The phony talk of “green shoots” worked for a while as the administration and business establishment united in misleading the public about recovery prospects to induce it to spend. As they say you cannot fool all of the people all of the time. So, not surprisingly while people expressed a growing confidence, they acted cautiously.

 

In May, the figure zoomed 14 points past economists’ expectations to its highest level since September, when it was 61.4. Economists surveyed by Reuters had expected a reading of 42.3.But that rise hasn’t translated into relief for merchants, who continue to struggle with weak sales. In fact, stores are aggressively discounting summer inventory to keep it moving. And retail sales could falter further if shoppers keep worrying about economic security as the critical fall selling season begins.

Instead, Americans saved, thereby saving the country from it’s government’s folly: Savers temporarily mop up government debt deluge

 

But even as new bond and bill sales of that enormity look almost impossible to get away without lenders demanding sharply higher interest rates, up step households with bucketfuls of new-found - if partly involuntary - savings.On Friday, the U.S. Commerce Department reported U.S. household savings surged last month to a record annual rate $768.8 billion, the highest level since records began in 1959.

The savings rate — which had been negative just a few years back — climbed to 6.9 percent, more double the 3.0 percent seen six months ago and the highest since DEC 1993.

In effect, these new savings from disposable income are getting banked in Treasury securities — via the likes of money-market funds or increased pension fund contributions.

Of course, Americans are not stupid and they know this out of control government spending is threatening the ultimate value of their hard earned savings. So, they stopped expressing confidence or more precisely fewer do than expected. If I were you, I’d consistently ignore all economist predictions. They are as accurate as weather forecasters. Enough said.

 

Americans, whose hope for the economy had been rising since March, are starting to lose faith, pushing down a widely watched barometer of sentiment. The New York-based Conference Board said Tuesday that its Consumer Confidence Index now stands at 49.3, down from its revised May level of 54.8.

What does all this mean?

It means that Americans stopped spending. It also means that American consumers are forcing China and other export oriented economies, to do what they are most reluctant to do - encourage domestic household spending or see their economy collapse.

For the US it means a painful, long recession with unemployment reaching well over 10% in the next few months. It has already reached 9.5% and more:

 

Other gauges also portended poorly for future hiring activity. The broadest measure of unemployment, which accounts for workers who have stopped looking for jobs out of discouragement, hit 16.5% in June.And even those who are working are finding it difficult to maintain their hours and earnings. The number of people who resorted to part-time work because they couldn’t find full time has doubled since the recession began.

Meanwhile, the length of the average work week fell to a fresh low of 33 hours from 33.1 in May, and average hourly earnings were flat at $18.53.

To make such pain worth while Americans should be beginning to shift from merely buying things to making them. Unfortunately, that is not happening. Worse yet, writes Michael Mandel:

 

After this morning’s report, here are four unfortunate facts about the job market.1) Manufacturing jobs are falling at their fastest rate since 1946, down -12.2% over the past year.

2) Private sector jobs outside of manufacturing are also falling at their fastest rate since 1946, down -4.0% over the past year.

3) Manufacturing jobs are falling much faster than the rest of the private sector. In fact, the ‘excess’ job decline in manufacturing (the difference between -12.2% and -4.0%) is the largest since 1975.

4) The ten-year job growth in the private sector is down to only 559K jobs. At this rate, we will hit zero ten-year private job growth next month or the month after.

One important question is whether there is a ‘floor’ for manufacturing jobs. So far, we haven’t seen one. Over the past three months, manufacturing jobs have been falling at a -13.6% annual rate.

I would say that the evisceration of U.S. manufacturing may be our single biggest non financial problem right now. I’m currently examining the extent to which this can be tied to trade.

Clearly, the strong dollar does not help nor will the cap and trade legislation Caterpillar CEO Jim Owens explained to President Obama: 

Our concern and one of the things we’ve been very engaged with the U.S. cap initiative discussing is, we need to approach this in an international context. I think if we move unilaterally as the United States with a significant cap and trade program that drives up the cost of carbon here significantly, and our international competitors, the countries don’t move with us, it’s going to create competitive problems for the core — let’s call it the base industries — steel, aluminum, cement — the core feeder stock, if you will, for the manufacturing industry in this country.

He added that China and India may go along. Personally, I doubt it. In the meantime, the energy tax would further reduce the income of Americans further limiting their ability(IF NOT THE ABILITY OF THEIR GOVERNMENT) to save as well as to spend.

See much more and videos on my blog Deja Vu

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