The most recent employment and other broader economic data suggest that the pandemic economy is now caught in a low-growth rut, a plateau, with little in the way of meaningful prospects for acceleration. We saw this in Friday’s pale employment report, which pegged September’s job growth at just 661,000 when some 850,000 were expected. That said, it is clear that when the Commerce Department’s report arrives later this month, third-quarter GDP growth will look unusually strong. But that’s what we should expect when the economy is coming back from the dead. Still, even plateaued growth represents meaningful progress relative to March, April, and May, but the desired just-right, Goldilocks economy is nowhere in sight.
The Yahoo-organized March-September jobless claims data do a good job of showing what plateaued growth looks like. The monthly new claims data are simply stuck at around 820,000.
The fact that the broader picture is still a positive one is shown in the Philadelphia Fed chart offering a rendering of August coincident indicators for the 50 states.
Note the just-released data indicate that just one state (New Mexico) is showing negative growth. But aside from the positive point, the shades of blue that portray positive growth are not showing a dominant darkening trend. Yes, this may not be Camelot, but it’s a lot better looking than the dismal picture seen in May when every state showed negative prospects.
News that Disney, the airlines, and major retailers would be terminating thousands of workers who were previously hoping for either bailouts or stronger economic recovery puts downward expectations for a positive break in the plateaued data. Even more troublesome for those who would love to see 3-4% steady-state growth in real GDP again soon, the two GDP-producing ingredients (workforce and productivity growth) are also looking pale.
Let’s face it, immigration isn’t what it used to be, and neither presidential hopeful is likely to turn up the light on the Statue of Liberty. Furthermore, the latest productivity data show weakness, not strength.
Wall Street Journal economist Greg Ip makes references to these two key GDP growth variables in his analysis of the Congressional Budget Office’s latest economic assessment of longer-term prospects. As Ip indicates, lower birth rates and, therefore, fewer future workers go with recessions, and productivity growth seems to be going nowhere. As a result, the CBO projects 1.8% annual real GDP growth over the next couple of decades and 1.5% in the 2040s. Where is the Goldilocks economy when we really need it?
Of course, major unexpected changes will ripple through the economy in both the short and longer run. After all, no one had heard of the coronavirus at this time in 2019. And millions of unemployed U.S. workers may decide that work is better than the alternative. On top of that, technical change is always part of the mix that yields future prospects.
But we must remember that the long run is made up of a series of short runs, which brings us back to the current picture. For now, the U.S. economy is caught in a low-growth rut, and one that will generate a stronger 2020-2021 economy, but not good enough to bring back the Goldilocks, just-right amount of economic growth.
Don’t look for a sudden fix, no matter who wins the November election.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.
