Job losses confirm sense of economy in trouble

Pressure for additional government action is already building. On Friday, Rep. Barney Frank, D–Mass, and chairman of the House Financial Services committee, said it’s time for Congress to consider another round of stimulus checks.

“The first stimulus economic package helped, but we are still in trouble,” he told CNBC.

Consumers have other worries on the inflation front. Soaring prices for food and other commodities are pushing costs for companies that may soon show up in higher prices for goods and services. But wages aren’t rising nearly as fast as prices: Labor costs were up just 0.7 percent year-over-year in the first quarter. Friday’s employment report showed Americans' earnings rose 0.3 percent in May.

“Earnings have been either right at or just below the rate of inflation for some time now,” said Robert McTeer, distinguished fellow at the National Center for Policy Analysis and former president of the Federal Reserve Bank of Dallas. “And that's contributing to a lot of the angst out there."

Slow wage growth is bad news for consumers but good news for the Federal Reserve because it means the wage side of a possible wage-price inflation cycle has not taken hold. Meanwhile, the central bank is walking a tightrope between feeding inflation by making money too cheap on the one hand and raising interest rates too soon before the economy and credit markets have stabilized.

Fed Chairman Ben Bernanke delivered a speech this week that seemed to indicate inflation was currently the bigger concern; some investors took those remarks as a signal that central bankers were done with rate cuts for now.

But it’s premature to conclude that further rate cuts won't be needed to get the economy back on track, according to Robert Brusca, chief economist at Fact and Opinion Economics.

“I read it every way I could — never in that speech did I see him saying the Fed wasn't cutting rates anymore,” he said. “It's far too soon to say what the Fed is or isn’t going to do for the rest of the of year.”

Despite the string of job losses, the data on have yet to show that the overall economy is  moving in reverse. That has touched off a debate over whether a recession has already begun — or whether the economy may yet dodge one by entering a prolonged period of slow but still positive growth. For most consumers — especially those added to the jobless rolls in May — the debate is academic.

“It's a technical argument,” said Zandi. “For the average American, this is a recession. They are worth less today, their purchasing power is lower — this is a recession. That's why consumer confidence is as low as the early '80s.”

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