The Joyless Recovery

The U.S. stock market is building on record highs, the housing and automotive markets continue to recover, the banking industry has stabilized, gross domestic product continues to grow, the unemployment rate is falling and new jobs are being added every month.

Meanwhile, inflation and interest rates remain low.

The U.S. economy has added jobs in 39 consecutive months, creating 6.9 million jobs over that time. The Brookings Institute recently forecasted that the national unemployment rate will fall to 6.8 percent by December.

In one recent 24-hour news cycle, investors were treated to the following glowing data points:

The Conference Board said consumer confidence in June rose to a more than five-year high. The index rose to 81.4 from 74.3 in May, marking the best level since January 2008.

Prices for U.S. homes leaped in April, posting record monthly growth and the fastest year-over-year growth in seven years, according to the S&P/Case-Shiller Index. With gains in 19 of 20 cities, the 20-city composite index rose 2.5 percent in April, the largest monthly growth on record.

Sales of new homes rose in May to the highest rate since mid-2008 and purchases for the prior three months were all revised higher, reflecting the continued resurgence in the U.S. housing market. The U.S. Commerce Department said sales in May climbed 2.1 percent to an annual rate of 476,000 from 466,000 in April.

Orders for long-lasting manufactured goods rose more than expected in May. Durable goods orders increased 3.6 percent as demand for goods ranging from aircraft to machinery rose, the U.S. Commerce Department said. Orders for these goods, which range from toasters to aircraft, had risen 3.6 percent in April.

Core capital goods shipments, used to calculate equipment and software spending in the national gross domestic product report, rebounded 1.7 percent. The increase in shipments of core capital goods pointed to moderate growth in business spending on capital equipment.

So, with positive economic and employment data at almost every turn, why then, don’t most of us Americans feel good about this economy? Why are we not spinning cartwheels or popping champagne corks?

Bob Chernow

For insights about this economic and psychological conundrum, BizTimes turned to Robert Chernow, a Milwaukee investment advisor and a futurist. He is vice chairman of the World Future Society who manages more than $450 million in assets as a wealth manager.

BizTimes: My first question is … Some people have called this a “jobless recovery,” but that’s not really true. Rather, it seems this is a “joyless recovery.” Why aren’t we celebrating?

Chernow: “I think it is a joyless recovery. And the reason is that I think people don’t really understand that the American economy basically collapsed in 2007 and 2008. And if we had followed suit like we had during the Great Depression, we’d still be in a depression. So, what’s really remarkable about this is not that we’ve had a slow recovery but that we’ve actually had a recovery at all. That’s really what is remarkable here – how well the economy has recovered from this tremendous, disastrous pullback we had and the destruction of a significant amount of wealth in this country. In part, much of this has to do with the fact that the stimulus and the Federal Reserve in essence bought time for large corporations and the banking system to recover.”

BizTimes: It is a recovery by any measure. The stock market has been made whole at record levels. So, why don’t people in the day-to-day grind of it all feel like we should be celebrating?

Chernow: “I don’t feel like it’s joyless. It’s just that most people out there do. In part, that’s because of the way we view the world. We view the world in terms of a month or a week. I look at the world in five or ten years. Most people are short-minded. My wife, who I love dearly, will pass by Mayfair (Mall), and she’ll say, ‘There’s no recession out here. We can’t find a parking space.’ And that’s what we’re seeing, where people have more wealth, but we’re feeling pessimistic about it.”

BizTimes: Why is that?

Chernow: “That’s an interesting question. I think part of it is we’ve been through a situation which has basically kicked us in the stomach and has made us see the huge suffering of other people. People who have worked at jobs for years and they have been kicked out, not because they’re incompetent, but because their companies have failed. They see their kids who don’t really find out what they want to do until their late 20s or early 30s. So, there’s a pervasive pessimism that has permeated us. Many of the people who came through the Great Depression were very conservative with their finances for the rest of their lives, because they knew what it was like not to get another meal. We’ve seen many people who lost their homes.”

BizTimes: Conversely to that pessimism, the stock market has been buoyant, rising to record levels. What is fueling this meteoric rise in the stock market, even though the rest of us still seem gloomy?

Chernow: “Very good observation, my friend. I think the primary reason for it is that the market is based on buyers, not sellers. There still is a lot of pessimism around. Two, there’s a huge amount of cheap cash out there on the sidelines, and there really is not a good place to put it.”

BizTimes: You mean that because interest rates and inflation are so low, there are no better investment options?

Chernow: “Right. There’s huge pent-up demand for white goods, automobiles, housing, because we haven’t been buying those things for years here. For the last decade, companies have been buying back stock. There have been mergers and acquisitions, and there have been very few initial public offerings. What does that mean? Basically, it means we have more money chasing fewer stocks.”

BizTimes: The phrase I hear every day from somebody, both employers and employees alike, is that companies have to do more with less. Is that becoming the new normal way of doing business?

Chernow: “That’s a very good question. I think in part it is. We’ve become much more innovative. New businesses rise up. We do things better than we’ve done them before.”

BizTimes: What are the next great game-changers that are going to be disruptive technologies in business?

Chernow: “Well, I’m going to mention a couple of them for you. One obvious one is 3-D printing. It’s going to revolutionize manufacturing. I think that’s one thing that’s extremely important here. I think 3-D printing can revolutionize parts manufacturers. I think open-source robotics will be important, because it’s going to cut the costs of robots by about 90 percent. You have some other obvious things here…very cheap, mobile Internet. The automation of knowledge workers, the Watson system that IBM created, for example. Cloud technology.”

BizTimes: Anything else?

Chernow: “I think you have energy storage, which will be one of the big, big systems in the next couple of years.”

BizTimes: Is the United States on a path to becoming basically energy self-reliant?

Chernow: “I think we’re rapidly reaching that point. We are in essence saving huge amounts of energy by making our automobiles more efficient, making our plants more efficient and doing a variety of other things. We’ve come a far, far way.”

BizTimes: What other areas of the economy do you think are poised to be strong in the near-term?

Chernow: “Well, here in Wisconsin, pharmacology and use of next-generation genomics. The ability, for example, to cure illnesses. And designer applications for medicines.”

BizTimes: What is your take on Obamacare?

Chernow: “I think that many businessmen and businesswomen, as they look at their own businesses, will see how beneficial it is to them in the next several years. What has to be done, however, is to make the dysfunctional mechanizations of Medicare far more efficient than it’s been made.”

BizTimes: Do you think the lack of clarity about Obamacare and how it all will or won’t work has been feeding into the apprehension, the skepticism, that business owners have?

Chernow: “That, plus ideology, to a certain extent. People don’t like change, and this will be major change.”

BizTimes: Ultimately, will it work?

Chernow: “I believe it will work if several things are done. One primary thing…If I were you at BizTimes, I would have a committee to reduce stupidity.”

BizTimes: I don’t think I’m empowered to do that. So, what sectors of the economy are poised for contraction?

Chernow: “I think there’s still a lot of uncertainty in the medical area, especially for hospitals. That’s also true about health care insurance, as well. Those are solvable problems if people are willing to solve them. I’m guessing that oil will go up to $110 per barrel. Not a huge move, but I think that will be very costly for the transportation of goods. I think that certain retailers will have some problems in the future.”

BizTimes: You have told me in the past that you foresee a growing labor shortage, a shortage for all levels of labor. Do you still feel that way?

Chernow: “Yes I do. Look at the demographics. We will have major, major labor shortages in nursing and in the medical profession.”

BizTimes: So, ultimately, you are of the opinion that there will be a labor shortage, and because of that labor shortage, labor will be at a premium, putting upward pressure on wages?

Chernow: “Yes. I think we’re seeing that now in certain professions. The people in the middle won’t get the benefit of that right away. But the people who have great skills, they will. And the people who don’t have a lot of skills, there will be a shortage of those workers. We’re already seeing that in the fast-food industry. There is a significant amount of people who are now out of the workforce who will never be productive again. They’re not capable of adjusting to the real world, and they’re also near retirement. That sounds sad, and it is sad, but it’s also reality. I’m not condemning them. They have condemned themselves by being unable to work in a world that can utilize their services. They have become obsolete. That’s sad, but that’s the Willie Lohman of our economy.”

BizTimes: Do you see strong demand for skilled trades?

Chernow: “Yes. Many middle class people have suggested that their children not go into the trades. We right now have a major shortage of people in heating and ventilation, of plumbers, of electricians. Interestingly enough, the wealthy don’t mind their children going into those businesses.”

BizTimes: Are there any other trends that you want to get on the record?

Chernow: “One of the bright spots I see here is the automobile industry. Do you know what the average age of the vehicle that’s on the road today is? It’s 11.2 years. We’ll probably do 15.5 million cars in 2013, and the automobile industry is now doing something they never thought they’d do again. That’s adding new floor space and equipment.”

BizTimes: And that’s helpful for Wisconsin, because Wisconsin is home to many automotive suppliers to Detroit.

Chernow: “That is correct. Car companies and parts manufacturers generated 167,500 jobs since June 2009 to the end of May of 2013. That’s a huge number of jobs. I think one other area we need to look at here in Wisconsin is agriculture. There is a major shortage of food and problems related around food and water, which the innovation of Wisconsin should do something about…The storage of food. The distribution of food (worldwide) is something that we could do something about here in Wisconsin.”

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