The recovery has been marked by a sharp drop in unemployment, which may fall below 6% in the next month or two. However, as notes from the Federal Open Market Committee (FOMC) showed, the central bank continues to be worried about job creation. And it has reason to be. A normal recovery drives unemployment toward or below 5%. Elation about the jobs market is premature.
Among the most recent recoveries, unemployment remained below 5% for several years, from 1997 until 2001 and again in 2006 and 2007. Because there have been similar runs in earlier decades, there is no basis for calling these aberrations.
The argument for a 5% unemployment rate as a marker of a really healthy economy comes primarily from the fact that so much of gross domestic product (GDP) relies on consumer spending. The number is often set at two-thirds. Even if business and government activity has eaten into some of that, the figure remains high.
Without jobs, sectors such as retail never fully recover from a downturn. Struggles with same-store sales are evidence of that today. Consumer electronics sales continue to be hurt. And consumers turn more to generic drugs, cutting into sales of pharmaceutical companies. As these sectors struggle, marketing and advertising also remain soft.
The trouble with setting a 5% unemployment marker is that it is too broad a measure as the economy has evolved from the recession so far. Long-term unemployment and unemployment among the undereducated have stayed very high, while the jobs recovery among middle-aged men and the better educated has been stronger.
What is depressing about the future of job creation is that experts like the researchers at the Congressional Budget Office do not expect a return to 5% unemployment for years. This may be due to the belief the recession was remarkably deep, or that the economy has permanently changed as automation has ruined some job prospects completely.
However, if 5% is still a reasonable measure for a full recovery, that full recovery is far off.
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