APRIL 4, 2011.
Jobs and Wages
The recovery gains steam, but wages are stagnant.
The jobs recovery gained speed in March—not ramming speed, or cruising speed, but let's call it chugging along speed. We'll take it nonetheless as more welcome evidence that the economy has moved out of recovery mode and into second gear, even if workers still aren't seeing big increases in their paychecks.
The Labor Department reported 216,000 net new jobs for the month, including 230,000 in the private economy, which is the only source of real wealth creation. A half million Americans have moved into the job market since the start of the year, and the jobless rate ticked down again to 8.8%. Government employment fell by 14,000, which we view as a positive sign as states and cities repair their budgets after being propped up by the federal stimulus spending of 2009-2010.
Another good sign is that there were roughly 100,000 fewer discouraged workers in March, which means that more Americans see their neighbors finding work and are starting to look more energetically themselves. One sour note is that the percentage of Americans out of work for at least six months increased to 45.5% from 43.9%. The danger here is that the longer these 6.1 million people are out of work, the harder it can be to find it.
For all the recent progress, this jobs recovery remains one of the weakest on record. The economy is still seven million jobs shy of pre-recession employment, and the labor participation rate remains depressed at 64.2%, down from a peak in 2006 of 66.4%. The nearby chart compares the recovery rate in jobs after each of the last four recessions, and so far this one has been by far the weakest. It would have been stronger without the costs and other burdens that Congress and the Obama Administration piled on the last two years.
The other disappointment is that wages are flat, even as prices for food and energy are rising rapidly. The average wage of $22.87 didn't budge in March and was up only one penny in February. That in itself is not unusual in the early stages of recovery when there are lots of idle workers.
The problem is that consumer prices rose 0.4% in January, 0.5% in February, and March may see a big jump as well. In recent weeks, gasoline prices have risen by 33 cents to more than $4 a gallon in states like California. Wal-Mart, the biggest retailer in the nation, has announced that it will have to raise prices due to higher energy costs. And this week, in time for Easter, Hershey announced it is raising its wholesale candy prices by a whopping 9.7%. All of this is putting a squeeze on middle class paychecks and contributing to consumer unease and a rise in inflation expectations.
This is what happens in a recovery that has been fueled to a large degree by exceptionally easy monetary policy. The Federal Reserve has now kept interest rates at near-zero for some 28 months, accompanied by unprecedented asset purchases to keep bond rates low. This great reflation has helped lift the recovery but at the cost of higher prices that are now eating into American incomes. The Fed says food and energy prices don't matter because they aren't part of "core" inflation, but you can't put core prices on the dinner table.
If President Obama wants to know why Americans aren't giving him more credit for the incipient jobs recovery, this is a big reason. Stock market returns are up for those lucky enough to have financial assets, but the middle class still feels squeezed. Mr. Obama and Fed Chairman Ben Bernanke made a bet on inflation to revive the economy, and they and we had better hope it wasn't a Faustian bargain.
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