Economist Paul Krugman says U.S. consumer sentiment is much weaker than it was pre-COVID, “in fact comparable to its level at the depths of the 2008-2009 financial crisis.”
And people have good reason to feel that way, according to the Nobel laureate's Wednesday Substack article.
“While there have been no mass layoffs so far, people who have lost their jobs or are just entering the work force are finding it very hard to get new jobs,” said Krugman, describing a “K-shaped” economy with affluent people becoming more wealthy and the less well-off “under severe pressure,” as indicated by the rise in car loan and credit card delinquencies and grocery shoppers buying cheaper food. Meanwhile, the top 10 percent of Americans now account for nearly half of all consumer spending.
The rate at which businesses are hiring is currently “not far above its level during the 2008-2009 financial crisis,” Krugman said, although the Trump administration hasn’t released the latest figures.
Surveys conducted by the Conference Board tend to skew optimistic, with nearly half of respondents saying in late 2019 — on the eve of the pandemic — that jobs were plentiful. But the latest Conference Board survey had only 26 percent of respondents saying jobs were “plentiful.”
“And they’re right,” said Krugman. “Overall unemployment hasn’t risen that much, but the number of long-term unemployed — would-be workers who have been jobless for more than 6 months — had soared as of August, and has probably continued to rise since then.”
Another important indicator of a troubled labor market is Black unemployment, which is a reliable Geiger counter for what to expect in the greater economy later, said Krugman.
“After all these years, Black workers still tend to be ‘last hired, first fired.’ And while the overall unemployment rate hasn’t risen much so far, the Black unemployment rate has soared, presumably because Black workers are finding it especially hard to find jobs in this frozen economy,” Krugman said.
And even as the U.S. stock market cranks along, Krugman urged Americans not to be fooled.
“Investors seem to have decided that the wonders of AI matter more than Trump’s tariff madness, so we’re seeing a stock market surge dominated by technology companies,” said Krugman, adding that the AI boom “is troublingly reminiscent of the 90s tech bubble.”
“JPMorgan’s Jamie Dimon suggested parallels between bad lending in the private credit market and the bad subprime lending that brought on the 2008 crisis,” said Krugman. “To quote Dimon: ‘I probably shouldn’t say this, but when you see one cockroach, there are probably more.’”
But aside from the question of whether this is a bubble, Krugman said it’s important to “be aware that the top 10 percent of households own 87 percent of equities, while the bottom half own almost no stock at all and gain nothing from a rising market.”
Read Krugman’s full report at his Substack here.