These four graphs help illuminate where the economy is moving…
Employment graph from Econbrowser:
Employment isn’t trending anywhere near a high growth trajectory. The econ blogosphere blames either the lack of AD (demand) or structural unemployment. I say structural for several reasons. First, the unemployment rate has edged lower, not because of the slight increases in employment levels, but because workers are leaving the labor force. Although the total amount of discouraged workers are low, it could also include stay at home parents, resorting to an underground economy, going back to school, etc… Second, job openings are outpacing the employment growth rate, which means that there are jobs out there but employers are not finding people skilled enough for the job. Anecdotal evidence from the news such as the lack of well-trained computer engineers and medical technicians help illustrate the point that these high-growth fields are having a tough time finding skilled hires. Third, rising capacity utilization rates and business investment growth, both of which are indicators of an increase in AD, are on the rise. (see graphs below)
Capacity utilization rate, from Calculated Risk:
Gross Private Domestic Investment, from St. Lois Fed:
Aggregate demand is actually beginning to increase, without the lift from employment. Businesses are starting to take advantage of low interest rates in order to build more productive capital.
This leaves me to my last reason: Housing is providing most of the drag for the recovery in employment because construction workers have no where else to go.
Housing starts, from Calculated Risk:
As you can see, there is a huge gap from the peak of home building and its present level. A large share of construction employment was lost during that drop and the home buyer tax credit failed to bump housing starts any higher. There is no expectation for housing starts to rise back up to pre-recession levels. Those who were employed in the construction industry are pretty much screwed.
A recovery in employment is going to be terribly slow. Hiring skilled workers is going to be a slow process. Many of those who were employed in construction will have to face the decision of leaving the labor force, which is a decision that is even slower than the hiring process. Structural unemployment is exactly what is ailing the economy right now, but demand will continue upward as the economy reorients itself toward services.