Full credit to Stephen Roach of Morgan Stanley for the phrase
"jobless, wageless recovery." For those of you unfamiliar with his work, Roach is a top-notch economist who has been concerned with this expansion's quality for several years. While many on the right may disagree with his conclusions, I have yet to see anyone on the right take apart the depth of his analysis or reasoning. I agree completely with Roach's reasons for bearishness: low job growth leads to weak wages growth.
The US economy has just completed the 49th month of an expansion that began in November 2001. At this juncture in the four long cycles of the past -- the ones that began in 1961, 1976, 1982, and 1991 -- job growth was cruising ahead by about 210,000 per month. Moreover, in those earlier cycles both the economy and labor market were considerably smaller than is the case today. Adjusting for the scale effect, the 210,000 cyclical norm from earlier cycles would translate into about 325,000 per month in today's economy. On that basis, the latest four-month average of 114,000 on the hiring front looks all the more pathetic -- literally 35% of the pace that would be expected at this phase in a normal business cycle expansion.
Here Roach makes very prescient point. The rate of job creation is far below that of previous expansions. The current rate of job creation is 35% that or previous expansions. The current expansion's pace of job growth comes up far short when compared to the previous 4 expansions:
The expansion of 2/61 - 12/69 created 17,684 total jobs and 6,244 at 49 months.
The expansion of 3/75 - 7/80 created 13,183 total jobs and 12,831 at 49 months.
The expansion of 11/82 - 7/90 created 21,003 total jobs and 11,510 at 49 months.
The expansion of 3/91 - 3/01 created 23,969 total jobs and 8,266 at 49 months.
The current expansion which started in November 2001 has created a total of 3,410 jobs.
No matter how you look at Bush's job creation record compared to other expansions, Bush's comes up far short.
Because job growth is weak, employers have felt little pressure to meaningfully increase non-supervisory wages - which represent about 80% of the US workforce. As Roach points out, "private sector compensation accounted for fully 65% of total disposable personal income in the US -- by far, the major driver of the internal income-generating capacity of the US economy." In other words, wages are the primary way consumers get spending money. Since January 2001, inflation adjusted wages have increased 1.66%. This figure does not include benefits such as medical insurance etc.... However, Roach points out:
Over the first 48 months of the current economic expansion, private sector labor compensation [which includes benefits] has risen only 11% in real terms -- far short of the 19% gain at a comparable phase of the past five expansions. Had this gauge of labor income followed the trajectory of earlier cycles, our estimates suggest that real compensation would have been some $335 billion higher than is the case today. In short, a jobless and wageless labor market has left income-short American workers strapped as never before.
Several comments to previous essays have made a very prescient point: if the economy is so good, the administration and the RWNM wouldn't have to sell it. Most polls indicate people in general are bearish on the economy. According to the RWNM, this is the result of the liberal press' hatred of Bush. However, there is a far more important fundamental reason for this pessimism. Consumers have seen weak job growth followed by lower wage growth. At an intuitive level, they realize job growth is lagging and they see firsthand their weak wages growth that is not commensurate with the strong macro-economic numbers. While they are enjoying some of the benefits of this expansion, they are understandably concerned.
