Economics chair: Job recovery due to ‘virtuous circle’
Friday, Aug. 1, 2014
The July jobs report released by the Bureau of Labor Statistics shows continued growth for the sixth consecutive month. While the unemployment rate actually rose a notch, analysts are warily optimistic that the trend will continue.
Carol Scotese, Ph.D., associate professor and chair of the Department of Economics, discussed what this latest report means.
What are some of the causes of this recovery? Do you think it will continue? What is needed for it to do so?
The economy has actually been in recovery for the last four years. However, the pace of the recovery, particularly in the early phase, was agonizingly weak. The decline in household wealth — housing prices and equity values — and the depressed availability of credit were two major factors preventing an initial quick recovery. Then we entered a sort of "vicious cycle" where the high job losses themselves feed back to keep spending and hiring depressed. The recovery was further impeded by large cuts in government spending, particularly at the state and local levels. The pace of growth and job recovery has quickened in the last year or so, corresponding with a recovery in the housing market and improved balance sheets in the financial and public sectors. Recoveries tend to build on themselves: more job growth creates more spending, followed by more job growth, creating a "virtuous circle."
CNN reported that July's gain marks the sixth month that more than 200,000 jobs have been added. What makes that an important marker?
While there is no particular "magic" in the six-month marker, the continued pace of healthy job creation is a positive signal that the recovery could be building on itself: more jobs, creating more spending — the "virtuous circle." In fact, 2014 is on track to be the strongest year for job growth since 1999.
If we’re adding new jobs, how is it that the unemployment rate has risen, albeit minimally?
There are always new entrants into the workforce, both from young people who haven't been in the workforce before and from the pool of people who intermittently look for work. The people who intermittently look for work are particularly sensitive to business conditions; they look for jobs more often when the chances of finding a job are better. So, there were enough jobs created to absorb all of the new entrants into the workforce. This is a good thing.
What sectors are seeing the most growth? What sectors are still suffering?
Job growth has been fairly broad-based; even construction has shown healthy job gains.
What would you like to add?
As I mentioned, the pace of hiring has been quite good this year. There is still significant improvement to be made in reducing the number of long-term unemployed and in those working part-time who would prefer to be working full time. The growth in wages is just keeping pace with inflation and this is indicative of an unemployment rate that can go lower still.
Today's jobs report is consistent with the slow but steady improvement in the labor market over the last two years. Employers are hiring just enough to make slow progress in absorbing both new entrants and some of the existing unemployed. The number of discouraged workers — a term used to describe those who want work but have given up looking — has declined by nearly one-quarter million over the last year and the number of long-term unemployed — those without work for at least 27 weeks — has declined by over 1 million. Unfortunately, there still remain 3.2 million long-term unemployed people — nearly one-third of all unemployed workers — and 7.5 million part-time workers who would prefer to be working full time. The average hourly wage has just kept pace with inflation over this past year and, according to its most recent policy statement, Janet Yellen and the Federal Reserve believe that the there is still room for improvements in the unemployment rate, which ticked up a bit to 6.2 percent according to today's numbers.
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