Summary: The news media focuses on the month-to-month changes in the jobs report, which consist mostly of noise. Strong months confirm the optimists; weak months confirm the pessimists. In fact the trend of growth remains the real story, with the US economy near stall speed — supported only (like the other developed nations) by massive multi-year fiscal and monetary stimulus. Slow growth from programs we cannot long continue. Worst we have squandered much of the money borrowed, which could be rebuilding America. Just as Japan has done since 1989.
- The big picture
- About the recovery
- Household survey
- Establishment survey
- Other important metrics
- Other posts in this series
- For more information about US economy
(1) The big picture
Here we examine the June employment report from the Bureau of Labor Statistics. They conduct two surveys: one of households, one of businesses. They are not directly comparable, each giving different perspectives on the US economy. This report paints a picture consistent with the many other streams of information about the economy: slow growth, slightly above the average of the past 12 months.
How well has the recovery run? There is no “best” metric. The most commonly used by economists is the ratio of civilian employment to the population. It paints a grim picture. The red line shows the trend from the pre-crash high, adjusted for demographics (boomers retiring).
(2) About the recovery
To understand the jobs report one must first put it in a larger context: during this period the government’s public debt increased $901 billion — 5.7% of GDP (see debt here and GDP here), one of the higher fiscal deficits in the world. Our shiny recovery results from massive borrowing and spending — plus large and unconventional monetary policy. Organic growth has not yet resumed.
The US economy slowly improves only due to the massive “drugs” of monetary and fiscal stimulus (the former boosted with QE3 as the latter winds down). Drugs administered by experts are good; the US slow growth is better than Europe’s suffering under austerity. But fiscal and monetary policy, like powerful drugs, have severe side-effects which at some unknown point in the future will become problematic or even untenable. And the withdrawal has begun: the sequester, still taking effect, and the future “tapiring” of Fed stimulus.
The worst side effects were unexpected:
- Years of deficit spending left little improvement in our infrastructure. Like Japan, we spent trillions with little to show for it.
- Years of extreme monetary stimulus have distorted the economy, in ways perhaps difficult to unwind.
- The stimulus eliminated pressure for reform. We have had the New Deal stimulus without the New Deal reforms (some of which failed, but the others laid the foundation for the great post-war boom).
(3) The Household survey