According to the Obama administration, this is the Summer of Recovery: the global recession is over, factories across America are ramping up production, and corporate balance sheets are dripping black ink. So why does it still feel more like a Winter of Discontent (albeit with 90 percent humidity)? Even as Fed chairman Ben Bernanke is talking up the end of recession, new data out last week showed that economic growth in the U.S. was lower in the second quarter than the first, and that the downturn of 2009 was worse than we thought. Sure, the economy is technically growing again, but not by as much as economists had hoped. And despite record company profits, unemployment remains as high as in many parts of sclerotic Old Europe.
At least the continentals will be spending August on the beach. American workers, fearful of continued layoffs, are scrambling to put in more hours on the job. Meanwhile, wages are still flat. All this underscores what I believe is one of the most important economic trends of our age—the increasing disconnect between the fortunes of multinational companies and their countries of origin. What little recovery America is seeing can be chalked up to rising sales and profits within the biggest U.S. companies; top firms are sitting on "mountains of cash," says Global Insight chief economist Nariman Behravesh. But that's not because American consumers are spending—indeed, last week's data dump proved that Americans are saving even more than we thought—6.4 percent of their income rather than 4 percent, a rate not seen since 1993. Consumers, whose spending makes up by far the largest share of the U.S. economy, are not feeling secure yet. Those bulging corporate profits are largely attributable to sales abroad.
Just look at the jump in U.S. export growth, typically about 7 to 8 percent a year, but now in the double digits. The majority of manufacturing industries in this country, from electronics to furniture to consumer goods, are growing strongly because of demand in places like China, Brazil, and India. It's no wonder customers in these emerging-market giants are feeling flush—their nations have come through a global recession without so much as a hiccup, and their job prospects are good and getting better. According to Goldman Sachs, every year for the next several years, at least 70 million of these emerging-market consumers will be joining the global middle class.
Middle-class Americans, on the other hand, are still feeling pinched. The recession and housing slump has fueled a cycle of higher unemployment and stagnating wages that was already well underway. With the exception of the top 10 percent of earners in the United States, wages have been flat since the 1970s (indeed, during the last period of U.S. expansion, between 2002 and 2007, median household income dropped by $2,000). The reasons for all this are well known—changes in the tax system, the death of unions, globalization (that emerging middle class can now perform jobs higher up the food chain), and the rise of labor-saving technology.
None of these trends show any sign of reversing. Not only are businesses rather than consumers doing the spending in the U.S. this year, but much of what they are buying is technology—software and services from high-tech firms that will help them, at least in the short term, continue to boost productivity without hiring more workers. Of course, this is good news for Intel and a few other companies in Silicon Valley. But the tech industry isn't a huge employer in and of itself. The theory is that technology should help businesses grow so much faster and come up with so many new moneymaking ideas and products that they'll have to begin hiring more workers. Yet even as productivity and profits are increasing in corporate America, firms simply don't feel secure enough to begin hiring.
No wonder. As Bernanke keeps telling us, we're suffering through an "unusually uncertain" economic climate. Nearly every piece of positive economic news that comes out can be countered with a negative statistic. It's an environment that will continue to make things tricky for policymakers, who will have to weigh the need for more stimulus to keep the weak recovery going against the longer-term effect of adding to another "mountain of cash"—the government debt that's been piling up over the last two years. If this is what a Recovery Summer looks like, fall can't come soon enough.
