What Are Americans Waiting For?

Americans are the world’s glass-half-full people. They’re the can-do frontier-conquerors, risk-lovers, prodigious globalizers, labour and investment mobilizers, inventors, educators, and so much more – and they’ve consistently reaped the resulting dividends. But look at the news networks, the political debates, reality TV and the person on the street, and you’d never know it. It seems these days that everyone stateside wants to outdo each other’s gloom. Does all the negativism make sense?

Maybe. America has taken a long time to shake off the Great Recession. Its banks were weakened. Its debt has soared. Its trade balance is persistently negative, too many, a critical sign of the failure of liberalized trade. Interest rates seem stuck at zero. All of this coming in the wake of 9/11, which leveled a stunning blow at US confidence. Since pessimism sells at a large multiple to optimism, the bad-news stories are the ones getting all the airplay, and the population seems to have an insatiable appetite for it. And the election campaign is leveraging it to the max.

Is the discourse somehow missing the point entirely? The Democratic nominee’s close relative had it right when he campaigned on the belief that what Americans wanted above all was a solid economy. And one of the prime indicators of that is a vibrant job market. Yet nobody seems to realize that for 72 consecutive months, the economy has pumped out an average of 200,000 jobs. That rivals some of the country’s best runs of growth in recent history, and there are clear signs that this run is still going strong. This should be boosting the feel-good factor.

If that isn’t working, then labour-market tightening should be. The US job machine has sopped up workers at such a pace that the unemployment rate has plummeted from 10 per cent in 2010 to just 5 per cent as of last week. That’s a level that most economists consider the full-employment level, technically known as the non-accelerating-inflation rate of unemployment (NAIRU). At these low levels, wage pressures typically start to shoot up. And that’s just what’s happening – the pressures have caused real wages to rise at a pace unseen in the post-recession period. This shift first occurred in mid-2014.

So, why are many still grumpy? In good part because there are groups in the US economy that have been bypassed by all this growth. At the same time as job counts have soared, labour force participation has been sluggish. The unemployment rate actually looks better than it should, because droves of potential workers have, in frustration, dropped out of the labour force. Put them back in, and the unemployment rate shoots up to about 8 per cent. But even this is changing; for the first time since the recession, the participation rate has just begun to turn around meaningfully – it seems that these displaced workers are returning to the market, as companies are finding fully skilled and experienced workers in shorter supply.

Tightening conditions are also pulling in a key group – the young. Unemployment rates in the 16-19 age group soared in the wake of the recession to levels far above typical recessionary peaks – and they stayed there far longer than in the past. Now, the rate is down sharply, and is below normal. Labour force participation among this group has been very low, but following the recent trend, has started to rise. It remains low for the 20-24 age category, but lower unemployment rates for this group should see participation begin to pick up shortly.

This is a critical development, as youth categories play a key role in overall consumption. Increased employment typically boosts household formation, which in turn boosts demand for housing. Given that housing markets are in deficit and dealing with very low inventory levels, a spark in demand would have an almost immediate effect on new construction. As the housing market is an engine of a lot of other activity in the economy, this nascent increase in ‘feeder’ demand could well be the start of a new wave of economic growth that in our view has years of runway ahead of it. It’s just starting, but it’s pretty exciting.

The bottom line?

It’s really not clear what Americans are waiting for. It has indeed been a long wait, but there is plenty of evidence that for a number of year now, the job market has been on a very impressive roll. What’s good for employment is good for consumption, which powers 70 per cent of the US economy, a good chunk of the world economy – and Canadian exports.

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