From yesterday’s NYT editorial:
In a statement last Wednesday — just hours after the government reported headline-grabbing economic growth of 4 percent in the second quarter —the Federal Reserve said it would continue to stimulate the economy because, despite overall growth, the labor market remained weak. In a speech the same day in Kansas City, Mo., President Obama echoed the Fed. “I’m glad that G.D.P. is growing, and I’m glad that corporate profits are high, and I’m glad that the stock market is booming,” he said, (which it was before profit-taking at week’s end dented its performance). “But what I really want to see is a guy working 9 to 5, and then working some overtime.”
Those cautionary views were validated on Friday, when the employment report for July showed slower job growth, flat earnings, stagnant hours and stubbornly high long-term unemployment. The challenge now, as always, is to translate official concern over the job market into change for the better.
The economy added 209,000 jobs last month, a decent enough figure in and of itself, but a slow start to the third quarter compared with the average monthly gain of 277,000 last quarter. Worse, July’s relatively slow pace of growth may not be sustainable. Many of last month’s job gains were in automobile manufacturing, which could reflect a statistical blip from shorter-than-usual factory shutdowns in July rather than new positions added.
Moreover, the upswing in the auto industry is tied to a surge in high-cost auto loans to uncreditworthy borrowers, an unstable foundation for future growth. In addition, the sectors that generally add the most jobs each month all slowed in July from their pace in June, including bars and restaurants, retail, health care and temporary services. As for the president’s vision of a 40-hour week plus overtime — well, if only. For the fifth straight month, the average workweek for most of the labor force was stuck at 33.7 hours. Factory overtime, once a mainstay in the lives of working-class Americans, dropped in July for the second straight month. Average hourly wages have, at best, kept pace with inflation over the past year. Pay is languishing, but working longer hours is not an option.
In its statement, the Fed said it was basically a tossup whether the economy would speed up or slow down. Faster growth, however, generally requires a healthy real estate market and that requires a healthy job market, especially for younger workers.
But in July, the jobless rate for workers ages 25 to 34 was 6.6 percent, compared with 6.2 percent over all. Among young people who are working, many are in low-wage or part-time jobs, or jobs that otherwise do not make use of their education or experience. So it is not surprising that the sale of new homes plummeted recently at the fastest pace in nearly a year. Sales of existing homes have risen, a positive sign but a questionable trend given the still-ailing job market.
The most likely scenario is for the economy to continue to muddle along at an overall annual pace of 2 percent to 2.5 percent. The Fed has affirmed its commitment to keep interest rates low until the labor market recovers, but the real test of its resolve will come if and when inflation meets or exceeds its preferred annual rate of 2 percent. In a sluggish economy with significant employment slack, continued stimulus policy would be called for even if inflation exceeded the target, but whether the Fed will oblige is unknown.
As for Mr. Obama, he seems to understand that with a Republican-dominated House and Republican senators keen on winning a majority in the Senate, he is on his own to push for change. He can and should continue to issue executive orders to improve pay and working conditionsfor the federal contract work force. He should work with the Labor Department on upcoming rules to re-establish a broad right to time-and-a-half for overtime. And he should continue to rally public support for Democratic legislation to raise the minimum wage and to combat the growing use of unpredictable part-time scheduling.
None of that is enough to counter significantly the forces responsible for job growth that is too weak, wages that are too low and workweeks that are too short. For that, a functional political climate is needed, one in which leaders find compromise solutions to the nation’s problems. Without that, the Fed’s modest prediction that the economy has an even chance of getting better may in fact be too optimistic.