Will fall be season of economic discontent?

Economy watchers ought to be more than a bit concerned about the U.S. economy in recent weeks, and the recent stock market declines might well be the least worrisome indicator.

First we’ll review the good, or the least bad, news.

The U.S. economy grew at a 2.1 percent rate through the first half of 2015. This was slower than all economic models predicted, including those that I have written and used.

However, the first quarter saw growth of 0.6 percent, with a 3.7 percent rate in second quarter.

This is the third year in which first-quarter growth was startlingly slow, so many economist believe the seasonal adjustment calculations understate actual growth. However, the errors would largely be captured by the second-quarter data.

Altogether, the 2.1 percent growth through the first half of 2015 isn’t really good news. With the population growing at a rate just over 1 percent, it will take 75 years for the standard of living of Americans to double. To contextualize that, think how different the U.S. was in 1940. Our standard of living has grown by almost six-fold through that 75-year spread. So, 2.1 percent growth ought to spread alarm.

The second decent piece of news is about the labor market. The unemployment rate dropped to early recession levels last month, bringing the nation close to what economists call full employment. Still, last month’s national news was otherwise not reassuring.

Employment grew by 175,000 positions, but the total labor force saw a net decline of 261,000 folks. When we account for retirements and new workers, we should expect something more than 100,000 new workers each month, maybe even 140,000. So, the deep losses put us upside down in labor force by more than 400,000 workers last month.

Worse still, 158,000 of those 175,000 net new jobs were only part-time thanks to economic reasons. So much for good news.

The economic committee that determines the start and stop date of each recession examines labor force, total payroll, industrial production and retail sales. All of these measures are worrisome.

Retail sales have been slowing for three years and may be beneath the rate of inflation this summer. Industrial production has slowed for more than six months, and last month’s numbers were the worst in in several years. Payrolls have flattened, and wage increases are barely keeping pace with inflation.

Altogether, the evidence of slowing growth is pretty significant. The Chinese economy is in real trouble, and it will drag perhaps a third of the world into recession, and the turbulent gifts from Greece are far from over.

The mavens of the stock market are an odd lot, whose fabricated expertise usually exposes stock watchers to all the emotional ups and downs of a middle-school romance.

More sophisticated analysis tells a long-term worry.

Even after the recent stock declines, professor Robert Shiller’s cyclically adjusted price-to-earnings ratio suggests stocks are still overvalued by 30 percent.

At the very best, this is going to be a difficult fall for the economy.

Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to [email protected].