The American economy began the long trudge back to full employment in February of 2010, when the total number of people working in the economy finally hit bottom. Since that time private employers have added about 6.9m jobs. That works out to a rise of 178,000 new jobs each month over that span. Interestingly, 178,000 is the number of jobs the private sector added in May, according to figures released this morning by the Bureau of Labour Statistics. That, in turn, is just a shade off of the average for all of the past 12 months (181,000). Despite all the fretting over the slow pace of job creation in the recovery, and despite major shifts in the stance of economic policy, employment has risen at an extraordinarily stable pace.
That stability is a bit illusory. There are wiggles. In February private employers added 319,000 jobs, one of the best performances of the recovery. Last June the gain was only 78,000—the worst since payrolls began growing again. The composition of the employment recovery has also changed. Early on manufacturing helped lead the way forward. Now construction is pulling more weight (though less than many had hoped, and less than professional services and retail). At the first, federal government jobs were flat while state and local government employment tumbled. Now the latter is recovering while federal payrolls are shrinking rapidly. Over the whole of the employment recovery, of course, governments have been a major drag, slimming down by 622,000 workers since February of 2010. Strikingly, work in health care—long the stable core at the heart of the employment recovery—slowed noticeably in May.
Interesting trends have developed elsewhere, as well. In the household portion of the employment survey employment growth has lately looked stronger. There employment has averaged over 300,000 in the last two months. Labour force growth has been even faster, so much so that the unemployment rate actually inched up in May, to 7.6%, despite the strong employment performance.
Yet the overall habit of the labour market is strong mean reversion. When hiring starts looking a little weak there's a good chance it will soon accelerate. And when it looks more robust, odds are high that it will soon slow down. To around 178,000 jobs a month.
That looks like the influence of the Federal Reserve. Fiscal policy has swing about wildly over the course of the recovery, shifting from generally supportive to strongly contractionary. The federal deficit is on pace to shrink by 5-6 percentage points of GDP from 2011 to this year, a contraction many would have thought would generate a recession. And yet mean reversion continues, seemingly because of the Fed's dampening action. Ahead of an acceleration in fiscal tightening early this year, the Fed adopted a series of new expansionary policies, including a scaled-up, open-ended asset-purchase programme and a thresholds-based communication strategy designed to convince markets that interest rates will remain low for some time to come. That seemed to work nicely; hiring quickened from the fall of 2012 into early 2013.
That improvement generated a quick mood shift at the Federal Reserve, however, where officials began publicly discussing plans to scale back purchases. Markets now anticipate some tapering of the purchase plan this year and expect interest rate increases sooner than they had when the year began.
The shift in attitude is understandable. Fed officials are nervous about financial risks associated with asset purchases and a prolonged period of low rates. But it is nonetheless unfortunate. Inflation is entirely subdued; price increases are running below 2% and have been slowing further in recent months. Meanwhile, unemployment is well above the level the Fed associates with full employment, and the number of Americans working is still over 2m jobs shy of the pre-crisis level. Strong gains in labour-force participation in recent months suggest that it may take a faster pace of job creation to sustain the downward trend in the unemployment rate, and even that trend puts off a return to sub-6% unemployment into 2015. America is desperately in need of an acceleration in hiring.
But 178,000 jobs per month seems to be the Fed's good-enough-rate, at which the risks from unconventional policy, real or imagined, justify a less aggressive stance. It is hard to see the logic in that; there are few things more damaging to an economy than a prolonged period of high unemployment. But there is no sign that policymakers are interested in any other path.
Read More: http://www.economist.com/blogs/freeexchange/2013/06/americas-economy-0?fsrc=rss
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