Now do you feel rich? We didn't think so.
Wall Street is booming, but Main Street isn't. U.S. employers are hiring again, but the job market's recovery is not giving ordinary consumers enough confidence to dramatically increase their spending. The Dow Jones Industrial Average, a traditional financial indicator, has more than doubled since the 2007-2008 financial meltdown. But how many small businesses can say that about their profits or employees about their paychecks?
The Dow index is particularly fickle. Within days of pulling over 17,000 for the first time ever — a level reached in a rocket-like 153 trading days from 16,000 — the Dow has bounced around just below the 17,000 level.
Can there be clearer evidence that the U.S. economy has become at least two economies — the financial economy of Wall Street and the real economy of average Americans? Unfortunately, the high-flying successes of the financial markets mask some fundamental weaknesses in the broader economy.
The U.S. Labor Department recently reported that employment grew in June, and the jobless rate closed in on a six-year low. Still, millions of Americans are looking for full-time work or are surviving on part-time jobs that pay considerably less than their former full-time job. Others simply have stopped looking. Not enough recent college graduates have found robust employment opportunities after shedding caps and gowns — further proof that the U.S. economy really hasn't fully rebounded from the catastrophic loss of more than 8.8 million jobs during the worst economic jolt since the Great Depression.
The depth of the recession and the subsequent slow growth recovery only partly explain why unemployment is still at 6.1 percent. Occupations that used to offer steady middle-class lifestyles no longer exist, and too few Americans possess the skills to grab the lucrative new ones. When jobs and worker skills don't match, economic downturns last longer and the recoveries produce fewer jobs at a slower pace.
A soaring Dow disguises but doesn't solve these issues. Tax reform is long overdue. U.S. corporate tax rates are high relative to the rest of the world, and individual tax rates need to be made flatter and fairer. While the Federal Reserve has kept interest rates extremely low, financial investors are benefiting more than salaried workers. Yes, low rates allow consumers to buy more car or house for the buck, but history tells us that easy money can't continue indefinitely without creating an asset bubble. If you drive or eat — all of us do at least one of these — by now you've noticed signs of modest inflation in the grocery store and at the gas pump.
Dow at 17,000 is a number worth noting, but it is only a chapter in a much bigger and more complex economic story.