The consumer can't seem to pull the economy out of the doldrums anymore. The public is weary of trying to cope with personal and family debt. Personal savings have been gobbled up, and the savings rate is down from 4.7 percent to 2.6 percent in the first quarter of this year. Two-thirds of those employed today between age 45 and 60 do not expect to enjoy the retirement they've worked and saved for because of the decline in family net worth caused by the housing crisis, and with pensions seen as being at risk.
We need a minimum of 250,000 new jobs per month to drop the unemployment rate by a little more than 1 percent over a year. This means that the economy needs to grow at almost double the current rate of 1.5 percent.
Employment prospects are closely tied to education. The educated segment of the population has seen employment expand 9 percent so far during this cycle, while the uneducated pool has suffered a 9 percent decline. Employment is shockingly low for those who did not finish high school or who graduated but did not go any further. The unemployment rate for youth is 16 percent and would be considerably higher if the 1.5 million young people who have dropped out of the labor force during this cycle were counted. Equally troubling, there has been a dramatic increase in part-time, low-wage employment.
Some 40 percent of the unemployed ranks have been out of work for more than six months – more than double the historical norm. These folks are becoming increasingly unemployable. Indeed, the only reason the unemployment numbers are looking better is because the labor participation rate has fallen by 2.4 percent since the recovery began in mid-2009. This is unprecedented. The largest decline is in the younger age cohort. Eleven million people who want to work but are simply not looking are not represented in the unemployed statistics.
We are in the 45th month of a so-called expansion. Typically, nonfarm payrolls would be rising by 285,000 per month, but we have only exceeded this number three times over the last 45 months.
The hallmark of this recovery is no follow-through. We have to go back to the summer of 2007 to find the last time we saw two quarters with 3 percent-plus growth in GDP.
The weakness of this recovery is reflected in the fact that, more than four years into it, none of the four major categories that define the contours of the business cycle have actually managed to recoup their recession losses. Production, manufacturing output, trade sales, total payrolls, full-time employment, real personal income and transfers, and real disposable income per capita are all down. This, too, is unprecedented, and takes place in the context of four years of the lowest policy interest rates ever and the tripling of the federal balance sheet through deficit spending, with four straight years of trillion-dollar deficits. These deficits, to a large degree, have been spent unproductively. Way too much of the stimulus package failed to create new jobs, except for government employees.
We need the domestic equivalent of the Marshall Plan that saved Europe after World War II. Three things we should do at once: