JIM LEHRER: Now, the long and short of job growth in the United States. Jeffrey Brown has our update.
JEFFREY BROWN: Economic news of late has focused on the dangers ahead stemming from a series of troubles, from mortgage defaults to credit crunch, costlier oil, to name just a few. Today’s jobs report, the last of the year, helps to clarify where the economy is, in fact, taking a hit and where it continues to show strength.
To help us do that, we turn to David Leonhardt, an economics writer and columnist for the New York Times.
So, David, 94,000 jobs added to payrolls last month. Put that in some perspective. What does it tell us?
DAVID LEONHARDT, Economics Columnist, New York Times: Well, it’s growth, but it’s weak growth. If you look at the numbers back from last year, from 2006, we basically had an average of about 200,000 jobs a month. And that’s what you need, it seems, over a sustained period in order to have a really healthy job market with rising wages.
Now we’re down at 94,000, and the decline has been pretty clear throughout the course of 2007. And so it doesn’t look like we’re in a recession, as some people were worried about, now. But it’s pretty clear at this point that the economy has slowed down.
JEFFREY BROWN: Parse the numbers a bit for us. Where do you see the growth? And what sectors do you see losing jobs?
DAVID LEONHARDT: It’s sort of what you would expect. Any sector that is in any way tied to the housing market is having trouble. So we see real declines in construction employment and real declines in financial services employment, which is clearly tied to the problems in the mortgage market.
We also see a decline in manufacturing, which is in part related to the housing market, because manufacturers often make things that people buy for new houses, and in part it’s the continuing long-term decline in manufacturing.
We see strength almost everywhere else. We see strength in government hiring. But maybe more to the point, we see it in almost every other part of the private sector, strength in retail hiring, strength in restaurant hiring, strength in hotel hiring, strength in health care hiring.
And so while you can tell a really compelling story, in my mind, about why other parts of the economy are going to suffer from the housing boom — namely, because of a slowdown in consumer spending — we don’t see it yet.
Analyzing November income growth
JEFFREY BROWN: But it's interesting. So even with all the lousy news that we have been reporting for the last weeks and months, there still are these large portions of the economy that are growing.
DAVID LEONHARDT: That's exactly right. There still are. And I think that's because there are a number of other strengths in the economy right now. The decline in the dollar has made it a lot easier for American companies to export goods to other countries. And in many ways, many other sectors continue to do fine.
Incomes rose quite nicely in late 2006 and early 2007. And that's helped fuel consumer spending. And so, again, while I think it's reasonable to expect that this will be a fairly weak holiday shopping season, we haven't seen it yet.
JEFFREY BROWN: You mentioned incomes. There was this bump in wages in today's number, another interesting thing that was noted in this report. Again, give us some perspective on that. What does it tell you?
DAVID LEONHARDT: Yes, month-to-month wage numbers are not particularly telling. As you noted, we had a nice little bump-up in wages in November, but you really want to look at the longer term trends, because these numbers can often be a bit noisy.
And longer term, what we see is that, over the last year, hourly wages for rank-and-file workers, who make up about 80 percent of the workforce, have gone up a little bit less than 4 percent. The problem is, is that inflation has been just about 4 percent.
So once you take inflation into account, which is really the way you want to look at these things, the average worker has actually taken a very slight pay cut over the last year.
And that's really disappointing. I mean, we're now six years into an economic expansion. And we had, for the first year or two of that expansion, we had wage growth, which was sort of the leftover strength from the '90s boom.
But then, for three years or so, we basically had no wage growth. And the only time we really got good, solid wage growth was in late 2006 and early 2007.
So, in many ways, what's so troubling about a slowdown right now, or a potential recession, is that for a lot of people this expansion wasn't really that good. And now it looks like it may be coming to an end or, at the very least, slowing down.
Fed likely to cut interest rates
JEFFREY BROWN: Now, when you put all this together, one institution watching closely, obviously, is the Federal Reserve.
DAVID LEONHARDT: Absolutely.
JEFFREY BROWN: They're meeting next week. The question out there has been whether they will continue to cut interest rates and by how much. So what do today's numbers -- what was the reading on that for people you talked to or, in your own view, how will it impact any Fed move?
DAVID LEONHARDT: I think people were sufficiently worried about the economy being even weaker than this, the idea that we might have already started a recession, that today's number, 94,000 jobs, actually reassured some people on Wall Street.
And so the betting on Wall Street today moved more toward the notion that the Fed would cut interest rates by a quarter point, as opposed to a half point, next week. No one questions at this point that they are going to cut interest rates.
I think it's still a little bit up in the air. A few months ago, we had another instance in which Wall Street was expecting a quarter-point cut, and the Fed came through with a half-point cut. The Fed has the ability to guide what people expect, and sometimes they want to do something a little bit different from what people expect.
So I think it's possible they're just going to go with a quarter point. I think it's possible they've guided Wall Street to a quarter point with the idea in mind of actually delivering a half point and surprising the market to the upside.
Impact of economic expectations
JEFFREY BROWN: You used that word "expect" a couple of times. I mean, I guess I've learned over these years that so much of this is about expectations, isn't it? And today's number was a little higher than people expected.
DAVID LEONHARDT: Yes, it was interesting, because a few weeks ago people would have said 94,000 looked good. We had some other reports, and one report in particular over the last few days, that caused some people to get quite optimistic and thought this number might be in the mid-100,000s or even close to 200,000. We didn't get that.
And at this point, it's really beyond any question that the economy has slowed markedly. The debate at this point is: Are we on the verge of some kind of recession -- and some serious people think that we are -- or might we just escape with just a slowdown?
JEFFREY BROWN: And let me just ask you briefly, because you had an interesting column the other day in which you were noting that the longer term problem here is the lack of job creation, not so much those big cuts that we've gotten used to seeing. Just explain that one to us briefly.
DAVID LEONHARDT: That's right. When you look at the economy now, you think of things like China and trade, and you think about corporate downsizing, and you think that the real big problem with the job market, the reason it hasn't been so strong, is because of job cuts.
But it turns out that's actually not the case. The number we got today, 94,000 jobs, is a net number. That's how many jobs on net the economy created. But every month the economy creates somewhere between 2 million and 3 million jobs and destroys somewhere between 2 million and 3 million jobs.
The problem lately has been that the creation side has been a lot lower. The number of jobs that have been cut by companies has actually fallen over the last few years. The problem is that the number of jobs that have been created has fallen, as well. And that's a really tricky policy question of, what can the government do to try to spur a little bit better job creation in the private sector?
JEFFREY BROWN: OK, we will leave it there. David Leonhardt, thanks very much.
DAVID LEONHARDT: Absolutely.