Job numbers reported by the U.S. Department of Labor on July 3, showing that the economy added 288,000 jobs in June, likely contributed to pushing the Dow above 17,000 for the first time in history. But the 40,000 retail jobs and 39,000 hospitality jobs in the report are mostly lower-tax-bracket occupations that don’t pay enough to spike buying power. Consumer spending is still weak. We can hear Henry Ford saying: “I told you so.”
Manufacturing added 16,000 jobs and construction added 6,000. Government added 26,000. Manufacturing jobs aren’t all high-paying; construction jobs are temporary, although it’s certainly good to see them continuing to come back. And say what you will about government jobs – to the extent that many government agencies have become understaffed since the recession, it will be good to get those federal and state wheels turning faster again.
With unemployment now down to 6.1 percent – a decline that came along more quickly than expected – the numbers are bound to provoke discussion of whether the Federal Reserve should raise interest rates sooner than it has indicated it plans to do. While the nation’s borrowers have benefitted from low interest rates, the nation’s savers have endured a long drought. Savers should be rewarded for building financial equity.
Meanwhile, there’s an incredible overhang of lost talent created by years of structural unemployment. Those who graduated from college during the recession will take longer to get a financial and professional foothold. Recent reports note that fewer people think buying a home is a good investment, due to uncertainty about their future prospects. Buying a home is indeed a good investment if one can stay in the house long enough to build equity, and in most cases that depends on job prospects.
Stocks had a great run-up last year and recent reports indicate the market is in pretty good shape at midyear, too. Low interest rates have helped the market by default, because money market returns are near zero and Treasury yields are low, driving even small investors to seek any kind of return. Having a market that’s robust because of a lack of returns elsewhere isn’t the best plan for our long-term future.
Then, there’s the borrowing landscape. Subprime credit cards are regaining their cachet with card offerers; home equity lending is up; and auto loans just keep bringing on longer and longer loan terms, bringing on the possibility that consumers may someday owe more than their depreciating vehicles are worth. Those who own their vehicles outright and are looking for quick cash are the target of daytime TV ads from car title loan companies. After some belt tightening in the crisis years, we’re again swinging from equity-building to indebtedness, a scenario in which interest increases will have more of an adverse impact.
Getting back to the national jobs report, we have to note that the retail and hospitality industries depend on the buying power of someone else. It’s the “someone else” who earns what we like to call “Dollar One” – the money that starts the chain of the multiplier effect. We need more Dollar One jobs if the economy is ever going to be able to taxi fast enough to take off again.
