UCF Economist: Labor Market Recovery is a 'Fraud'
Although the economic recovery is in its fifth year, Americans shouldn’t be lulled into a false sense of security about the labor market, University of Central Florida economist Sean Snaith said. He called the recovery to date a “fraud.”
“While monthly payroll job gains and the declining unemployment rate are viewed as positive indicators, there’s more to assessing our economic recovery than that,” Snaith said. “You need to look at the number of jobs being created in the context of the potential number of workers in the U.S. economy. The gap between payroll employment and the Congressional Budget Office estimates of the potential number of workers in the U.S. economy is pretty darn scary right now.”
If the labor force participation rate were at its prerecession level, the current unemployment rate would be in excess of 11 percent, Snaith said. A lot of people have simply given up the job hunt or have dropped out of the labor force. And if payroll job growth were to continue increasing at just 148,000 jobs per month, it would take until December 2021 for employment to reach the Congressional Budget Office’s estimated potential, Snaith said.
In Snaith’s 2013 third quarter U.S. forecast, he said many analysts are erroneously predicting a fast recovery because they are focusing only on the unemployment rate.
“The U.S. labor market cannot be adequately gauged by a single metric such as the headline unemployment rate during this recovery,” Snaith said. “This is particularly true because as of August 2013, the labor force participation rate is at its lowest point since 1978.”
That’s why Snaith is not surprised to see consumers still holding back on spending, which has in the past brought the U.S. economy out of the doldrums. Real consumer spending is expected to grow an average of 2.4 percent during 2013-2016 and it should steadily accelerate over this period. Snaith says that brisk consumption-spending growth isn’t going to happen with so much uncertainty hanging about – the impact of the Affordable Healthcare Act, the federal government shutdown and the question of when the Federal Reserve Bank will begin to slowly pull back its stimulus efforts.
“Why every speech, every politician every talking head on TV is not focusing on this labor-market failure is perplexing,” Snaith said. “Instead, we’re watching Wall Street have a heart attack just at the mere mention that the Federal Reserve might taper off its stimulus efforts of the past few years.”
Snaith was one of only four national economists to predict that the Federal Reserve Bank would continue to funnel billions of dollars into the market on a daily basis as a way to help stimulate the economy and not begin that tapering process until 2014.
“Will the Federal Reserve’s exit be more like Ginger Rogers gliding across the dance floor or Miley Cyrus awkwardly twerking remains to be seen,” Snaith said. “But given the phony labor-market recovery it could be some time before the Fed hits the dance floor.”
Snaith is the director of UCF’s Institute for Economic Competitiveness. He is a national expert in economics, forecasting, market sizing and economic analysis who authors quarterly reports about the state of the economy. Bloomberg News has named Snaith as one of the country’s most accurate forecasters for his predictions about the Federal Reserve’s benchmark interest rate, the Federal Funds rate.
Snaith also is a member of several national forecasting panels, including The Wall Street Journal Economic Forecasting Survey, CNNMoney.com’s survey of leading economists, the Associated Press Economy Survey, the National Association of Business Economics Quarterly Outlook Survey Panel, the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters, the Livingston Survey, Bloomberg U.S. Economic Indicator Survey, Reuters U.S. Economy Survey and USA Today Economic Survey Panel.
The Institute for Economic Competitiveness strives to provide complete, accurate and timely national, state and regional forecasts and economic analyses. Through these analyses, the institute provides valuable resources to the public and private sectors for informed decision-making.