Stiglitz: US Economy Is Weak Despite Strong Stock Market
Monday, 07 Jul 2014 09:48 AM
Quite the contrary. The economy remains weak, Stiglitz, a professor of economics at Columbia University, tells CNBC, predicting that a "North Atlantic malaise" will continue.
The Dow Jones Industrial Average passed 17,000 last week, up 3 percent for the year and 14 percent higher than a year ago. News that the economy created 288,000 new jobs, pushing the unemployment rate from 6.3 percent to 6.1 percent, lifted stocks.
Despite the good news, Stiglitz is not optimistic.
"Remember, labor force participation is at very, very low levels, much lower than before the crisis. Real wage increases have been very weak, well below what they should be if we were having a robust recovery," he explains. "There are lots if indicators that suggest this is a weak recovery."
Stiglitz says he is "very uncomfortable" with current valuations of stocks.
"The reason the stock market is high, in part, is that interest rates are low, wages are low and the emerging markets are still growing much faster than the U.S. economy, let alone Europe."
Many large U.S. corporations are getting much of their profits from emerging markets.
"These very strong stock market prices are in a sense a symptom of the weak economy, not a symptom that we are about to have a strong recovery to our real economy," he adds.
Growing income inequality is stifling the recovery, Stiglitz argues.
"In the United States, from 2009 to 2012, 95 percent of the gains went to the upper 1 percent. Ordinary Americans are using up their savings," he notes.
Stiglitz approves of the Federal Reserve's decision to continue to hold short-term interest rates low while the recovery continues, even while it phases out its monthly bond purchases.
"It is, I believe, clearly premature to raise interest rates," he tells CNBC. "They're going to wait and see exactly how this plays out. If it turns out that month after month we get 300,000 or so [new] jobs, then I think there will be evidence that there's a real recovery."
Other experts believe the recovery is finally gaining speed. The economy has created new jobs for five straight months, one of the best job creation stretches since the 1990s, and the unemployment rate is be lowest since 2008, according to the Boston Herald.
"We’re back on the right track," says Peter Ireland, a Boston College economics professor. "Now, finally, we're beginning to see a real acceleration."
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