Under the surface, however, the depression that began close to 4 years ago continues and the foundation for true economic growth is now far weaker. It is similar to a home where the foundation is being eaten by termites that received new exterior paint and landscaping. Someone driving by quickly would think the home looked much better than it did last year.
The two foundational growth factors for our economy are employment and housing, both of which have not returned during the current depression. The government has nationalized the mortgage market, currently creating or insuring over 97% of new mortgages in our country. They are providing these loans at all time record low interest rates.
Banks have temporarily kept about 6 years worth of home supply off the market, known as the shadow inventory. With all these temporary and artificial factors in place, home prices hit a new post bubble record low last month.
The second foundational growth factor is employment. This morning we received the jobs report for the month of June. Economists estimated an increase of jobs between 105,000 to 125,000. 18,000 new jobs were created for the month. A complete disaster. Last month's report was revised down from 54,000 to 25,000.
The birth/death model which "estimates" the number of jobs small businesses are hiring added 131,000 jobs to this number. Without these make believe jobs we would have lost 113,000 jobs on the month.
The more important factor is the number of people "leaving the workforce" which are no longer counted by the government. People can leave the workforce if they are retiring or if they have been unemployed for so long they have given up looking for work. With the average retirement savings today at $11,000 and 30% of home mortgages underwater, my guess is more people are "leaving the workforce" because they have given up.
The following graph shows the labor force participation dropping to a new 25 year record low at 64.1%.
Up next we have the average duration of unemployment, which is currently at 39.9 weeks:
And finally we have where our current unemployment depression (red line) stands in comparison to previous recessions of the past century. It shows how far we need to go to get our country back to full employment.
As discussed on Monday in The Debt Ceiling Compromise, look for the continued collapse in both housing and unemployment to provide the catalyst for the next round of government "stimulus" spending and quantitative easing from the Federal Reserve.
Our country is a heroine addict trying to recover from too much "stimulus" spending and federal reserve printing from 2001 to 2006. Their goal will be to inject an even larger dose of heroine to try and artificially wake up the economy one more time before the 2012 elections.
Ultimately it will destroy the economy completely as our sick country will never be allowed the opportunity to recover. The termites will continue to eat through the foundation as another layer of paint is added to the exterior of the home.
