For years, the post-financial crisis economic recovery was a jobless one as Americans struggled to find work — and as we point out after every non-farm payrolls announcement, the U.S. is still not where it needs to be.
Today, Capital Economics’ Paul Dales declares that era over. We have officially entered the “job-full recovery” era.
The main evidence: payrolls have been growing faster than GDP for the past nine months.
Dales says this is probably the result of a limit reached on productivity spending:
A lot of this is due to the slowdown in productivity growth. Since businesses made the most obvious and largest efficiency gains during the recession, there is less scope for any further improvements now. That means productivity growth is likely to remain low. Any additional increases in demand therefore need to be accompanied by further increases in employment.
Here’s the chart showing what he means:
It also may be a reflection that GDP has come way down as a result of declining investment by government. Dales says a given drop in government spending affects employment less than it does in private industry — the result, he posits, to things like unions and the fact that government is inherently less labour intensive.
This of course has implications for the Fed and the end of QE:
The upshot is that until the drag on growth from falls in government spending starts to fade toward the end of this year, the employment figures will probably continue to look better than the GDP data. Given that the Fed has said it is placing particular emphasis on the labour market, a continuation of weak GDP growth in the very near-term won’t prevent it from tapering QE3 from September.
An intriguing mix of trends for markets.
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