One Man’s Opinion: Will Growth In The Second Half Be Stronger?

92835431The latest jobs report is positive as it shows the economy continues to heal though there is a lot of work that needs to be done, said Alan Krueger, a professor at the Princeton University and former chairman of the White House Council of Economic Advisers.

There are longstanding problems that even predate the recession that need to be addressed. But the latest data shows the expansion is continuing and may be even gathering a little bit of steam. It’s been a steady recovery, and it looks like it’s going to keep going, he added.

Asked if the recovery will gather steam or simply continue to notch up incremental gains, Alan said the economy needs to build on the progress that it has achieved so far and incremental gains is probably the best thing people can hope for given the nature of the crisis. The economy continues to experience some weaknesses given how much wealth was destroyed and how much overbuilding took place in construction.

But the current situation is kind of “steady as she goes.” As long the recovery goes on, more components (of the economy) will come back. The second half is likely to be stronger than the first half. Gross domestic product growth will be stronger, and the economy will average close to 2.4 million jobs annually, which is stronger than the year before. The momentum is gradually building up, he argued.

Asked if more jobs in the manufacturing sector would have been better, Alan answered in the affirmative. However, even in the last recovery the economy was losing hundreds of thousands of manufacturing jobs and it fell off a cliff in a recession. Since then the economy has added 500,000 manufacturing jobs, which is a good start.

The other thing to note is that the production, non-supervisory wages of workers have gone up 2.4 percent over the last 12 months, which is relevant for about 80 percent of the workforce (in manufacturing). If the bottom 80 percent witnesses wage gains, then that will help bring back the missing demand in the economy and will help strengthen consumer purchases, especially purchases of discretionary items which has been very weak, he noted.

The nonfarm payroll reading for May was mostly unremarkable because it pretty much met expectations. However, unlike previous years, when things took off nicely only to taper off later, this year the economy has added more than 200,000 jobs on average for four months in a row. Asked if the economy has reached a turning point, Alan said the recovery is gradually gaining momentum. Even manufacturing improved; work hours increased in manufacturing which indicates there could be additional hiring in future.

It also indicates the economy continues to expand at about the rate it had been. More such reports, which show 2.4 million/2.5 million jobs created annually, will signal the economy has started to regain momentum and build on the progress. Employment is back and above where it was the previous peak in terms of employment.

It took much too long to get there because the recession was far too deep. But it is a milestone that the economy has now more payroll jobs than it ever had had before. Surely, the economy needs to add more than 2.5 million jobs annually to make up for the lost opportunities, but at least it is expanding at a reasonable clip, he concluded.

You can watch the video here.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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