In 2015, American workers began finding new jobs at a time when the United States economy was supposed to take off. However, Americans were not able to find employers who were willing to contribute to meaningful pay increases. Data suggested that unemployment was at a seven year low and the economy was at a steady pace when it came to job growth. This data was released at the same time the Federal Reserve was considering a raising interest rates. This would be the first time in almost a decade the Federal Reserve considered making such a decision. In the year of 2015, the United States added 173,000 new jobs to the economy. During this time, the unemployment rate dropped to approximately 5.1 percent. This was the lowest national unemployment rate to ever exist throughout the U.S. However, wages for all jobs throughout the nation’s economy are still flat (Harlan et al).
The Department of Labor’s data was highly anticipated by policymakers and investors. This was their way of telling whether or not the economy is ready to close the doors when it came to cheap borrowing. However, this new data simply underscores why the debate over low wages is so fraught. Due to the uneven growth at home and the unsure stock market, it became apparent that the U.S. economy may not be able to handle an interest rate increase during that time period (Harlan et al).
The economy is still soaring when it comes to unemployment rates. The United States unemployment has never been as low in the past 40 years as they are today. However, several individuals believe that that should encourage better wage growth throughout the U.S. economy. “Though jobs growth last month was below the 212,000-per-month pace of the year, payroll figures for June and July were revised upward by a combined 44,000 positions” (Harlan et al). In August, more individuals found jobs causing the unemployment rate to fall. However, the unemployment rate also fell because of individuals who gave up on looking for a job.
In August of 2015, the average hourly wage rose to $25.09. This was an eight cents inclined from July. However, the year-over-year growth when it comes to hourly wages has been crawling since the last financial crisis. In other words, employees have seen minimal increases in wages for the past seven years. Workers are beginning to see buying power because of the slow rise of prices across the nation. However, consumer prices have stayed the same throughout the past year. When with commodities out of the picture, prices have only risen approximately 1.2 percent throughout the past year. This is lower than the Federal two percent target. Two percent is considered a sound economy (Harlan et al).
Inflation and job growth are commonly linked. This is due to the fact that as more individuals get jobs and raises, the prices of commodities increase. Some believe that the labor market may tighten at some point. This will lead to pressure on higher wages, which will result in inflation. This leads to the common debate when it comes to wage increases: is it economical to increase wages when inflation is low? Some believe this will only result in higher inflation rates. However, increasing wages is still important for the Federal Reserve. This has lead them to push for full employment throughout the country. Full employment is usually defined as low unemployment rates with an “uptick in worker incomes” (Harlan et al). Currently, the United States economy has one but not the other.
Policymakers are divided when it comes to the cause of what is happening with wages and the United States economy. Some believe that an increase in wages is right around the corner, while others believe that salaries are being pushed down due to fundamental changes within companies. In other words, the companies are responsible when it comes to low employee wages. These individuals also believe low wages are due to a decline in union membership or by the group of individuals who are not currently seeking work (Harlan et al).
Before the data was released, investors thought the Federal Reserve would make their increase in September. However, due to the market volatility throughout the last month, the Federal Reserve may not increase interest rates until a later time. Since the start of August, the Dow Jones Industrial Average has taken a fall to of more than 9 percent. Also, the slowdown in China also causes pressure on the United States economy. However, the United States trade with China accounts for less than one percent of the U.S. GDP (Harlan et al). This data has suggested to several policymakers and investors that the U.S. economy is not currently ready for an increase in interest rates.
After the data was released, the President of the Federal Reserve announced that the economy is strong enough to handle a small increase by the Federal Reserve. He stated that consumer spending and the decline in unemployment over the past two years is the reason why the economy can withstand such a small rate. Furthermore, the President of the Federal Reserve also stated that if the country waits too long to increase interest rates, than it would require a more dramatic increase once the country does decide to increase the rates. However, the individuals at the central bank believe otherwise. They state there is no need to rush into action. This is due to the stagnated wage growth for the past year that suggests that the economy still has room to recover (Harlan et al).
Furthermore, in August, almost one-third of the job growth throughout the economy was driven by the health care industry. This is one of the most reliable industries in the country when it comes to recovery from the recent financial crisis. However, other industries were not so lucky. The manufacturing sector cut 17,000 jobs in one month, the mining industry lost 9,000 jobs. Furthermore, the oil prices are down over 50 percent than they were a year ago. This has led to several analyst pointing out that the government data underestimates the job growth throughout the economy. According to Goldman Sachs, the last five years of “August estimates have been revised by an average of 79,000 jobs” (Harlan et al).
Note from https://www.washingtonpost.com/news/wonk/wp/2015/09/04/u-s-to-release-data-on-jobs-growth-in-august/
As shown above, the overall unemployment rate throughout the country has steadily been declining over the past seven years. Thus, more and more individuals are retaining employment each year. As the graph illustrates, the economy is almost to the place that the Federal Reserve describes as full employment. However, according to full employment, there must be an “uptick” in employee income. In other words, wages must be increased during full employment in order for the economy to be sound. Especially when it comes to increasing interest rates. As mentioned above, the current U.S. economy satisfies one of the requirements and not the other.
As the graph indicates, the unemployment rate has fallen five percent in the past seven years. This steady decline has contributed to a more stable economic environment. However, this graph does not depict the amount of income these individuals are receiving. In order for the economy to satisfy full employment, employees must see a gradual raise in income. Thus, the income graph should look the opposite as the unemployment graph.
Note from http://econintersect.com/b2evolution/blog1.php/2013/03/31/household-income-depression
As the graph shows, after the financial crisis, unemployment increased and annual income decreased. In order for the economy to be sound and able to take on such increases, not only does the unemployment rate must decrease, but the annual income must increase as well. The Federal Reserve is looking towards the unemployment data in order to dictate whether or not the economy is ready for an increase in interest rates. However, some believe they are not paying enough attention to the low wage increases that this country is currently suffering from. Just because less individuals are unemployed throughout the country does not dictate or state what each individual household earns. This is what should really be considered when looking at an interest increase.
Works Cited
Harlan, Chico, Mui, Ylan. “Unemployment rate falls to 5.1 percent, but Americans are not finding pay increases.” (2015). Assessed 9 April 2016, from <https://www.washingtonpost.com/news/wonk/wp/2015/09/04/u-s-to-release-data-on jobs-growth-in-august/>.
Lounsbury, John. “Household Income Depression.” (2013). Accessed 9 April 2016, from <http://econintersect.com/b2evolution/blog1.php/2013/03/31/household-income depression>.
