The United States economy may have turned the corner. An impressive jobs report has kindled hope that the long-sought rebound may finally be taking place. While the White House is welcoming signs of recovery, it rightfully worries about over-inflated expectations. The employment news is good, not great, and a durable recovery is anything but assured. Indeed, the chief concern now is the danger of complacency preventing policy makers from taking steps needed to ensure that a repeat of the global economic crisis does not occur.
According to U.S. government statistics, the U.S. economy added 162,000 jobs in March, the biggest uptick in three years. It is also the third expansion of U.S. payrolls since November.
The recovery was broad-based. Temporary employment topped 40,000, the payrolls of health care and social services providers grew 37,000 (the biggest gain in those sectors in nearly two years), manufacturing added 17,000 jobs and the retail sector added just under 15,000. Transportation and warehousing companies added another 7,800 jobs, the biggest growth in those industries since September 2007.
The construction sector also took on new employees for the first time since mid-2007, but statisticians consider that a blip after the horrific weather of February. Still, the sector seems to be regaining its feet and construction work should increase as weather improves through spring and summer.
Nearly one-third of the new jobs were created by the government as it began the decennial task of collecting census data. Some economists complain that this work is only temporary, but any job that includes payment produces a stimulus that then cycles through the rest of the economy. Most significant of all is that the remaining 123,000 new jobs from March were created by the private sector, the most it has added since May 2007.
Encouraging as those numbers are, the bottom line is still dispiriting. The U.S. economy has lost 8.4 million jobs since the recession began. The unemployment rate held steady at 9.7 percent, but if the category is expanded to include people who stopped looking for work and those settling for part-time jobs, the rate is 16.9 percent. More than 11 million are drawing unemployment benefits, and the average period of unemployment has reached 31 weeks, the longest since record-keeping began in 1948.
Economists reckon that the U.S. has to create 100,000 new jobs each month just to absorb new entrants to the labor force. It is a daunting assignment. Failure is sure to have consequences when the U.S. goes to the polls for midterm elections in November. The White House message is that the country is battling “a terrible situation, the most pressing economic problems since the Great Depression in our country,” in the words of Mr. Lawrence Summers, director of the National Economic Council. The Obama administration wants voters to remember that it inherited this mess from a Republican president. For Republicans, the message is simpler: The economy is bad and the Obama solutions are only compounding the nation’s problems.
There are three critical steps to creating a sustainable, enduring recovery. Only two are entirely in the hands of the U.S.
First, Washington — like other advanced economies — needs to continue the stimulus measures that have provided a floor for economic activity. Of course, there are limits to how much a government can spend, but demand in the global economy today is not enough to keep economies growing. There will come a time when the U.S. and its partners will need to restrain spending, but that time is not here yet.
Second, there has to be effective reform of the regulatory system to prevent the abuses that brought the global financial system to the brink of meltdown. This too must be part of a global effort, but the central role of New York in global finance, the size and power of U.S.-based banks and the example set by Washington put a premium on American reforms. This crisis was created by a combination of an inadequate regulatory framework and failures of oversight by institutions that purported to have authority. There must be oversight of all banking and credit instruments, limits on the leverage banks are allowed to have and perhaps limits on the size of financial institutions. No bank should be too big to fail.
Finally, a more balanced global economy must be developed. The U.S. remains the market of last resort for far too many goods. The U.S. lives beyond its means, but that profligacy is essential to global growth because no other country will provide demand of such an enormous level. Complaints about U.S. over-consumption ring hollow when it is U.S. consumption that fuels production — and growth — in exporting countries. Tokyo and Beijing buy U.S. Treasury bills, but that “credit” is what finances the purchase of products made in China or Japan.
The global economy is truly interdependent, and there is no retreating to the autarky of earlier years. But there can and must be recalibration of the division of labor among its key players. Even when the U.S. economy resumes a sustainable growth trajectory — and we are confident it will — things will not go back to how they were before the onset of the global crisis.
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