By every key measure except one, the U.S. economy has surged forward in the past two months. Factory orders, consumer spending, business sentiment, personal income, and net exports are all climbing. Stocks have reached two-year highs, core inflation remains low, and the political unrest in the Middle East hasn’t shaken markets like Greek debt did last spring.
The missing ingredient happens to be the most important one to working Americans and the politicians who serve them. It’s the job market - the indicator that stubbornly refuses to validate every other sign that America is finally shaking off the Great Recession, 18 months after it officially ended. Until the nation starts adding a couple hundred thousand net jobs a month, for several months in a row, the recovery will continue to feel intangible and more fragile than perhaps it really is.
That’s the economic backdrop for President Obama as he crosses Lafayette Park today and talks job creation in a speech to his longtime nemeses, and now potential allies on several economic initiatives, at the U.S. Chamber of Commerce.
The chamber speech is the K Street – actually, H Street, but who’s counting? – culmination of the president’s bundle of olive branches to a business community that has complained, for the better part of two years, that his policies stifled growth and restrained job creation. Obama is expected to implore businesses to hire more; the chamber, while partnering with the president on issues such as promoting infrastructure spending and free trade agreements, doesn’t figure to stop criticizing Obama’s “job-destroying” regulatory initiatives any time soon.
So what’s the actual state of the U.S. economy at the start of Obama’s third year? Improving.
A run of cheery economic news has muted the growth critique. The Commerce Department reports gross domestic product grew 3.2 percent in the fourth quarter of last year, fueled by heavy net export growth. That’s the best growth rate since the short-lived surge of last spring, and some forecasters are predicting that growth this quarter will hit a 4 percent rate.
As the popular economics blog Calculated Risk noted on Sunday, inflation-adjusted GDP has finally topped pre-recession levels. Personal income and industrial production are growing, too, but still have a ways to go to climb out of their recessionary holes.
Manufacturing activity, as tracked by the Institute for Supply Management, reached its highest point last month since 2004. Auto sales are running ahead of any time in the last two years when the government wasn’t offering “Cash for Clunkers.” Economy-wide productivity continues to beat expectations, rising from the third to fourth quarters of 2010. Several measures of consumer confidence are rising, bank lending is thawing, and the National Association for Business Economics recently reported a 12-year record for hiring expectations among economists at domestic firms.
Payrolls have so far refused to follow the trend, recording only modest growth over the past several months, even though the unemployment rate tumbled by nearly a point to 9.0 percent. That has stoked fears that U.S. workers are once again missing out on many of the economic gains that have flowed to corporate America in the rebound from recession.
“Jobless recoveries’’ followed both of the last recessions, though businesses eventually started hiring in both cases and the unemployment rate did come down. But this downturn was so deep, and the job losses so heavy, that a full recovery is – at best – still years away.
But the sheer weight of other optimistic indicators – including the falling number of new unemployment claims – along with a widespread belief that massive snowstorms have distorted the Labor Department’s jobs reports, has many analysts cautiously predicting stronger job growth soon.
“The sizeable and unexpected drop in the unemployment rate was legitimate,” Deutsche Bank analysts wrote at the end of last week, “and strongly suggests the economy is operating at an above trend pace this quarter.”
That would be good news, if true, for job-seekers. But as Obama and the chamber come together today, it would behoove them to remember how far the labor market has to go.
Researchers at the Hamilton Project at the Brookings Institution calculate what they call the “job gap,” which is “the number of jobs the economy needs in order to return to return to pre-recession employment levels while absorbing the 125,000 people who enter the labor force each month.”
Last week, Hamilton estimated that if payrolls grow at about 208,000 jobs each month, or the rate of the best job-creation year in the 2000s, the researchers estimate the gap won’t close until July 2023. If they grow at the hottest pace of the 1990s – about 321,000 jobs monthly – the gap will close in May 2016.
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