Growth Without Jobs

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.

Despite improving jobs report, unemployment remains the same

The Labor Department is reporting that the economy added 200,000 jobs in June, beating the expectations of analysts by about 35,000 jobs. The effective rate of unemployment remained the same at 7.6 percent, indicating that the better-than-expected performance is still inadequate for improving the jobless economic recovery.

Although Wall Street was anticipating the labor report in the hopes that it would signal a healthier economy, the figures and forecasting remain mismatched. The American economy has struggled to improve employment for the millions of individuals who remain out of work. In addition, most workers finding new jobs are discovering that they are worth less now than they were before the Great Recession.

In the New York Times today one worker reported that the inflated expectations of economists did not match her own diminished expectations regarding employment and wages. Sharon MacGregor, 42, of Paterson NJ, like so millions of other Americans who are out of work, is willing to work for much less than she used to earn. With a BA in psychology and 20 years of experience as a graphic designer, she has discovered in this labor market that experience and wages no longer match up.

“Seven years ago, I was making $63,000 a year,” MacGregor said. “If I asked for that now, forget it. I don’t want to work for so much less but I would, just to get back on the market and not to have a gap in my résumé,” she said.

The news from the labor department also prompted investors worrying about the Fed’s recent news that it would begin scaling back the stimulus money it has been pumping into the economy. Fed Chair Ben Bernanke last week said it would quit buying bonds when the unemployment rate hit 7 percent. However, an analysis of unemployment figures over the last year show that the unemployment rate has only dropped .06 of a percent since June 2012. At that rate, it will take another year for the struggling economy to reach a point where the Fed bond-buying program will end.

This is bad news for workers and investors alike. Workers are finding less employment opportunities and less well-paying jobs than before the financial collapse. Investors are finding less opportunities for profits that include job creation, which means most the profit now being generated by companies is dependent on doing more-with-less and shifting the financial burden onto workers desperate for jobs even if they pay less than their experience and skill set demanded several years ago.

Despite the glad-handing talk of economists and politicians alike that the American economy is vital and remains sound, the fact is that overall growth in economic output has been terrible. In the first quarter of this year, for example, the economy grew at an annual rate of 1.8 percent, well short of what is needed to create jobs, bring down the unemployment level significantly, and ensure what jobs are being added are good paying ones that will stimulate growth by encouraging consumers to spend.

Jobless economic recovery stalled by electoral politics, party complicity

The Labor Department released its monthly jobs report today, and the picture was quickly muddled by Democratic and Republican pandering in an election year that is almost exclusively focusing on economic recovery. According to the report private employers added only 120,000 jobs to the economy in March, a disappointing number according to most analysts compared with the previous two months each of which added almost twice that number. Despite this slowing of the pace of hiring the unemployment rate dropped slightly from 8.3 to 8.2 percent.

However, the unemployment rate comes from a separate survey of households rather than employers and indicates that a lower portion of the population were looking for work rather than indicating more workers being added to the economy. Therefore, it is almost useless to look to the unemployment rate as a significant determinant of economic recovery without adding the caveat that fewer people looking for work does not strong job growth make.

The economic picture is further clouded by election year politics in which both parties seem to do little else but blame the other party for “failed economic policies.” In a speech this morning at the White House conference on “Women and the Economy,” President Obama acknowledged the difficulties posed by anemic job growth, calling the report worrying but stressing that the unemployment rate continues to decline (albeit, slowly). The President did not mention other disappointing news identified in the report. For example, fewer than half the persons in recent months added to payrolls, or that the drop in unemployment reflected the fact that more people had dropped out of the labor force.

The Republican front-runner, Mitt Romney, wasted no time in blaming the President personally for economic forces put in motion long before Obama’s election and far beyond his executive powers to change. “Millions of Americans are paying a high price for President Obama’s economic policies, and more and more people are growing so discouraged that they are dropping out of the labor market altogether,” Mr. Romney said.

To be fair, millions of Americans have been dropping out of the labor market over the last twenty years as a permissive regulatory environment, corporate tax loopholes, and other factors such as technological innovation encouraged American companies to move jobs and profits overseas. Yet, Mr. Romney has virtually nothing to say to his peers who are truly responsible for the economic malaise of the country.

Congressional leaders proved no better in offering Americans either a correct diagnosis or reasonable policies for extricating Americans from this malaise. House Speaker John A. Boehner said, “Today’s report shows that families and small businesses are still struggling to get by because of President Obama’s failed economic policies.” Surely, Mr. Boehner means that families and small business are struggling from an economic collapse precipitated by his party’s commitment to crony-style capitalism under eight years of Bush the Younger’s reign.

Politically speaking, the problem with the economy is that no one is willing to tell it like it is. After more than two decades of Republican-style economics, supported more or less by the Democratic Party and its ties to corporate America as well, Americans are neither getting the truth of the matter nor making much progress. Income inequality, poverty, the uninsured are at their highest levels since the Great Depression. Then again, so are profits margins and executive compensation as American corporations sit on mountains of cash they have expropriated from workers, consumers, and investors alike.

The conjunction of these two facts—deepening inequality and corporate greed—are the two largest road blocks standing in the way of economic recovery. Until politicians do their job, and some of this reserve is redistributed in the form of more hiring, rising wages, and pension and health care reform, there is little hope either of addressing this country’s many economic problems or escaping its self-inflicted malaise.