The Precarious Jobs Recovery

February’s  227,000 net new jobs – the third month in a row of job gains well in excess of 200,000 – is good news for President Obama and bad news for Mitt Romney.

Jobs are coming back fast enough to blunt Republican attacks against Obama on the economy and to rob Romney of the issue he’d prefer to be talking about in his primary battle against social conservatives in the GOP.

But jobs aren’t coming back fast enough to significantly reduce the nation’s backlog of 10 million jobs. That backlog consists of 5.3 million lost during the recession and another 4.7 million that needed to have been added just to keep up with the growth of the working-age population since the recession began.

If the American economy continues to produce jobs at the good rate it’s maintained over the last three months, averaging 245,000 per month, the backlog won’t be whittled down for another five years — long after Barack Obama finishes his second term, should voters grant him another.

But whether even that good rate continues depends largely on whether consumer demand can be revived. Spending by American consumers is 70 percent of U.S. economic activity. But so far, spending is anemic.

American consumers have replaced worn-out cars and appliances, but little else. They haven’t had the dough. Their wages are still falling, adjusted for inflation. The value of their homes – most consumers’ single biggest asset – continues to drop.

Home values are down by an average of a third from their 2006 peak. Consumers understandably feel far poorer as a result. Declining home prices also mean consumers can’t use their homes as collateral for new loans, as they did before 2008. And even with low interest rates, refinancing is difficult.

Corporate profits are up but the money isn’t flowing to American workers. The ratio of profits to wages is the highest on record – since the government began keeping track in 1947. Not only has the median wage continued to drop, adjusted for inflation, but a far smaller share of working-age Americans is now employed (58.6 percent) than was employed five years ago (63.3 percent). Today’s employment-to-population ratio isn’t much higher than it was at its lowest point last summer, when it dropped to 58.2 percent.

The major driver of the U.S. economy over the past several months hasn’t been consumer spending. It’s been businesses rebuilding depleted inventories. Wholesalers increased their stockpiles again in February, bringing them up almost a quarter from their low in September 2009.

But businesses won’t continue to rebuild inventories unless consumers start buying again. big-time. And consumers won’t resume spending as they did before the recession until they’re far better off financially.

Yet how can they be sufficiently better off when their major asset has shrunk so much and when so few of the economic gains are going to them?

This is the central paradox at the heart of the American economy today. If it’s not resolved, the jobs recovery will stall, as it did last spring.

A year ago, remember, we had another three-month run of good job numbers. Last February, March, and April saw net gains of more than 200,000 jobs a month. But that job boomlet abruptly ended.

At the time most observers blamed the stall on external events – the Japanese earthquake, Europe’s gathering debt woes, and higher gas prices. In reality, it stalled because of the shallow pockets of American consumers.

Another stall this time might be blamed on any number of external events – slower growth in China and India, the unraveling of Europe’s debt-crisis deal, and higher gas prices.

But if another stall occurs, the real reason will be Americans once again ran out of money.

This post originally appeared at Robert Reich’s Blog and is posted with permission.

8 Responses to "The Precarious Jobs Recovery"

  1. LCR   March 12, 2012 at 10:00 pm

    The consumer is tapped out Mr. Reich. Why does the math not compute? We already survived the past 20+ years on borrowed money and the debt is simply too high. The GDP is nothing but money borrowed from the future. Your affliction to the party you represent is eating your common sense. Please leave the consumer alone, the consumer is broke and needs not another credit card. Please remember that all poverty leads to more social spending. Get a grip.

    • Lynn   March 13, 2012 at 8:32 am

      So, LCR, what's YOUR solution? Of COURSE the last twenty or so years were financed on debt – that was pretty much all we HAD! The GDP was going up, the cost of living was going up, but wages, by and large, were NOT. I saw it happen – when we were children, in the fifties, you could support a family and save a little money on one paycheck. When my husband and I got married, it took one paycheck to pay bills and another to save for a house. When my kids entered high school, it took two paychecks just to pay the mortgage and put food on the table. The Fed set borrowing costs low, which in turn sent house prices into the stratosphere, and just about anybody who had a house suddenly had lost of equity! Comes a need for funds – borrow against the house! IT WAS ALL MOST PEOPLE HAD!! Punishing people who did the best they could in a game where the deck was stacked against them ain't really gonna help much!

      • LCR   March 13, 2012 at 11:56 pm


        My solution is for the debt crisis is painful, sorry to say. The choices are either to have severe pain today in the form of new poverty by allowing a deleveraging (deflation) vs worse pain tomorrow (1930's ring a bell). We can take the pain now as a way to repay past 20+ years of an indebted nation vs delaying that pain to the next three generations (yes, I am taking about the USA not Greece). All debt is a borrowing from the future earnings (only the Fed Reserve can create money from nothing)

        Your reply to me is actually confusing. You say "Of COURSE the last twenty or so years were financed on debt – that was pretty much all we HAD!" I understand that wages have not been going up (unless you are in the medical, financial, or tech industry) but this is no excuse for excessive spending. What did you CHOOSE to purchase Lynn? What foods and house and other "needs" did you convince yourself you must have? Or did you in fact become a "zombie spender" lured into consumerism by advertisement and the idea that debt is ultimately ok?

        The solution is simple yet painful. Cut inflow of money to the governments so that the citizens have more choice with their own dollars. Institute a financial "means test" for ALL government entitlements and plan to cut out many future beneficiaries. Index all government costs to inflation and cap government spending as a percentage of real GDP. Pay Congress last and only when fiscal budget targets are met. I could go on and on. What i have to say is more debt is not the answer. Do you agree?

  2. Ben Leet   March 13, 2012 at 5:13 pm

    See http://www.cpegonline (the Chicago Political Economic Group) for a graph showing the employment/population ratio stalled since Sept. 2009 at its current level. For 20 years before 2006 it averaged around 62% to 63%, even as high as 64.4% in 2000. I calculate that 29 million workers are out of a job or working part-tiime looking for full-time, and then another 16 million working full-time and full-year at below poverty level wages. That comes to 28% of the adults in the working force (45 million in a population of 160 million), in a country where each worker contributes $109,000 to the GDP. See National Jobs for All Coalition, employment report, and Econospeak article about Larry Kotlidoff citing the 29 million out of work figure. My blog, —- Reich's analysis is most reasonable. Where are the purchasers in this environment? Are they about to binge on debt again? Wages decreased by 1% last year due to inflation. How can corporate profits stay so high?

  3. Robert P. Coutinho   March 13, 2012 at 5:19 pm

    The esoteric 'solution' would be to get the benefits of the increase of the last 30 years to increase the buying power of more than the top 1 million families. The problem with trying to do that is: how? In terms of real increase, the top one million families got three dollars for every one they were getting. The lower ninety-nine million families got on penny. That left Lynn and others scrambling just to maintain their standard of living. In an economy that is 70% consumer spending, that just doesn't work.

  4. HamiltonFan   March 14, 2012 at 8:06 am

    The obvious solution is a full suspension of the payroll tax. This policy would pay for itself.

  5. JPBulkoMBA   March 15, 2012 at 10:53 am

    Good point! My idea simply is to put all non-entrepreneurial dollars to work in the "real" economy, which would at least address the unemployment problem, while perhaps not addressing the mountain of debt burying the national economy. Debt and capitalism seem to go hand-in-hand. I'm not sure that the former could ever be excised from the latter. It's just a question of how much debt (individual, corporate, government) is manageable at any given time. My sense is that if we can get everyone working, then we can calmly and rationally figure out a sensible way to manage our financial infrastructure going forward.