JOBS DATA SHOW AMERICA STUCK IN LOW GEAR / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( VERY HIGHLY RECOMMENDED READING )

Jobs data show America stuck in low gear

By Mohamed El-Erian

Published: January 7 2011 14:57

The US economy created 103,000 non-farm jobs in December – respectable but below consensus expectations. The unemployment rate fell only to 9.4 per cent as 260,000 Americans exited the labour force. Most disturbingly, the number of “long-term” unemployed remains disturbingly high at 6.4 million. This is a relatively decent employment report. Yet it will also be deemed as somewhat disappointing, and rightly so.


There are good and valid reasons why analysts were looking for a stronger jobs growth. A string of favourable data releases preceded today’s numbers. Measures of business and consumer sentiment have improved. Growth in emerging economies remains strong. And, unlike Europe, America continues to run expansionary fiscal and monetary policies.


Today’s reports confirm that, unfortunately, post-crisis America is still stuck in low gear. Its ability to attain “escape velocity” is undermined by twin problems in the corporate sector—large companies are able but not willing to invest and hire aggressively, and small companies face difficulties getting bank credit and stabilising their business.

The hope was that a strong jobs report would signal that America was increasingly in the grip of a virtuous cycle: the return of animal spirits leads to hiring; jobs translating into incomes; companies gain more confidence to produce; and, with some investing and hiring, incomes get another boost.


Unfortunately, today’s unemployment number suggests that America’s labour market remains unusually sluggish, and that the economy faces structural headwinds that will take time to overcome, and that require policy adaptations.


Yes, things are improving but not at the pace that would have been expected based on historical trends. More worrisome, the improvements are not sufficient to restore the type of economic dynamism needed for America to avoid a structural unemployment problem that would stress America’s already stretched and inadequate social safety nets.

There is still need on the part of some households to deleverage, limiting the scope for a dramatic surge in spending. Housing remains under pressure and competitiveness is increasingly challenged by dynamic advances in other countries. Public finances that have worsened dramatically at both the federal and state level, undermining enthusiasm for greater fiscal activism.

America has to produce more jobs. This is central to overcoming the widespread damages from a global financial crisis that was fuelled by excessive indebtedness, foolish leverage and unrealistic credit entitlements. It is also critical for the overall health of the global economy. The longer it takes for the labour market to kick into high gear, the harder it will be for large economic gains to be sustained for several years.


The writer is chief executive of Pimco


Copyright The Financial Times Limited 2011.