop in orders is something that only has occurred during recessions (denoted by the shaded blue portions of the chart). The Commerce Department earlier reported a sharp drop in December orders for durable goods. In current dollars, durable goods orders are unchanged from a year ago, which is to say they are lower after inflation.
This should be no surprise in retrospect, given two disastrous underlying trends. One is the decline of real median household income: [chart omitted]
The other is the collapse of the labor force participation rate, which is the flip side of the coin: if fewer adults are working, median household income will be lower. [chart omitted]
It’s even worse than it looks, because Americans who have jobs are working fewer hours.
Average hours worked are down 1% from pre-recession levels. That doesn’t seem like a lot, but it’s the equivalent of 1.4 million jobs in a labor force of 140 million. The U.S. has restored 2.5 million jobs since the financial crash, but adjusted for hours worked, it’s the equivalent of just 1.1 million jobs.
Business won’t invest in brick, mortar, equipment and labor. Part of this is due to the Obama adminstration’s regulatory reign of terror. Part of this is due to Obamacare, which adds to business costs. Part of this is due to secular trends–what Nobel laureate Edmund Phelps calls a “structural slump.” We no longer have high-tech companies: we have instead aging monopolies run by patent lawyers. Nondefense capital goods orders, adjusted for inflation, are running 20% below the 2000 peak and 10% below the level of 2007.Goldman notes that last years surge in automobile purchases was just temporary--the average age of vehicles had increased to the point that people needed to replace their cars. That moment has now passed for the time being.
Goldman's suggestion is a rollback of corporate taxes, regulation, and an investment of money in Roosevelt era infrastructure projects and defense technology. The arch-typical Keynesian solution.
Setting aside whether a Keynesian spending program could boost the economy, the reason it will not work is because such programs are too easily misdirected. In 2008, Obama had promised (and continues to promise) rollbacks on regulations and funding of infrastructure--the "shovel ready" projects. Instead, the regulatory environment has become more hostile and the money for infrastructure was diverted to fund governmental and quasi-governmental jobs, not to mention to pay bonuses for Wall Street.
We are not talking simple government inertia, but powerful vested interests that do not want to lose their government monopolies and perks who will actively oppose what Goldman suggests. Whether it is the lowly government clerk that hardly works and would lose their job if funding was moved to where it was needed, or the giant multi-national corporation the drafts competition killing bills and regulations, these interests will work against the changes Goldman suggests. In other words, it doesn't matter how much funding we pour into infrastructure and R&D if the EPA is going to shut down the infrastructure projects, the IRS is going to harass the small and medium businesses, and ObamaCare eviscerates the working man's paycheck.