Robust Jobs Report Masks Weak Economy

May 2, 2014

The loud cheers that greeted the news Friday of a sudden surge in new jobs and a significant drop in unemployment overlooked a deeper malaise within the economy.

The litany of ills includes flat wages, a still-too-high unemployment rate and declining labor force participation, as well as low GDP and inflation growth.

The economy added 288,000 jobs across sectors in April, the fastest rate in more than two years, up from 192,000 the previous month, the Labor Department reported Friday.

Jobs grew across the wage spectrum, in retail, food, construction and business and professional services.

In addition, some 36,000 more jobs were actually added in February and March, according to the Labor Department’s revisions, suggesting the economy was stronger than expected in the first quarter.

Meantime, the unemployment rate fell 0.4 points to 6.3 percent, its lowest level since September 2008.

But unemployment dropped because the civilian labor force, now standing at 62.8 percent of the population, lost 806,000 people last month, matching a 35-year low.

These missing workers are not counted in unemployment data, but if they were, the unemployment rate would be 9.9 percent, according to the left-leaning Economic Policy Institute.

As it stands, the 6.3 percent unemployment rate is still well above the 4 to 5 percent average before the recession, and continues to affect Americans at all education levels.

Rachel Pincus, 22, graduated from Wesleyan University last May with a degree in English but has only found unpaid internships in media, her intended career path. About half of her fellow graduates across majors were either underemployed or working unpaid internships, she said.

“It’s disturbing how normalized it is to be doing unpaid work after graduation,” said Pincus, who completed four unpaid internships during college.

Pincus has been living with her parents in Manhattan and applying to paid jobs across the country, with no luck.

“I want to get a job so I can start my life, so I can get out of my parents’ house,” she said. “But I can’t.”

Labor force participation, on the wane since the early 2000s, has been dropping at a precipitous clip since the recession as discouraged workers quit looking for jobs, Baby Boomers retire and young people pursue more education.

For April, not enough discouraged workers and new entrants, such as young people, joined the labor market, the Labor Department said.

“We’re not seeing Americans looking at the economy and saying things are looking better,” said Lindsey Piegza, chief economist at Sterne Agee. “Clearly the underlying assessment for the average person is still very grim.”

Nearly five years after the end of the Great Recession, the total number of private sector jobs finally returned in March to the same level before the downturn began in early 2008. But private jobs are still far below where they would be if the labor market’s trajectory hadn’t been interrupted. Government jobs remain well short of their high point.

Even with the latest uptick, only about 200,000 jobs have been added per month since 2010. The latest increase, 70,000 higher than Bloomberg economists predicted, could be a rebound from recent months of lousy weather — when employers may have hesitated to hire — rather than healthy structural growth.

Meantime, the current rate of job creation remains lackluster. At the current pace, it would take until the end of the decade to return to the level of robustness of the mid-2000s and 1990s.

“There really has been zero recovery in jobs and the broader economy,” said Lee Ohanian, an economics professor at UCLA. “It’s simply not enough to restore the jobs that were lost in 2008 and 2009.”

“There is a long-term picture that is not a pretty one,” Ohanian added. “We have been losing jobs (as a ratio of the adult population) for more than 15 years. We now have an employment/population ratio that is the lowest since the 1970s.”

Meantime, inflation-adjusted wages have stayed flat since at least 2006. Wages in April stayed the same as in March, signaling a weak labor market.

“Employers are still looking for very flexible, low-cost labor,” Piegza said. “Temporary and low cost are becoming long-term trends.”

High unemployment is also contributing to weak wage and inflation growth. Employers, who have a wide swath of applicants, do not need to hike wages to attract good employees. And as wages stagnate, retailers cannot increase prices because consumers won’t be able to afford the products.

Unemployment in April clocked in at 6.3 percent, and about 35 percent of those people were long-term unemployed, or looking for jobs for more than 27 weeks. Long-term unemployment remains more than twice as high as it was in 2008, stifling domestic growth.

With an overabundant supply of workers, employers have little incentive to increase wages.

Rafaela Rivera, 35, of the Bronx lost her job as a home health care aide last fall and is considered one of the long-term unemployed. She has been supporting her two children and husband, who is disabled, using food stamps and unemployment benefits, which end in June, she said.

Rivera has received some job offers in Queens, a two-hour trip from her apartment in the north Bronx. But the low wages wouldn’t be worth the trek, she said.

“I don’t have the funds for the metro card,” she said.

Democrats have been pushing measures like an increase to the minimum wage and extended unemployment benefits to boost the economy.

“We still have way too many people who are suffering,” Labor Secretary Ted Perez said Friday.

But those measures do not appear likely to pass anytime soon. Senate Republicans blocked on Wednesday a Democratic proposal to raise the federal minimum wage to $10.10 an hour from $7.25.

Inflation Remains Low as U.S. Economy Struggles to Recover

February 21, 2014

By Rachael Levy

The cost of living in the U.S. rose slightly in January, reaffirming the economy’s sluggish recovery.

The 0.1 percent increase in the consumer price index, reported Thursday by the Labor Department, was in line with economists’ predictions and continued a trend of weak gains.

Apparel prices and new vehicles both decreased by 0.3 percent in January while food prices increased by 0.1 percent. The slight increase in inflation was driven by unusually harsh winter weather as demand increased for natural gas and propane.

Inflation rose 1.5 percent in 2013, the smallest calendar year gain in three years, after a 1.7 percent year-over-year advance in 2012. The December inflation report marked the first time prices had gone up by less than two percent for two consecutive years since 1998.

“In a sense, the big story is that there is no story with inflation these days,” said Bill Cheney, an economist at John Hancock Financial Services. “The overall mediocre state of the economy is the reason we have minimal inflation.”

(Data: Bureau of Labor Statistics. Chart by Rachael Levy.)
(Data: Bureau of Labor Statistics. Chart by Rachael Levy.)

The core index minus food and energy — so-called volatile costs — rose 1.6 percent over the last 12 months, the smallest 12-month change since June. That figure rests below the Federal Reserve’s target rate of two percent.

The Federal Reserve has been injecting money into the economy since 2008 through its quantitative easing program, aiming to spur lending and economic growth. That should lead to hiring and in turn, higher demand for goods and increased prices.

But the money influx has had little impact on the economy, according to Lee Ohanian, an economics professor at UCLA.

“The employment rate — the fraction of the population working — is lower now than during the financial crisis,” Ohanian said in an email. “There is little evidence that these policies have stimulated economic activity.”

Economists do not expect real wage growth in the near future because unemployment is too high, said Christopher Phelan, an economics professor at the University of Minnesota.

“There’s still 6.5 unemployment. There’s not enough,” Phelan said. “Wages get driven up when firms have to raise the stakes to get somebody.”

But low inflation could be helpful for workers.

“The fact that there is minimal inflation means there is not a lot of pressure coming from higher cost of living for people stuck with stagnant wages,” Cheney, the economist at John Hancock Financial Services, said.

The January inflation report was driven by natural gas prices, which advanced 3.6 percent and were driven by unusually harsh weather. These increases, fueled by propane shortages in the Midwest, more than offset a decline in the gasoline index, resulting in a 0.6 overall percent increase in the energy index since December.

“With energy commodities in the winter, you’re liable to see price movements and we’ve certainly seen it in natural gas and propane prices,” Cheney said.

Propane prices averaged $3.17 per gallon in January, the highest since October when records were first collected for this winter, according to the Energy Information Administration.