Now that we have a working government, we also have a September jobs report. But I almost wish we didn’t. While everyone was expecting October’s report, which will reflect the government shutdown and debt-ceiling wrangling, to be bad, the September numbers show that even before the Tea Party decided to scupper what recovery there was, job growth was actually slowing. In the three months leading up to and including September, the U.S. economy was creating about 140,000 jobs a month. Six months ago, that number was 200,000, which is really the minimum we need in order to have a more robust recovery. Sure, unemployment ticked down a notch, to 7.2%. But that’s in part because the workforce-participation rate, which is a crucial element of economic growth, is so sluggish. In fact, at the current 63.2%, it’s the highest it’s been since women entered the labor force en masse in the 1980s.
If you don’t get more people working, you don’t have the sort of wage competition that encourages firms to raise workers’ pay. And if you don’t have higher wages, you won’t have more robust consumption spending (which encourages firms to hire; it’s a snowballing cycle). As I have written many times, the single most worrisome thing in the economy right now is that wages are flat and have been for five years now. You don’t have to be an economist to see that you can’t have a robust recovery in an economy that is 70% consumer spending when most people haven’t gotten a raise since the financial crisis began.
The Fed is doing everything it can to help and continues to throw $85 billion a month into the market in the form of asset purchases of bonds and mortgage-backed securities. Indeed, it may well be doing it for longer now. The Fed’s idea was to keep spending until unemployment goes below 6.5%. But many economists now believe that because the falling unemployment rate may not actually reflect the underlying strength of the economy, the Fed will keep the money spigots on longer, until unemployment is closer to 6%. Assuming Janet Yellen is confirmed as the new Fed head, that will almost certainly be the case — she firmly believes that monetary policy can help stimulate job growth.
But I’m not so sure, at least not at this point. There is powerful evidence to show that the Fed’s program of quantitative easing (QE) was extremely effective at the beginning. It certainly boosted markets, but also helped to keep the money flow to the real economy from drying up completely in the wake of the crisis. But there’s also a lot of reason to think it’s just not working that well anymore. Stocks are up, but if you look at measures of money growth in the real economy, they are pretty much flat. The pro-QE argument would be that without the money dump, we’d be in far worse shape. It’s impossible to know. But there is research to show that QE exacerbates wealth inequality, since the rich benefit disproportionately from it. As a recent JPMorgan research report noted, households in the bottom 25% of the wealth-distribution curve hold an average of $90 worth of stock. The top 10% holds $290,000.
Ultimately, you need wages, not just stock prices, to go up if you want a real recovery. And in order to do that, you need businesses to feel that demand is rising so they’ll start spending. That’s why the latest debt deal was so destructive. The wrangling had already tanked CEO confidence months before the shutdown in October. Now the fact that the can has been kicked into early next year will ensure another quarter or two of companies sitting on their cash hordes, waiting to see which way the political winds will blow. One recent study by Macroeconomic Advisers found that partisan politics have cost us 2 million jobs over the past three years. If we had them back, maybe we’d all be getting a raise — and enjoying a real recovery — by now.