The numbers don’t reflect the reality and give no cause for crowing over the Eurozone
It is mid-term season in America: time for the Administration to talk up the strengths of the economy. The President did so a week ago, wanting ‘people to know that there are some really good things happening in America’. And, since in economic terms it is still bleak mid-winter in the Eurozone, it is additionally time for a modest degree of American triumphalism. The Wall Street Journal reported the IMF forecast that way on October 7th: a one-in-three chance of a return to recession in the Eurozone, only a one-in-seven chance in the United States. The Europeans are doing badly. The Americans are doing better.
Really? Oh that it was that simple: but it’s not. There is a dark underside to the contemporary condition of the US economy that the conventional measures of economic performance simply fail to tap. In consequence, the view from the top of the American economy and the view from the bottom are still miles apart. From the top, looking at the economy using the standard indicators coming out of Washington, the signs are all positive. The rate of economic growth is up (4.2 per cent in the second quarter) and the rate of unemployment is down, now officially under 6 per cent for the first time since the financial crisis of 2008. The number of job openings across the US reached a thirteen-year high in August. The overall trend of job creation is the highest since April 2006; and US median income is rising again (up 3.8 per cent to US$53,891 in June), underpinning a modest surge in consumer spending and borrowing.
But, seen from below, the state of the economy is significantly less buoyant than the data released regularly in Washington might lead one to suppose. It is true that the rate of economic growth has quickened, but that rate is still low by pre-recession standards. In July the IMF actually cut the US growth forecast for 2014 to just 1.7 per cent. The Congressional Budget Office’s forecast in August was just 1.5 per cent. These are not stellar growth numbers. The official rate of unemployment is falling, and jobs are coming back: but the numbers flatter to deceive. Too great a part of their improvement reflects a shrinkage in the numbers seeking employment – leaving the overall US labour market participation rate at less than 63 per cent, its lowest since 1978. In December 2007, the participation rate was 66 per cent. Since then, 8 million Americans have simply dropped out of the labour force. Had they stayed, the unofficial unemployment rate would be nearly double its current level. The number of long-term unemployed remains high (at 3 million) and so too does the number of those only able to find part-time employment (7.1 million). And the rate of job growth still falls short of the numbers required to match labour force growth, one reason why the Hamilton Project estimates that the US will not reach its 2007 level of employment, when factoring in new labour-force entrants, until mid-2019. Even more appallingly, with unemployment still so entrenched that there are 2.1 job seekers for every available job opening, less than 30 per cent of the long-term US unemployed currently have access to long-term unemployment insurance.
Then there is the issue of the quality of the jobs being created: the bulk are in low-paying sectors, not in manufacturing. This helps explain that most intriguing of trend-lines in the current US economy: job creation rising, but wages – for the vast majority of Americans – remaining stuck: or, where they are rising, they are still on catch-up from their levels in 2007. The median income may now be going up, but it is still short of its 2007 peak (of US$55,589) by 3.1 per cent. How could it be otherwise when half of all the jobs lost during the post-2008 recession were in high-paying manufacturing and construction, while since 2010 the fastest growing employment sectors have been low-paying accommodation and food sectors? The result: the annual wage in sectors where jobs were lost during the downturn was US$61,637, but new jobs gained through the second quarter of 2014 showed average wages of only US$47,171. This enormous wage gap represents US$93 billion in lost wages. The median income might be rising, but so too (and faster) are the costs of living (not least utilities, health care, child care and higher education); and the poverty rate remains, of course, virtually unaltered.
Several things seem to follow. One is that the recovery of the US economy from the recession is at best patchy, and that its benefits are still very unevenly distributed. A second is that we will never fully recognise the depth of the economic and social failures going on around us if we continue to measure something we call economic success by simple market-based numbers alone. A third is that this is no time to crow about US superiority relative to the Eurozone. Times are bad, for far too many people on both sides of the Atlantic, for any crowing about anything.
A longer version – with full citations – is at www.davidcoates.net