It’s all about jobs.
The rough patches and disappointments that are plaguing the US economy are all symptoms of one thing, according to Tim Hopper of TIAA Global Asset Management. The slack left in the labour market.
For instance, said the chief economist, the downturn in capital spending by businesses and the declining productivity of workers has to do with the ability of businesses to pay people less than it costs to buy physical assets.
“One way to improve productivity is to buy better equipment that makes workers more productive,” Hopper told Business Insider. “The problem is, with low wage growth and continued labour market slack, it’s cheaper for businesses to just hire a new person instead of making that big investment.”
Essentially, with more Americans willing to take a smaller paycheck to get a job, the cost of labour as compared to large equipment is cheap.
Hopper said that while there have been strong headline gains in the monthly jobs report, the fact that wages are still growing slower than before the recession and that people are coming from out of the workforce directly to employment shows there is more room to grow.
Additionally, the low inflation that has been a significant thorn in the side of the Federal Reserve is also a symptom of the continued job market weakness.
“Wages and inflation are connected by the Phillips’ Curve,” said Hopper. “So the slower wage gains post-financial crisis are making it nearly impossible to deliver the kind of inflation the Fed wants.”
Additionally, Hopper said that the records being set in job openings are indicative of the same good, but not great labour environment.
“The labour force has grown in terms of raw numbers, so you would expect new records in job openings simply as a symptom of a bigger economy,” said Hopper. “It’s actually telling that we’re not setting records consistently and by a larger margin.”
All in all, a lot of the problems that are nagging the US economy, even the lower-than-desired GDP growth, can trace their roots back to the labour market.
“Shoring up the health of the labour market is core to getting us back on track,” Hopper concluded. “That’s what you have to focus on to fix everything else.”