Cause for U.S. Recovery Lacking Effect
Here’s an economic kick in the pants for you: Mainstream economists say that the nation is finally on the road to recovery. And not just any recovery, but a splendid one fueled by technology-driven productivity gains.
But the revival has yet to produce any of what matters most to people -- namely, jobs. The chief reason there has been no pickup in employment: the very productivity gains that are supposed to ensure a grand comeback.
High productivity means that companies “can meet the current level of demand without going to the trouble of hiring new people,” said Princeton economist and former Federal Reserve Vice Chairman Alan Blinder. “It makes the task of providing enough demand to soak up all that productive capacity a much harder one.”
The lack of new jobs is just one instance of what could prove to be a new phenomenon: the evidence-free recovery.
Economic turning points usually produce a welter of conflicting signals, some suggesting full revival and others further trouble. But thus far, this one has been remarkably free of the former.
Although forecasters busily explain why the economy should come roaring back -- near-record low interest rates, still more tax cuts and a sliding dollar to help exports -- they have yet to be able to cite a solid piece of evidence that it actually is on the way back.
“There’s not much out there to convince you we’re headed into a period of strong growth,” said Gregory D. Hess, a former Fed staffer who is an economist at Claremont McKenna College.
What’s happening to jobs and wages offers a vivid example of what’s half-empty about the economy and what could put a cork in a full-fledged recovery.
American employers have created no new jobs on a net basis since the presumed end of the recent recession in January 2002. Worse yet, according to Labor Department statistics, they actually have been cutting jobs, especially over the last five months, when payrolls fell by nearly half a million.
The latest result came Thursday, when the department announced that the number of people collecting unemployment benefits hit a 20-year high of 3.82 million in June.
Some economists maintain that recent job trends pose no threat to the recovery. They say employment and unemployment are “lagging indicators” that improve only after a turnaround is well underway.
But at 18 months and counting, the lag is getting mighty long.
Other analysts comfort themselves with the thought that the tens of millions of Americans who are still employed have continued to borrow and buy at a remarkable pace, keeping the economy afloat and primed for recovery.
Even so, however, the trends are not altogether happy.
Wages, which play a big role in what most of us decide we can and cannot afford, and which moved in lock step with rising productivity during the late 1990s, have broken loose in the last couple of years. Although they still are rising, they are doing so at a slower -- and slowing -- pace.
The nation’s nonfinancial corporations boosted their labor productivity -- the amount of goods and services they can produce per hour of labor -- by a record 5.5% last year, according to government statistics. But the working Americans who provided that labor saw their wages rise by less than one-third of that amount, and at less than half the pace of the hottest moments of the late ‘90s.
Analysts say that, although painful for workers, the divergence of productivity and wages could turn out to be a good thing for the economy as a whole. That’s because if people aren’t reaping the benefits, then companies must be seeing them in the form of bigger profits. And bigger profits might motivate firms to begin investing, expanding and hiring again, setting off an upward spiral of growth.
The problem is that corporate America has shown almost no interest in doing any of these things, all of which leave the economy in a nasty bind.
“It’s unlikely that consumers will be able to continue to shrug off mounting job losses, rising unemployment and diminishing wage increases for much longer,” said Mark Zandi, chief economist of West Chester, Pa.-based Economy.com.
In fact, other than home buying, he said, consumers appear to be growing increasingly cautious. Car sales, for example, have slipped from their 16.7-million-vehicle pace of last year to about 16 million. Core retail sales have been rising at their slowest rate since the recession of the early 1990s.
A consumer retreat would hardly help businesses over their qualms about investing and expanding, Zandi said.
To be sure, the nation has slipped tighter economic nooses before. But the economist’s notion that we’re headed straight for a productivity-driven boom seems wide of the mark.
Just ask American workers.
