US prospects: Slower Growth and a Disastrous Budget


Richard Moore

From: "Brian Hill" <•••@••.•••>
To: "Richard K. Moore" <•••@••.•••>
Subject: FW: [toeslist] Slower Growth & Disastrous Budget Set Stage for 
Date: Sat, 7 May 2005 08:36:46 -0700
Organization: Institute  for Cultural Ecology

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Of Michael Givel
Sent: Saturday, May 07, 2005 6:51 AM
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Subject: [toeslist] Slower Growth & Disastrous Budget Set Stage for

Slower Growth and a Disastrous Budget Set the Stage for

Labor Research Association's Economic Notes - May 2, 2005

U.S. workers and their unions should brace for higher
unemployment and greater downward pressure on wages for the
remainder of the year.

Working families received two sharp blows as April drew to a
close. On April 28, the federal government released new data
on economic growth in the first quarter of 2005 that show that
the economy is slowing and job creation is at a standstill. On
April 29, Congress passed Bush's disastrous federal budget for
the 2006 fiscal year. The budget freezes spending for domestic
programs and authorizes huge tax cuts for the wealthy.

The new data reported that real gross domestic product rose at
an annual rate of 3.1 percent in the first quarter, down from
the 3.8 percent reported for the fourth quarter of 2004.
Forecasters immediately cut their second quarter GDP forecasts
to 3.0 percent to 3.5 percent, down from earlier forecasts of
close to 4.0 percent.

Growth in consumer spending slowed to 3.5 percent in the first
quarter of 2005, down from 4.2 percent in the fourth quarter
of last year. The decline in consumer spending knocked half a
percentage point off GDP growth.

With real wages falling month after month, consumers are
caught in a sharp squeeze. Real wages declined by 0.3 percent
in February and by another 0.3 percent in March.

Nearly all of the slowdown in consumer spending can be traced
to a sharp decline in purchases of durable goods. This decline
reflects the early effects of higher interest rates and
signals further deterioration in employment in the already
troubled manufacturing sector.

First quarter 2005 growth in business investment plunged to
4.6 percent from the double-digit increases reported for the
previous three quarters. Business spending on equipment and
computers slowed considerably. New layoffs in the high tech
sector will follow.

The sharp decline in business investment reflects growing
reticence among U.S. corporations about the potential for
future growth and indicates that any hiring may end abruptly
in the second quarter.

A major buildup in inventories propped up GDP growth by more
than a full percentage point in the first quarter. If the
goods that were stockpiled were omitted from the calculation,
GDP would have increased only 1.9 percent. This inventory
accumulation will become a drag on growth in the second
quarter and lead to layoffs in sectors where inventories are
particularly high.

Exports doubled in the first quarter, with 7.0 percent growth
reported, but imports increased 14.7 percent, undercutting any
gains from higher exports. Given the sharply lower dollar, the
7.0 percent growth in exports is disappointing, and clearly
marks the failure of the Bush administration's low-dollar

Any U.S. gains from the lower dollar - which makes U.S. goods
cheaper abroad - have been canceled out by the economic blow
to trading-partner markets in Europe and Japan. Although it is
clearly time for Bush to reverse course and strengthen the
dollar, the administration refuses to do so. As Europe and
Japan sink further into economic stagnation, U.S. exports will

Part of the trend toward slower economic growth and low job
creation in the United States can be traced to short-term
instabilities and the general uncertainties surrounding
inflation and oil prices. But it is also indicative of the
long-term damage done to the economy by the Bush
administration's shortsighted economic policies and the
fundamental weaknesses introduced by five years of misspending
and mismanagement. The new 2006 federal budget passed by
Congress guarantees that these policies will remain in effect.

Policies constructed to transfer more wealth to high- income
groups and to fund the military buildup are now undercutting
the prospects for long-term growth and development. The
administration's refusal to pursue employment growth and
control health care costs has forced real wages down to
recession levels.

In addition to the serious problems created by Bush's tax cuts
and the resulting federal deficits, the whole direction of
federal spending under Bush threatens to perpetuate high
levels of unemployment and derail the ability of the economy
to respond to new global competitive conditions.

Federal defense spending remains almost unchanged in Bush's
2006 budget, but sharp cuts in other forms of federal spending
have removed all of the economic stimulus from the nondefense
sectors. Bush has strangled federal spending for programs that
support job creation, workforce training and the research and
development projects needed to ensure the competitive standing
of the U.S. economy.

The U.S. is falling further behind in the global rankings for
research, workforce skills in science and technology, and
higher education levels for the broad population. Japan, South
Korea, Israel, Sweden and Finland all spend a higher portion
of their GDP on research and development than the U.S.

The signs of another recession are on the horizon, and Bush's
policies will make the next recession much deeper and longer
than the recession of 2001. The U.S. is already close to
losing its competitive standing in the world economy, and may
be only one recession away from a permanent decline.

C 2005 Labor Research Association

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Richard Moore (rkm)
Wexford, Ireland

"Escaping The Matrix - 
Global Transformation: 
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