“Our long national nightmare is over.”
When President Gerald Ford said it after pardoning Richard Nixon in 1974, the line became fodder for a generation of wiseguys. But with today’s jobs report, one really can say that our long national post-financial crisis nightmare is over.
A bold call? Not really. Unemployment of 7% is the lowest number since November 2008, weeks after Lehman Brothers blew up. The trend of adding (broadly) 200,000 jobs a month – this month’s figure was 203,000 – is now clearly established. With the economy needing about 125,000 new jobs to keep unemployment steady, this pace will drive the jobless rate down quickly, Moody’s Analytics chief economist Mark Zandi said Friday.
ANALYSIS: Rates heading higher, but still low
And the jobs are coming from the right places: Manufacturing added 27,000 jobs. Construction added 17,000 jobs,and governments added 7,000. These industries have been laggards, and the jobs party couldn’t get going until they joined in.
Oh, markets may fret that low unemployment means the Federal Reserve will cut back on its monetary stimulus – but so what? Yes, Fed officials have signaled clearly that they are close to ready to dial back on their $85 billion in monthly bond purchases. But that may matter less to stocks than many think – Ameriprise Financial chief economist Russell Price argues that banks have used the money from selling bonds to the Fed to bolster capital, not invest in stocks. Fed data seems to back him up, too.
Besides, the mass of Americans get the bulk of their money from jobs, making work more important than stock prices. Over the next year, if things continue to go well, an unemployment rate dropping into the sixes next year would begin to push wages up a little bit faster. That has already begun, if tentatively. To head off inflation, businesses would have to invest more and get serious about reversing the recent trough in productivity.
And if the recovery finally helps reverse the post-2007 decline in household formation – which economists blame on job uncertainty and falling real wages – then that means more housing construction. The math is familiar by now: According to Moody’s Analytics, if home construction reverts to the long-term mean by 2015 or so, that alone would add 3 million jobs.
With even Europe showing signs of recovery, the last barrier to a fairly robust U.S. recovery may be in Washington, D.C. Even there. reports say Rep. Paul Ryan and Sen. Patty Murray are near a bipartisan, if limited, budget deal that will avoid more government shutdowns. That means that federal austerity that took 2 percentage points off 2013 economic growth may only shrink the economy by 0.5% next year, T. Rowe Price economist Alan Levenson said this week.
This recovery, finally, is not just for bartenders and store clerks any more.
Courtesy of USA Today