(cross-posted at Deny My Freedom and Daily Kos)
Today, the jobs figures for the past month were released. To the everyday person, the numbers would seem to paint a good picture – the economy added jobs, hourly wages went up, and unemployment went down. Here’s a snippet from the press release from the Burear of Labor Statistics:
Total nonfarm payroll employment increased by 128,000 in August, and the unemployment rate was little changed at 4.7 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment grew notably over the month in education and health services; several other industries had modest increases. Average hourly earnings rose by 2 cents, or 0.1 percent, in August following larger gains in the prior 2 months.
Naturally, the Bush administration was eager to put a positive spin on this. Despite becoming the first president since Herbert Hoover to post a net loss in job growth in his first four-year term, the White House been particularly eager to jump on any seemingly positive economic news. Labor Secretary Elaine Chao could hardly restrain herself in touting the figures as proof that the Bush administration is indeed strong on the economy:
“We enter this Labor Day holiday with …. a strong economy that is producing steady, consistent gains for America’s workers,” said Labor Secretary Elaine Chao.
The more puzzling interpretation comes from economists, though. These are people who should know what would be good or bad for the economy – and yet the reaction to today’s forecast was one of ‘restrained joy’, if I may say so myself. Some reaction from today’s economic figures from the AP article:
“This provides some peace of mind,” said Oscar Gonzalez, economist at John Hancock Financial Services.
Yet more positive spin from economists comes from the New York Times:
“The softer trend in employment growth is still in place, though the numbers are certainly not melting down,” said Ian Shepherdson, chief United States economist with High Frequency Economics.
Many economists today are focused on the federal funds rate, which is controlled by the Federal Open Market Committee (FOMC). There is a general consensus that the Fed needed to pause its streak of 17 consecutive 25-basis point (0.25%) raises, which it did the past month. Indeed, the reaction to last month’s job numbers – which were worse than what was released today – was met with a largely positive reaction. Why? Current Fed chairman Benjamin Bernanke has indicated that he will make rate decisions based on incoming data. With jobs figures that are relatively low, the belief is that the economy’s growth is beginning to moderate, and because inflation is less likely, the Fed will be less inclined to move interest rates higher. The trick, though, is to ensure that the Fed does not overextend itself to the point where rates are too high, thereby choking off growth and causing the economy to dip into a recession.
Nevertheless, the problem with these jobs numbers should not be that the economy is growing at a steady pace. It’s that it’s not growing at a fast enough pace with demographic changes, as the Times article notes:
The tepid job market is consistent with the wider economic slowdown that is now taking hold. Today’s report was another sign that as growth slows, employers are pulling back.
On average, private nonfarm employers have been adding just under 128,000 jobs a month since the spring, well fewer than the 150,000 a month that many economists regard as the minimum necessary to absorb the demographic growth of the working age population.
It’s been no secret that 150,000 is the number considered to keep unemployment stable and ensure that there is not growing slack in the labor market – it’s been out there for quite some time. Economists are hoping that there is a moderating in job growth in the way that a cubic function looks, except that the middle part is not a dip but rather a flat plateau on the general path upwards. However, the additional attributes of the BLS report give cause for concern that even though the new figures may make investors happy, they aren’t helping workers out much:
The number of hours in an average work week, however, declined to 33.8 in August from 33.9 in July. The average hourly wage grew at its slowest pace this year, inching up to $16.79 — a gain of only 0.1 percent after an 0.5-percent gain in July.
Indeed, this is what worries other economists: the job growth isn’t indicative of moderation, but could possibly be an indicator that the economy is slowing down.
[The] report … was reasonably in line with market expectations, although the mix of job growth was skewed toward low-paying industries. There is nothing here to prompt the FOMC to move at its next meeting on Sept. 20. Almost one-half of the August rise in private service employment occurred in the health and social assistance category, which are generally low-paying jobs. On the service side, weakness is most evident in the retail component, which is simply not growing … while other sectors have not picked up the slack. — Joshua Shapiro, MFR Inc.
The pace of job creation has slowed dramatically. In 2004, hiring averaged 175,000 per month; in 2005, it averaged 165,000 per month. So far this year, job creation has averaged just 140,000 per month while over the past five months it has average only 119,000 per month. The sluggishness in payroll employment will likely persuade the FOMC to continue to pause at their September meeting. However, a return to stronger inflation numbers will allow them to maintain a bias toward tightening. — Steven A. Wood, Insight Economics LLC
[…]
Subpar jobs growth indicates the economy is slowing significantly, and underperforming its potential. In the months ahead, loosening labor market conditions will put a lid on wages and help contain inflation but ordinary workers will pay a heavy toll in declining real incomes. Inflation will continue to outpace wages for many workers. Conditions in labor markets remain mixed. Workers with key technical skills, for example in construction, finance, information technology, and health care, continue to find good opportunities, and their incomes easily outpace inflation. However, workers with only high school or a few years of college, without key technical skills, face mounting challenges finding jobs offering good pay and health benefits. – Peter Morici, Univ. of Maryland
The AP article notes that year-over-year figures for wage growth is 3.9%. However, when one considers that wage growth has been heavily skewed towards the wealthy and upper class, it’s hard to know if real wages for the lower and middle classes are keeping up, given that the Fed’s favored measure of inflation, the personal consumption expenditure (PCE), shows year-over-year inflation to be at 3.4%. The core figure, which excludes food and energy, is at 2.4%, but real people are sensitive to changes in those volatile measures, even if economists don’t look at them as much (they prefer to look at core figures, which they hope will reveal underlying trends).
With jobs being added at a number lower than needed to keep up with the growing workforce, and with the lower and middle class being squeezed by slow wage growth and rising inflation, there is cause for concern that the economy could be facing a slowdown. Some economists may see it as sunny news – the stock market has tended to go up on ‘bad’ figures for the economy, as they are only anticipating how it will affect the federal funds rate. For the average person, though, the trends are worrisome.
