Finally, a sustained surge in US job growth

In three months, more than 1 million new jobs created.

After almost three years, the economic recovery has made its long-awaited leap from the business pages to Main Street.

Job creation, the key missing ingredient, is officially on a roll. American companies, from financial institutions to manufacturers, added more than a million new jobs in the past three months alone. Many of them pay well and provide benefits - two things notably absent in the past two years of anemic job growth.

For many economists, the robust employment numbers bring a sigh of relief. They believe the recovery is finally healthy enough to be self-sustaining, even with the expected boost in interest rates later this month. That's in part because most believe the rate hike will be moderate, just enough to keep the newly fired-up economy from overheating. It's also because businesses have already figured the rate increase into their bottom lines.

But many economists also warn of potential problems, from sky-high energy costs to double-digit health-cost inflation to the risk that rising mortgage rates will slow the housing market.

"The crucial question is what's going to win out: The momentum created since this engine's been kicked into gear? Or are these obstacles going to slow it back down?" says John Challenger, chief executive officer of Challenger, Gray & Christmas, a global outplacement firm in Chicago.

That answer could determine the overall health of the economy by Election Day, which will be critical to the outcome of the presidential race. That's primarily because there's still plenty of slack in the labor market. The economy remains down more than a million jobs from its peak in March 2001.

Although more good jobs were created in the past three months, most of the expanding industries are still paying wages about 13 percent lower than before. That's because the hotel, restaurant, and temporary jobs are still growing faster than the manufacturing, financial services, and technology sectors. And while unemployment held steady at 5.6 percent last month, the average spell of unemployment rose to about five months. So while the economy may have hit what Jared Bernstein of the Economic Policy Institute calls a "sweet spot," it's not necessarily giving Americans more cash to spend: Despite the good news, most US wages are still just keeping pace with inflation.

"The fact remains [that] the benefits of the growing economy are still not being broadly shared, they're still flowing more to profits than they are to wages," says Mr. Bernstein.

Signs of recovery

Lisa Trentacosta's recent experience, landing a good job as an administrator for an exclusive air-conditioning company, indicates that may soon change. She'd been looking for a job for months because the company she was working for was sold.

And while she was aware there were hundreds of applicants for each opening, she could afford to be choosy, and managed to land exactly the job she wanted.

"[The recovery] is starting to show," she says. "The qualified people are being recognized and scooped up quick."

And that's being reflected in consumer confidence, which is expected to get another boost. The strong growth in the labor market is helping to offset other negatives, like uncertainty overseas and the rising costs at the pump.

"Rising fuel costs do take a bite out of the budget family budget, but with more people working, there's more money to spend," says Lynn Franco, director of the Consumer Research Center at the Conference Board in New York. "I think we're better off than we were a year ago - but still not quite as optimistic [as we were] several years ago."

The importance of moving slowly

Indeed, many economists believe it will take at least another year of the kind of job growth seen in the last three months to get the economy back to where it was before the last election. According to Mark Zandi, chief economist of Economy.com in Westchester, Pa., many parts of the country, like the Northwest, are still struggling and the job market remains soft. The expected rise in interest rates, even if moderate, could have an impact.

"The higher interest rates will bite, but I don't think they'll undermine growth and expansion in the job market," says Mr. Zandi.

Other economists agree. Most, like Sung Won Sohn, chief economist for Wells Fargo & Company in Minneapolis, think the Federal Reserve will move more cautiously than it did ten years ago, when it hiked interest rates too fast and almost pushed the economy back into recession. "I don't think the Fed will make the same mistake it did in 1994," he says.

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