The daily flow of economic data offers little insight into the direction of the economy. Most government statistics are preliminary releases, intended to be revised, so they provide a poor picture even to someone with clear context on their meaning.
Stock markets are even worse. Trying to predict the turns of the economy through stock prices is like trying to assess climate change with your head in a freezer or hot oven. Still, we cannot escape these easy stories, so it might be helpful to place some of the reporting of data into context. I begin with Wall Street.
Those of us with hopes of retirement welcome the soaring numbers on Wall Street. The growth in stock prices and post-recession highs have unleashed whispers of a coming wave of prosperity. Of course, few commentators have bothered to look at economic fundamentals.
With the Federal Reserve continuing its quantitative easing, inflation-adjusted bond yields are now below zero. Of course, the goal of QE3 is to make financial investments less attractive than buying new plants and equipment and hiring workers. While this strategy has not yet resulted in new business investment, it has made stocks look good, so prices rise. This suggests the many desperate efforts to reinflate the bubble might be taking hold.
The employment situation likewise was received with glee. Though news of 236,000 new jobs is better than in recent months, a deeper peek into the numbers yields little good news. There are 12 million Americans unemployed and looking for a job, another 2.5 million marginally attached to the labor force, and almost 8 million more who cannot find full-time work. Over the past year alone, nearly a million workers have left the labor force, far more than retirement would suggest.
We should be seeing a steady growth of workers—about 150,000 per month, as young people age into labor markets and older ones retire. Instead, that growth has been under 60,000 per month over the past year. In February alone, more than 280,000 workers who should have been in the labor pool evaporated, while some 236,000 found jobs. Of those new jobs, 444,000 were part time. Yes, you read correctly: According to the U.S. Department of Labor, full-time employment dropped by more than 200,000 jobs last month.
The same report showed a small increase in the work week and wage growth of 4 cents per hour. This translates into an annual decline in wages when corrected for inflation.
The February data tell a wretched story. Wages decline, labor force declines and, at the current rate of job growth, we shall reach full employment early in the next decade.
At some point, this economic mirage will be revealed as dry and empty, no matter how pretty a picture the media paints. This is known in the White House, where blame is sure to be fixed—right or wrong.•
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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.
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