Productivity growth keeps U.S. recovery jobless
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Martin Hutchinson
Only 36,000 jobs were created in the United States in January. The feeble reading was adversely affected by winter weather, and a decline in the unemployment rate to 9 percent was more encouraging. But despite stronger economic data of late, job growth remains slower than in previous cycles. One culprit may be cheap money, which leads businesses to substitute capital for jobs, raising productivity.
The details of Friday’s unemployment report were more encouraging than its headline number. Lost construction jobs pulled the number down as an unusually heavy winter, including a major snowstorm in the South, reduced building activity below its normal seasonal nadir. Manufacturing job creation was relatively strong at 49,000, with several sectors benefiting.
As for the unemployment rate, calculated by a different process, much of the 0.4 percentage point decline is explained by annual revisions. But that in turn suggests that unemployment as reported may have been artificially high before. The estimated size of the labor force was revised downwards by 504,000 as of December, while the employed total fell somewhat less, naturally causing the rate of unemployment to decline.
Even with these positive caveats, job creation is running at a slower pace than after previous recessions. That does not now appear to reflect a substandard economic recovery — the recent advance estimate for fourth-quarter GDP growth was robust, while both manufacturing and non-manufacturing data for January were unexpectedly strong.
A deeper cause of anemic job creation may be the healthy improvement in productivity, which rose at a 2.6 percent annual rate in the fourth quarter and by 3.6 percent for 2010. Economic output is recovering, but very low current interest rates potentially encourage businesses to turn to capital rather than new hiring to meet the rising demand. Such an effect could help explain both healthy growth in GDP and sluggish job creation.
If that’s so, one irony is that a rise in interest rates — kept very low so far by the Federal Reserve in the hope of boosting growth — could end up making job creation more robust.