It is any wonder that, with a near-record 46.5 million people on food stamps in this country and the jobs market being so weak, the poverty rate is on track to hit the highest level since 1965? (Source: Associated Press, July 23, 2012.)
The official census figures will be released this fall to confirm this number, but studies are concluding that almost one-in-six people in the U.S. fell beneath the poverty line last year.
It is amazing that investors wonder why consumer spending is not rising in this country.
The Georgetown Center on Poverty, Inequality and Public Policy noted that, with so many discouraged workers in the jobs market, unemployment benefits eventually expire, leaving them destitute. The institute noted that it is hard for these people to find opportunity in such a weak jobs market.
It cited another problem with this jobs market: the stagnation in wage growth is another factor leading to poverty. The institute believes that the poverty rate will continue to climb in the next few years because of what it sees as a very weak jobs market.
With the unemployment reports, dear reader, I have been stressing that the jobs market is worse than it is, because there are many discouraged workers that are not counted. These discouraged workers are removed from the jobs market report and are sadly finding themselves included in the poverty statistics. (See: “Number of People Not Working Hits Second Highest Level Ever.”)
The institute noted what I have been harping on for some time about the weak jobs market and that is, if real discretionary income does not rise, people cannot make ends meet. This is why consumer spending is going to have a difficult time rising when incomes and the jobs market are so weak.
Just last week, I wrote in these pages about how, for the first time in its history, Social Security is paying out less than people have put in during their working lifetimes. This is a testimony to the loss of purchasing power equivalent to real discretionary incomes not rising in this country due to the weak jobs market. The result is the inability of consumer spending to rise and the inability of the average American to make ends meet.
The situation is so bad that the push is on with one aspect of life insurance called “life settlements.” (Source: New York Times, August 10, 2012.) You may not want to know, dear reader, that life settlements take place when a living person sells his/her life insurance policy to another entity for an immediate cash payment.
The living person gets cash today, which helps them pay for medical bills and other everyday expenses…maybe their stock portfolio got severely crushed in the financial crisis or Social Security and/or incomes cannot keep pace with expenses in this weak jobs market.
The entity becomes the new beneficiary in return. When the person dies, the money does not go to his/her heirs, but to the entity the person sold the life insurance policy to.
There are so many headwinds against consumer spending as more people sadly enter poverty. The jobs market needs to start creating jobs in this country or more people are going to fall into poverty. How this backdrop points to strong consumer spending is beyond me. If consumer spending makes up 70% of the economy and the jobs market is showing no signs of strength, the economy cannot improve.
Where the Market Stands; Where it’s Headed:
There is not much else I can say about the stock market that I haven’t said above. The economic situation continues to deteriorate each passing day. Europe’s credit crisis and China’s economic slowdown (see: “Chinese Economy Showing Signs of Severe Slowdown”) will sit heavily on America’s shoulders.
I continue to believe the stock market is in the process of putting a top in. That bear market rally that started in March of 2009 is slowly coming to end.
What He Said:
“If I had to pick one stock exchange that would rank as the best performer of 2007, it would be the TSX (Canada’s equivalent of the NYSE). Interest rates in Canada remain very low and they are not expected to rise anytime soon. Americans looking to diversify their portfolios, both as a hedge against the U.S. dollar and a play on gold bullion’s price rise, should consider the TSX. Most brokers in the U.S. can buy stock on this exchange.” Michael Lombardi in Profit Confidential, February 8, 2007. The TSX was one of the top-performing stock markets in 2007, up just under 20% for the year.