The key to growing the economy is creating jobs and spending. So far, the economic renewal has been decent given that it has largely been a jobless recovery. But things appear to be changing on the positive side, as the critical non-farm payrolls reading for April saw the creation of 244,000 new jobs. This was well above the estimate of 185,000 and the revised 221,000 in March. It was also the third straight month in which over 200,000 jobs were created. Moreover, it was also the highest pool of monthly jobs created in about five years. A negative was the jump in the unemployment rate to nine percent from 8.8%.
And, while the jobs creation is positive, we need to see the number increase steadily and go significantly higher in the months ahead. While the 200,000 level is clearly a vast improvement over what we have been seeing since the recession began, some economists argue that the country will need to add 500,000 jobs monthly to make a dent in the unemployment rate and to get it moving towards full employment at around six percent. The unemployment rate in April edged higher to nine percent.
Here’s the deal. There are currently about 15.1 million Americans unemployed and looking for jobs while struggling to make ends meet. We are seeing record numbers at food banks across the nation. The government is positive that jobs are being generated, but tell that to those barely holding on. The problem is that there are only about 2.9 million available jobs. That is five unemployed workers competing for one job. You don’t have to have complex economic analysis done to figure out that this is a problem and needs to improve.
Jobs need to be continue to accelerate, especially given that the government has high hopes after spending hundreds of billions on infrastructure and incentives and, in the process, building a massive deficit and adding to the over $14.0 trillion in national debt.
Jobs drive confidence and this gives consumers a reason to spend, especially on non-essential goods and services.
Consumers appear to be spending on non-essential big-ticket items, and this is bullish. The Durable Goods Orders reading for March was encouraging, with a better than expected 2.5% increase versus the 1.8% estimate, and up from a revised 0.7% in February. Excluding the transportation element, the reading of 1.3% was also better than expected.
When consumers spend, there is a domino effect down the line. In economics, this is known as the “multiplier effect,” wherein a dollar spent results in more spending. For instance, say you spend a dollar at the store. That dollar is used to pay workers who in turn spend. This cycle continues and is a major driver of total spending in the economy.
This is why jobs are so important for increasing consumer spending and driving the economy. And this is why the jobs readings, while very encouraging, still need to ratchet higher.