The Lehmann Letter (SM)

Yesterday’s letter reported on the Federal Reserve’s June 18 upbeat assessment of the economy. The Fed made a point of noting improved labor-market conditions.

Here is a key excerpt:

“Information received since the Federal Open Market Committee met in April indicates that growth in economic activity has rebounded in recent months. Labor market indicators generally showed further improvement….

“The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions…..”

 But a June 14 New York Times article by Alicia Parlapiano, Shaila Dewan and Nelson D. Schwartz pointed out the changing employment mix and lack of wage gains that have accompanied the employment recovery:

“The Nation’s Economy, This Side of the Recession”


Here is the authors’ summary. Note the surge in fast-employment:

“Not all industries recovered equally over the past five years. Those that paid wages in the middle of the economic spectrum fared the worst over all, while low-paying industries hired the most during the recovery. Fast-food restaurants — which pay less than $22,000 a year, on average — added more jobs than nearly any other industry. Several high-paying areas also helped drive the recovery, including oil and gas extraction, computer programming, consulting, doctor’s offices and investment firms.”

At the same time residential construction has made an incomplete recovery. That, of course, means the loss of high-paying construction jobs from the employment mix.

As the Times article notes:

“The collapse of the mortgage-fueled housing bubble was the central cause of the recession. Although housing’s revival over the last couple of years has helped stabilize the economy, the sector will probably never again contribute as much to economic activity as it did during the boom years of the early 2000s.

“Moreover, after scraping along the bottom for so long, it’s not clear what a normal housing industry would look like. Prices have rebounded, builders are breaking ground on new developments, foreclosures have dwindled and households are forming once more. But almost one in five homeowners with mortgages owe more than their homes are worth.

“Even after double-digit price increases, houses are still about 15 percent below their peak value, on average. The situation varies widely across the country, however, with energy-rich states like Texas and North Dakota surpassing their old peaks while those that were hit hardest, like Nevada and Florida, still far from their previous highs.”

As this letter has observed, residential construction is ground-zero for much of our recent history.

(To be fully informed visit http://www.yourowneconomist.com/)

© 2014 Michael B. Lehmann