What the Jobs Data Will and Won't Tell Us
Mohamed A. El-Erian
time iconJun 4, 2015 2:00 AM EDT
By Mohamed A. El-Erian
It has become increasingly difficult to reconcile different sets of data to form a coherent and decisive picture of the U.S. economy. Nowhere is this problem more evident and consequential than when comparing the contrasting developments in job creation (which has been robust) and the sluggish gross domestic product and wage growth. The jobs report for May that will be released Friday won’t clarify the whole picture, though it could provide some clues.
The best outcome for both the U.S. economy and the rest of the world would be another month of solid employment creation (200,000-plus new jobs), accompanied by a pick-up in wage growth (to above 2 percent on an annual basis).
This would indicate that the impressive job creation of the last couple of years is having a broader beneficial impact on the economy -- whether in terms of supporting future consumption or giving companies greater confidence to invest to expand capacity. It would only be a matter of time until GDP growth approached 3 percent; and the rising tide could help counter, albeit only partially, the rapid worsening of the inequality trifecta (of income, wealth and opportunity) that, in addition to creating social concerns, is increasingly recognized to be undermining current and future economic prosperity.
A less-good outcome would be for solid job creation to continue but, at the same time, for wages to fail to grow more meaningfully. This would suggest the economy continues to face a challenging set of domestic and external factors that -- importantly -- point to structural and secular headwinds.
Contributing factors would include deep-rooted forces that reflect the negative effects of technological innovation for workers, such as losing the race against machines and the dominance of supply globalization, which has brought lower paid labor and more efficient production chains in the rest of the world that put further downward pressure on earning prospects in the U.S.
In this scenario, job creation would tend to increasingly take on a barbell aspect: A few highly remunerative jobs would be accompanied by many more low-earning ones, and the middle of the employment-earnings distribution would continue to be hollowed out.
As a result, both household and corporate spending would be deprived of a sufficiently strong anchor. GDP growth would continue to disappoint. And the tendency toward even greater inequality would not be countered any time soon.
http://www.bloombergview.com/articles/2015-06-04/mohamed-el-erian-what-to-look-for-in-u-s-jobs-report
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