Dear Mr. Berko: Some newsletters are becoming alarmingly negative on the economy and the stock market. What is your opinion here?
— T.C., Wilmington, N.C.
Dear T.C.: I’m concerned but carefully positive until June 2017. The economies of the European Union, Asia, the Middle East and Latin America have lost their zip-a-dee-doo-dah. Worldwide growth has slowed to a crawl, and some of those who claim wisdom suggest it will crawl for years to come. The sluggishness has been led by China and the United States, which together produce about 70 percent of the world’s goods and services. China, with an $11.4 trillion gross domestic product, runs the world’s second-largest economy. And the U.S., with our $18 trillion GDP, has an economy that is larger than the combined GDPs of Canada, Spain, South Korea, Australia, Russia, Mexico, Japan, Germany, the United Kingdom and France and feels as if it’s running out of steam. The slowdown seems to be accelerating. China has sharply cut imports of copper, nickel, aluminum and other commodities. Now, suddenly the world has an abundance of copper, nickel, etc. This oversupply has trashed commodity prices, attached anchors to corporate revenues, put a lid on profits, stifled wage growth and suppressed employment. We seem to be entering an era of stagflation — with low interest rates, low wages and low growth. I’m reminded of a Mary Hopkin song: “Those were the days, my friend. We thought they’d never end. We’d sing and dance forever and a day.” That was the American dream.
Procter & Gamble, American Express, FedEx, Morgan Stanley, Chipotle, Goldman Sachs, Nestle, Caterpillar, IBM, Wal-Mart, General Electric, DuPont, Kraft and other big names are reporting lower revenues, lower earnings or both. For the third consecutive quarter, a growing number of Standard & Poor’s 500 companies are reporting lower revenues or lower earnings.
Most pension plans are caught in this mess, especially union plans rife with benefits that would warm the heart of a cynic. Pensions are being culled, cut and frozen to maintain solvency. Thousands of UPS employees will have their retirement checks chopped by 50 percent. The Teamsters’ Central States Pension Fund lacks the funds to pay promised benefits to 400,000 participants. Chicago, Detroit and San Jose are freezing pension benefits. Police and firefighters in Jacksonville, Fla., will have their retirement benefits reduced, and other Jacksonville employees are certain to be next. And the union-designed plans of millions of employees in the private sector — those at IBM, U.S. Steel, The Washington Post, Boeing, American International and Lockheed Martin, to name a few — are changing benefits. Also, union plans in West Virginia, New Jersey, Illinois, Massachusetts, Pennsylvania, Connecticut and Kentucky are in big-league trouble and hugely underfunded. This creeping reduction in retirement benefits is adding a new layer of financial stress to America’s middle class, which has been struggling with flat wages, slow economic growth and record personal debt. Revenues and profits have peaked for the industrialized world, and it may take several generations for the world to adjust.
