The main emphasis of the article written by Nelson Schwartz
of the New York Times is the lack of correlation between a surging employment/hiring
and the overall declining economy. From a statistical standpoint in December of
2015; 300,000 new jobs were created, but the economy was growing by one percent
or sometimes even less. To add on to a declining economy, you must also look at
the declining oil prices and sinking stock markets. However with all the
information given showing a slowing economy, Federal Reserve officials
including Yellen believe the US economy is in an upswing. The rest of the
article focuses on why the correlation between employment and economic
growth might be changing due the changing nature of US economy as a whole. The
“changing of nature,” is described as America becoming a predominantly services
economy. Statistics to prove this theory is the fact that in 2015 employment is
services (86% of American workforce) increased by 2.3 million. While on the other
hand the manufacturing sector (9% of American workforce) only had 13,000 new
jobs in 2015. What this is doing is
allowing the medium and smaller firms to feel confident to hire more as well as
taking market share. The reason FED members and economic forecasters believe
that American economy is heading in the right direction is because with the
increase in hiring (In December alone employers increased payrolls by 292,000)
gives incentives for more consumer spending by these hired individuals. There are theories that suggest GDP and economic growth correlate with employment,
hiring, and wages; however some economists believe employment has a much less
bearing on the status of the economy.
David Levy, a veteran independent economist states in the article, “People commonly use employment as a leading
indicator, but it’s a lagging indicator.” It’s hard to forecast the economy so
early in the first quarter so only time will tell.
http://www.nytimes.com/2016/01/18/business/economy/us-growth-and-employment-data-tell-different-stories.html?_r=0
The lack of correlation as you and the article mentioned is surprising to me as well.
ReplyDeleteThere is a quote in the article by the chief international economist for Deutsche Bank Securities who said that such discrepancies are not stable and will not last very long. It would be interesting to see that happen.
Manufacturing and power production do not contribute much to employment yet produce high outputs as a direct consequence of mechanization, which makes me wonder if production efficiency dependent on machinery really should be a welcome thing?
Manufacturing sector jobs are at an all time low growth rate, but this should and will give way too boost up manufacturing sector employment in countries that export a lot to the US.
The article also says that the Labor Dept. reported a significant increase in payrolls, yet GDP numbers do not suggest growth. I am curious to know why so is the case?
The lack of correlation as you and the article mentioned is surprising to me as well.
ReplyDeleteThere is a quote in the article by the chief international economist for Deutsche Bank Securities who said that such discrepancies are not stable and will not last very long. It would be interesting to see that happen.
Manufacturing and power production do not contribute much to employment yet produce high outputs as a direct consequence of mechanization, which makes me wonder if production efficiency dependent on machinery really should be a welcome thing?
Manufacturing sector jobs are at an all time low growth rate, but this should and will give way too boost up manufacturing sector employment in countries that export a lot to the US.
The article also says that the Labor Dept. reported a significant increase in payrolls, yet GDP numbers do not suggest growth. I am curious to know why so is the case?
Really enjoyed the article, it was interesting to hear that even though the stock market and gas prices are falling, some economists believe the US economy is still on the right track. However, I found it strange that they strongly believed in the correlation between employment and the US economy.
ReplyDeleteReally enjoyed the article, it was interesting to hear that even though the stock market and gas prices are falling, some economists believe the US economy is still on the right track. However, I found it strange that they strongly believed in the correlation between employment and the US economy.
ReplyDeleteIt seems to me that a lagging indicator and a poor indicator are different concepts. When employment changes there isn't necessarily an immediate change in GDP.
ReplyDeleteI also do believe it is interesting that there is this discrepancy between US growth and employment. One thing I think is important to consider is that US growth was bound to slow down, as it can't consistently keep growing at high rates, that just isn't realistic. While it is a little worrisome that the economy was growing sometimes at rates of less than a percent, keep in mind that it is still moving in the right direction. I discussed the topic of the Fed raising interest rates in my blog, and I think that this could partially contribute to the slow movement in growth as firms are a little wary since the Fed hasn't changed the interest rate in years.
ReplyDeleteI also do believe it is interesting that there is this discrepancy between US growth and employment. One thing I think is important to consider is that US growth was bound to slow down, as it can't consistently keep growing at high rates, that just isn't realistic. While it is a little worrisome that the economy was growing sometimes at rates of less than a percent, keep in mind that it is still moving in the right direction. I discussed the topic of the Fed raising interest rates in my blog, and I think that this could partially contribute to the slow movement in growth as firms are a little wary since the Fed hasn't changed the interest rate in years.
ReplyDeleteI agree with previous comments, I also find it hard to believe that they think that because we have more people employed our economy will rise. Many factors play a role in the U.S economy not just employment.
ReplyDeleteI agree that sometimes it appears the US economy simply doesn't make much sense. In this case, the fact that employment and US growth don't exactly correlate seems to be counterintuitive and may throw many people off. However, when you actually consider the fact that growth is simply not sustainable at consistent rates over time, you begin to figure out that as long as the growth numbers are positive, we are moving in the right direction.
ReplyDelete