Every day brings surprise and unpredictability. Just when we thought the economy was on the verge of a significant downturn, something quite extraordinary occurred…
On Friday, the U.S. Bureau of Labor Statistics announced, “Total nonfarm payroll employment rose by 288,000, and the unemployment rate fell by 0.4 percentage points to 6.3 percent in April.” The employment surge was broad-based, notably driven by gains in professional and business services, retail trade, food services, and construction.
The unemployment rate is at its lowest in over five years, and the creation of new jobs in April marks the largest monthly increase since February 2012. Should we be ready to celebrate this revitalization of the economy?
According to Bloomberg, however, “The report was not without pockets of weakness; wages remained stagnant and workforce participation matched a 36-year low.” That said, job growth was widespread, with an accelerated hiring pace in factories, construction, and service sectors as households began to spend more towards the end of the first quarter, indicating a potential economic rebound.
At Economic Prism, we acknowledge the creation of 288,000 jobs is significant. Nonetheless, the decline in labor participation raises questions about the authenticity of the unemployment rate. As is often the case in business and life, we will take what we can get and strive to make the most of the situation.
Hidden Issues
It’s crucial to remember that not everything is as it seems. Sometimes, a closer look reveals a different story. Take President Obama for instance.
At first glance, he appears to be a decent individual, perhaps well-suited for managing a community initiative or library. However, under the weight of the presidency, he has sometimes made questionable decisions, affecting everything from healthcare to school lunches. These flaws might have gone unnoticed without the glare of public scrutiny.
Similarly, the jobs figures contain elements that merit further examination, particularly regarding the quality of the new positions created and the broader implications of “treadmill economics.” If employment rises but the quality of jobs declines, individuals may find themselves merely keeping pace without making any real progress. The economy may then seem to be stagnating, with some evidence suggesting that many are actually falling behind.
Treadmill Economics
For example, American incomes have seen a decline rather than growth. A Sentier Research study revealed that Americans today are in a worse financial position than they were four years ago, during the depths of the recession. In fact, it indicates a 4.4 percent decrease in household income.
“New estimates from the monthly Current Population Survey (CPS) show that real median annual household income, while slightly recovering from the low point in August 2011, has still dropped by 4.4 percent since the “economic recovery” began in June 2009. Adding this post-recession decline to the 1.8-percent drop during the recession results in median annual household income being 6.1 percent lower than the December 2007 level.”
While the Sentier Research study was released last August, we sought evidence of any recent improvement in household income. Although some progress was noted, the latest data still indicated a decline.
In March 2014, the median annual household income stood at $53,043, approximately 0.7 percent lower in real terms than the previous month. This means that median household incomes remain down 4.4 percent from December 2007 levels.
Unfortunately, American households have been running on this metaphorical treadmill for five years, with little progress to show for their efforts—save for perhaps increased stress and a precarious financial situation. This occurs despite the most extensive monetary and fiscal intervention in the economy that the nation has ever experienced. Such is the reality of the new economy: work more, earn less, and face an uncertain future without the promise of retirement.
Best regards,
MN Gordon
for Economic Prism
