June was nothing to write home about, as far as the performance of the US economy was concerned, according to Federal Reserve Chairman Ben Bernanke. Speaking at the International Monetary Conference in Atlanta, Georgia, the bearded academic saw some chance for growth picking slightly in the second half of the year if the price of oil drops back a bit. But so far the best speed the US economy has been able to manage, despite oodles of stimulus, is 1.8% year on year growth.
The general consensus is that it needs a growth rate of 3% for the US jobs market to start to spawn anything like the 9 million jobs that the economy has shed since the start of the crash in 2008. It is dubious whether the rate being achieved right now is even sufficient to generate enough jobs to absorb new entrants to the jobs market – the minimum condition required to stop the jobless total from growing ever larger.
In fact, within a month of Bernanke giving his speech, by July 8, the US Labour Department reported deeply depressing figures for June, with only 18,000 nonfarm payroll jobs being created, as opposed to the 125,000 that economists had been anticipating. Also, the unemployment rate climbed to 9.2% from 9.1% in May according to Dow Jones. This was substantially fewer new jobs added to the economy than had been added in April and May, when the additional jobs totals were 217,000 and 25,000 respectively. Taken together the May and June figures represent a downward slide that has to be cause for concern.
Bernanke could, of course, blame supply chain disruptions caused by the Japanese earthquake and tsunami for the weak second quarter growth, since that undoubtedly impacted US auto manufacturing and also had a ripple effect against other sectors with some reliance on Japanese companies for components. But he had no real explanation for the continuing lameness of the recovery, which, he admitted, was proceeding at a pace that is “frustratingly slow from the perspective of millions of unemployed and under-employed workers”.
The positives and negatives affecting consumer spending are now so finely balanced that it is next to impossible to make clear predictions about how that spending is likely to pan out over the next six months. All Bernanke and others can do is hope for more consumer spending and brace themselves for less. Some gains in house prices and a modest recovery in the markets, which at the end of June finally reversed the downward march they had begun in mid-May (and which saw them give up almost all the gains made through 2011) created a bit more of a wealth effect, which could see some increased spend. But, on the other hand, the rise and rise of food and other commodity prices constitutes a “significant headwind” (i.e. don’t hold your breath waiting for household spending to increase). Other commentators continue to flag up the dangers inherent in the US real estate market, which has a massive overhang of vacant and repossessed homes and a frighteningly large number of households that are three months or more in arrears with their mortgage payments.
Bernanke pointed out that household spending is hardly being helped by the fact that the aggregate hours of production workers, which he calls “a comprehensive measure of labour input that reflects the extend of part-time employment and opportunities for overtime as well as the actual numbers employed", is still 6.5% below pre-recession levels. This compares to the maximum decline in aggregate hours worked in the recession of 1981-82, of less than 6%. So two years into the recovery the US economy is still in a worse shape than it was at the end of the 81-82 recession. A similar picture is painted by the ratio of the total numbers employed to the population as a whole and, worryingly, the number of long term unemployed (those unemployed for six months or more) continues to climb.
This gloomy picture becomes significantly darker when viewed against the backdrop of the boom in commodity prices, which is doing wonders for the economies of commodity-exporting countries, but doing nothing at all for advanced economies. For Bernanke on commodity prices, see Part Two on Wednesday July 20.
Further reading on employment, developed economies and the global recession:
- What Krugman Is Saying Is Simply Untrue by Allan Meltzer
- Steering Between Deflation and Inflation — A Troubled Road for Developed Economies by Neil Williams
- The Credit Crunch Was Like an Atomic Bomb; It Will Profoundly Change How We Think and Behave by William Hopper
Tags: advanced economies , Ben Bernanke , Bernanke , commodity prices , consumer spending , Dow Jones , Federal Reserve , global recession , house prices , housing market , International Monetary Conference , recession , unemployment , US , US economy , US Labour Department