Two sets of recently released government data present a contradictory picture of the state of the nation’s economy. On the one hand, the Commerce Department reports that the economy expanded at an annual rate of 5.8 percent for the first three months of the year. On the other, the Labor Department reports that unemployment rose to 6 percent in April, hitting a 19-year high. Both numbers deserve closer examination.
More than half of the first quarter growth in gross domestic product is attributable to the fact that businesses have begun to rebuild inventories after running them down in the last three months of 2001. Since inventory build-up is, essentially, a one-time shot in the arm, it is a poor bellwether for predicting the future direction of the economy. Rather, a sustained upturn depends on increased business investment, investment that has fallen nearly 6 percent since January 1, 2002, in the face of excess capacity.
Nor is the fact that total payrolls increased by 43,000 in April reason to bet the farm on the future of the economy. With the exception of the 2,000 jobs created in all levels of government, all of April’s job growth was in the service sector, where temporary jobs grew by 66,000 in April after an increase of 60,000 in March. While it is true that the April unemployment increase is the first since last July, the fact that 174,000 private sector jobs have been lost so far this year is a more reliable indicator of the current strength of the labor market, and therefore the strength of the recovery, such as it is.
But whatever the short term future, some 9.5 million workers are without jobs, about 8 million of whom are counted as “officially unemployed.” Worse yet, as of mid-April only 3.84 million workers – barely 40 percent of all unemployed workers – were receiving unemployment insurance (UI). This represents an increase of more than one million compared to the same time last year and is the highest number drawing jobless benefits since February 1983.
Add to that the fact that the number of workers who have exhausted their UI benefits has almost doubled from a year ago and one conclusion is inescapable: There’s been precious little recovery for millions of workers. Nor does the April unemployment report offer any encouragement:
• Unemployment is now up over two percentage points from its low of 3.9 percent in October 2000 and will probably reach 6.5 percent before beginning to decline.
• The ranks of the unemployed have grown by slightly over three million persons since October 2000.
• The share of the long-term unemployed – those unsuccessfully seeking work for 27 or more weeks – rose 1.3 percentage points to 17.6 percent in April.
• The average length of a spell of unemployment was 16.6 weeks, up more than four weeks since unemployment bottomed out in October.
• The number of workers forced to work part-time because they could not find a full-time job increased by 161,000.
• Manufacturing jobs declined by 19,000, marking 21 consecutive months of declining jobs in manufacturing industries and bringing the total number of lost manufacturing jobs to l,742,000 since July of 2000.
• Continuing high levels of unemployment have eroded wage increases that grew by only 2.8 percent in the first quarter of 2002 while inflation grew at an annual rate of 3 percent.
• The April unemployment rate among African American workers was 11.2 percent, nearly double that of the nation as a whole, while 7.9 percent of Latino workers were counted as unemployed.
With investment weak and the trade deficit back on the rise, the April unemployment report is nothing to write home about. Last fall’s plunge in mortgage interest rates and gas prices both gave the economy a big boost that lasted into the first quarter. But these sources of stimulus are now fading or being reversed, as in the case of gas prices. This makes a double-dip recession a serious possibility.
The author can be reached at fgab708@aol.com
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