With all the attention on Iraq, the blowout April jobs report barely made the front pages on the weekend. So allow us to mark the news as the official death of the "jobless recovery."
The allegedly "sluggish" economy has now created 867,000 new jobs since the beginning of 2004, 1.1 million since August. Jobs are coming back even in manufacturing, to the tune of 30,000 in the last two months. The civilian unemployment rate fell again to 5.6%, down from the June 2003 peak of 6.3% -- which is below the peak of 7.5% during the recession in the early 1990s, and below the 9.7% peak of the recession in the early 1980s.
These numbers are especially notable given the continuing increase in productivity. For months productivity gains were seen as a business substitute for new hiring, but not anymore. Overall business productivity climbed 4.5% in the first quarter, and by a whopping 5.9% in durable goods manufacturing.
If they follow their usual pattern, pessimists and partisans will now drop the "jobless recovery" line in favor of the "hamburger flipper" assertion. That is, they'll claim these new service" jobs aren't nearly as good as the old jobs in manufacturing that have gone to Mexico or China. Ergo, the middle-class is "vanishing."
Sorry, that's also phony spin. Economist David Malpass at Bear Stearns calculates that average hourly earnings in manufacturing in April were $15.24, or $16.08 with overtime. Average hourly earnings in all service jobs were a comparable $15.17. If you exclude the retail and leisure sectors, service jobs paid $17.25 on average. The better-paying categories -- in finance, information, professional services, education and health care -- have produced most of the new service jobs (574,000) in the past six months. To put it another way, those productivity gains are gradually making their way as pay increases into worker pocketbooks.
They are also beginning to replenish the federal Treasury. The Congressional Budget Office reported last Thursday that revenues "are running $30 billion to $40 billion higher than anticipated" this fiscal year. The bulk of the increase is coming from corporate income taxes, which are up about 45% from a year earlier, largely due to rapidly rising corporate profits. Payroll tax revenue is also up some.
What this means is that if Congress can provide even a modicum of spending restraint, the federal deficit will begin to decline again, just as it always does during a healthy economic expansion. One bit of bad budget news is that spending on Medicaid, the health-care entitlement for the poor, is growing this year by more than 12% -- or about five times the inflation rate. We'd suggest that Congress tackle that problem . . . yeah, right.
Alan Greenspan also made headlines last week with his fretting about the budget deficit as a long-term economic threat. We'd have thought the Fed Chairman would be preoccupied just now with wondering if he's had the money-supply too loose for too long. The robust recovery and recent signs of renewed inflation seem to have caught some Fed Governors by surprise. Rather than kibbitz about fiscal policy, perhaps they should focus on their real job, which is maintaining a stable price level. The economy seems to be taking care of itself.
