The Gross Domestic Product (GDP) grew 4.4% last year. Total household net worth is up to $45 trillion. Unemployment is down to 5.2%. Productivity is projected to grow at 2.75% for the next several years.
Sounds great, but many people hear the words and wonder, because their own reality doesn’t feel that good.
They’re right, because this recovery has worked differently than those in the past.
This time, those who had got
Corporate profits have risen 60% over the past three years while wage income is only up 10% [The Economist 02/10/05], less than increased costs for housing, health care, energy, education and food. (Story links open in new windows)
Corporations have nearly doubled the amount of cash in the bank, while the overall savings rate for individuals has gone down. [Business Week subscription]
The total net worth of households has indeed risen, but the average net worth of households has dropped from $89,000 to $84,000 since 2000 [Business Week subscription] and the number of poor has increased by millions.
And the unemployment percentage and "productivity" aren’t telling us what many people think they are.
Unemployment: stats vs. reality
The latest Bureau of Labor Statistics (BLS) release indicates that there are now 132.6 million jobs filled in the US. This preliminary number is about the same it was when president Bush was sworn in for his first term four years ago (132.5 million then).
So we’re finally back to ground zero on jobs.
This isn’t great, but it’s not even as good as it looks since much of the gain was in temporary jobs – 2.5 million in January, up 10% from a year ago.
And the job growth in the last year was 1.7%, but the historical average has been 3%, so we’re still not nearly out of the woods on jobs.
Worse, there are several million people out of work unaccounted for in the unemployment percentage.
In the last four years, about 7 million more new workers entered the work force and there were no jobs for them.
Unemployment was 6.6 million in January, 2001 and 8.4 million in January 2005, so that takes care of about 2 million.
But that leaves another 5 million out of work. Adding them to the 8.4 million unemployed, we get a real unemployment figure of as high as 8%.
Productivity growth should have a payoff
The productivity we’re talking about is labor productivity as measured by the BLS. Their definition is reasonably complex, but a useful way to think of it is as a function of the GDP and the number of workers. For a given economic output, lowering the number of workers produces a growth in productivity.
"Productivity growth" was 4.4% in 2003 and 4.1% last year. It was sold as keeping interest rates down (it did), prices down (somewhat, on some things) and providing a better quality of life for all of us (it didn’t and won’t).
Productivity growth has raised living standards in nations in the past, so what’s wrong this time?
Not only are jobs being sent off-shore, so are profits earned in this country, and the payoff from improved productivity happens in someone else’s economy.
When Levi shut their last US factory, this raised productivity because their sales level stayed the same with fewer workers – because the jobs went off-shore. When General Electric took profits earned in this country and hired 1,800 research engineers in Bangalore instead of Bangor, the benefits of increased productivity went to India, too.
And the exportation of the American living standard is going to continue, according to an item in the Wall Street Journal:
‘[O]ne reason job growth may continue to disappoint is that productivity isn’t really expected to fall all that much when viewed over the longer term, which is really the best way to interpret the meaning of productivity anyway.
‘And in manufacturing, the winds of productivity keep blowing strong — ending any hope that this part of the economy will see a bounce in jobs.
‘"Now that information technology has been improved, it’s going to be easier to offshore more of the service sector," says Mr. [Daniel] Meckstroth [an economist at the Manufacturers Alliance/MAPI].’ [A Big Burst of Hiring Appears Unlikely Wall Street Journal 02/14/05 subscription]
What to do?
There’s not much you can do.
Globalization and US government corporate welfare have pretty much – in a bipartisan, non-gridlocked kind of way – set the course for a further decline in American living standards.
With us being in the same economy and job market as India and China now, there’s no putting the genie back in the bottle. We and the other more developed economies will see our quality of life decline as it improves in lesser-developed nations.
It’s a done deal.