I think this difference in perspective shows how much more important the jobs market is to Americans than to economists and strategists. Americans cannot see past the lousy jobs market to the overall economy. It is the old story of parties on Wall Street and poverty on Main Street.
Remembering that consumer spending is two-thirds of GDP, the critically important consumer confidence is still rising more slowly than business confidence. It is dampened by the jobs market. As the late Lee Atwater said, “perception is reality” . . . sometimes.
The good news is that the latest monthly unemployment rate dropped to only 7%, but I suspect this rate will be adjusted upwards when the next jobs report is released January 10th. Still, job creation is expected to average about 200 thousand monthly in 2014, which is a long way from losing 600 thousand a month, as we were in early 2009. Economists have been arguing we need at least 250 thousand new jobs each month to accommodate normal growth in the labor force.
But, something else is happening in the labor force. Back in the dark ages of the year 2000, almost 65% of Americans between the ages of 16 and 65, who were not in school, were either working or looking for work. Rather dramatically during the Great Recession of 2008-9, that rate dropped to only 58% and has remained there since then. This is called the “labor force participation rate.” Republicans use that data to to argue that Americans have lost interest in working and that unemployment payments should not be extended. Democrats use that data to argue that baby-boomers are retiring faster than expected, even though many were retired involuntarily. They see a need to reinforce entitlement spending to protect these new retirees. Also, given the lack of jobs, many younger people have delayed entering the work force, most often pursuing higher education. Still, there is no definitive answer to why fewer people participate in the labor force.
If that labor force participation rate returned to normal as suddenly as it declined, the unemployment rate would increase significantly, which means our current level of unemployment is really much higher than 7%.
Maybe, Americans know something that economists and strategists don’t know?