It’s jobs that matter – and job growth is even weaker than rest of economy

Updated Sep. 2, 2010 at 3:35 p.m.

It’s jobs that matter – and job growth is even weaker than rest of economy

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By JAMES KLECKLEY, East Carolina University

Editor’s note: Dr. James Kleckley is director of the Bureau of Business Research in the College of Business at East Carolina University. This is one of a three part package about the state of the U.S. economy.

GREENVILLE, N.C. - I believe that the economy should continue to grow, but at a snail’s pace.

This means that the rate of job creation will be slow, the unemployment rate will remain high, and the housing market will remain sluggish (in spite of low interest rates). These expectations are relevant for the nation and for North Carolina.

U.S. economic output (GDP) has continued to expand since last year. The 2010 quarter two estimate was the fourth quarter in a row that the quarterly change has been positive and the third quarter in a row that the final level surpassed the previous year’s activity. However, one reason for general pessimism that we see today is that the climb out of the recession has proceeded slowly.

Many people seem to have expected a large “bounce” out of the downturn. This did not happen, but I would argue that the rebound in production is similar to that seen when we exited the two previous recessions.

But it is jobs that matter. And, job growth is even weaker.

Establishment employment in the second quarter climbed over the previous quarter and over the previous year – but, like with GDP, the speed of growth is disappointing. Still, the last two recessionary rebounds (in 1991 and in 2001-2002) also saw sluggish employment. However, while the historical high in the GDP should be surpassed this year, it most likely will take several years for the economy to replace the jobs it lost during the recession.

Are we in for deflation or inflation?

The recent Federal Reserve statement noted that the pace of recovery has slowed. In that light, the Fed announced its intention to largely maintain its current monetary policy. This policy is counter to the aggressive actions that one would take if deflation was readily expected. Also, if the Fed were concerned about inflation, it would have announced a plan to shrink the money supply and raise interest rates. So, in large part the Fed is taking a wait and see attitude as the economy muddles along with its slow growth scenario. But, growth none-the-less.

I am personally more worried about the economy in the long run. Over the next few years, the Federal government will be faced with trimming the deficit. In large part this means that our elected officials will be faced with making politically difficult decisions in regards to taxes and all forms of spending - particularly entitlement programs.

Further, our leaders in Raleigh also must tighten state government’s belt or be faced with continually increasing taxes.

Similar headwinds will be found at the local level.

We can only hope that our elected officials will make sane and rational decisions that will enable the nation and state grow and prosper, while maintaining a level of services that will be beneficial and accessible to all.

For overview of this package, read here.

For analysis from Duke University’s Michael Munger, read here.

For analysis from N.C. State’s Michael Walden, read here.

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