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We’ve definitely seen an increase in job creation recently. This is generally a good economic sign: more jobs being created means consumers are more willing to spend money, thus stimulating the economy. We haven’t seen this lately though, leaving many to wonder what’s up? On this week’s Mullooly Asset Management podcast, Tom and Tim discuss why more jobs haven’t necessarily translated into more spending from consumers yet.
Tom Keene and Michael McKee of Bloomberg Radio recently interviewed John Herrmann, Director of Interest Rate Strategy at Mitsubishi UFJ Securities. They spoke about the increase in job creation seen in recent years. The caveat in the otherwise encouraging numbers has been that many of the jobs are part time. It’s very true that new part time jobs are better than no new jobs, but it’s important to consider what part time work entails. Part time employment doesn’t exactly inspire the same confidence that full time employment does. Many individuals may be relieved to find work, but also may worry that during the next economic downturn they’ll be the first worker to get cut.
It would obviously be preferable if these new part time employees evolved into full timers. This won’t realistically happen for everybody though. In fact, many are worried that this new trend of part time employment will become permanent.
Where does all of this leave the American economy? To put it simply, kind of a weird place. People aren’t quite as miserable as they were 4-5 years ago, but they’re also not encouraged enough to consider spending their discretionary income on things like cruises, new furniture, new cars. etc. Credit expansion is something we look for in a recovering economy, and it’s been conspicuously absent so far.
During the interview Herrmann mentioned an interesting point about new job creation. The age group benefiting the most from increased job creation has been those age 50 and above. Let’s think about this demographic generally for a moment. On the whole, are those age 50 and above spenders or savers? We’d venture to say they’re probably savers. Most people in their fifties already have a home, furniture, cars, etc. They aren’t as likely to provide the type of spending we need to see economic growth. Individuals who are over 50 are more likely to use their discretionary income to pay down existing debts.
How does all of this fit into the “when will the Fed raise rates?” discussion? The Fed has said it’s looking for wage growth to improve along with a decrease in the unemployment rate. Wage growth did budge a bit recently, but inflation remains low. The general consensus seems to be that while the Fed may be raising rates sometime this year, it’s likely to be at a much slower pace than they’ve done in the past. Only time will tell the story, as nobody can predict the future. We found Herrmann, Keene and McKee’s breakdown of new job creation enlightening though, and hope you do too!