Wages are Rising! Jobs Are Increasing! Is a Real Recovery Here at Last?

The Bureau of Labor Statistics has released its report for July 2016, and the numbers have some people speculating that a real recovery may be at hand. Wages have been rising consistently for the past few months; the average hourly wage for July was $25.69. The unemployment rate was 4.9 percent for July, which was the same as June but 0.2 percent higher than May. Jobs are increasing; the July change was 255,000, which was a bit lower than the 292,000 reported for June but significantly greater than the pitiful 24,000 reported for May. At first glance, it appears that the American economy is showing signs of rebounding at an accelerated rate — but is that assessment accurate?

Are Increased Wages and Job Growth Sufficient Measurements of an Economic Recovery?

The numbers look promising, but it might not be wise to read too much into them. The data for wages and new jobs must be examined in detail to evaluate what the numbers actually mean. Furthermore, other factors need to be considered as well before the celebration can begin.

The average hourly earnings for June and July have yet to be finalized, but the BLS is projecting $25.61 for June and $25.69 for July. If July’s projection holds, it represents an increase of $0.31 over January 2016, which equates to approximately 1.22 percent. However, economists are not discussing the potential impact on average earnings resulting from the minimum wage increases in 14 states that went into effect on January 1.

Some of the increases were nominal; South Dakota’s rate went from $8.50 to $8.55, for example, and Colorado’s rate increased from $8.23 to $8.31. However, the hourly minimum rate increased by $1 in Alaska, California, Massachusetts and Nebraska. The rate increased $0.50 in Arkansas, $0.45 in Connecticut and $0.75 in Hawaii, Maryland and West Virginia. Several municipalities also increased the local minimum wage. In California, the new minimum wage in Richmond is $11.52, for example, and in Washington, the rates also went up in Tacoma and Seattle.

What many people overlook is that whenever the minimum wage increases, the potential exists to affect groups of employees who do not work for minimum. It can affect the minimum rate that employers can pay tipped employees as well. Perhaps more significantly, it can affect the wages of salaried employees. For example, in California, salaried employees who are exempt from overtime laws must typically earn a salary that is equivalent to at least twice the prevailing minimum wage.

When it comes to new jobs, the overall numbers may look good, but examining the types of jobs being created reveals some troubling trends. According to the Bureau of Labor Statistics, most of the job growth was in the areas of professional and business services, financial activities and health care. Government employment and employment in the leisure and hospitality industry increased modestly. However, employment in the mining industry decreased by 6,000 jobs, representing a drop of 26 percent since September 2014. In addition, there was little or no change in employment in the manufacturing, construction, retail and wholesale industries.

Other Factors Pointing to a Slower Economic Recovery

The true state of the economy depends on many factors beyond job growth, unemployment rates and average hourly earnings. Productivity, business investments and the trade deficit are all indicators that can be used to measure the health of a nation’s economy — and America is not looking particularly healthy in any of these areas.

• Productivity is a measure of how much is produced hourly. It is annualized and compared by quarters. According to the Bureau of Labor Statistics, for the first quarter of 2016, productivity decreased 0.6 percent over the fourth quarter of 2015. Between the third and fourth quarters of 2015, productivity fell by 1.7 percent. Since wages are increasing, it appears that employers are paying workers more to produce less.
• When businesses invest in capital assets or expand their production facilities, they typically do so because they expect that they will receive a return on their investments. They feel that they lack the capacity to meet future demand and remain competitive. According to an article posted on CNBC.com, businesses are reluctant to invest. For the 12-month period that ended June 30, 2016, investments in factory space decreased an average of 6.4 percent when annualized, and investments in equipment rose by a mere 0.7 percent.
• Foreign trade represents approximately 33 percent of America’s gross domestic product. For the first five months of 2016, the trade deficit exceeded $750 billion. Between July 1, 2015, and June 30, 2016, trade deficits reduced the growth of domestic demand by 0.5 percent.

When Will the American Economy Rebound?

If economic recovery is not as close as the statistics for July seem to indicate at first glance, the question of how much longer it will take naturally arises. Unfortunately, there is no easy answer. Consumer confidence appears to be increasing slightly, but all signs indicate that businesses are severely lacking confidence. Should taxes increase soon, the increase could well offset the modest gains in average wages. In the area of job growth, it does not appear that manufacturing jobs will be returning from overseas in the immediate future. Furthermore, when the number of open jobs is compared to the unemployment rate, the question arises as to whether there is a mismatch between those looking for work and the skills required for the available jobs. All signs indicate that recovery is going to take longer than some analysts believe, and it may well take another year before any true signs of a realistic recovery will manifest.

It should be noted that the American economy does not exist in a vacuum. Instead, it is part of a global economy, which is a very complex issue. If you are interested in learning more, visit Personal Money Store to find additional educational posts.

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