Job Growth in the U.S. Its impact on the Federal Interest Rate
The nation is glad to be closing the book on the Great Recession’s unemployment rates and low household incomes. According to a story published in The New York Times in December 2016 by Neil Irwin, the new jobs numbers signal the end of an economic era — one which included high jobless populations last seen more than 70 years ago.
Patricia Cohen (The New York Times) reported that the economy “has added private sector jobs for 80 months, put another 178,000 people on payrolls last month and pushed the unemployment rate down to 4.6 percent today from the 4.9 percent the previous month.”
Michigan has seen its share of ups and downs economically, many of which were unique to the rest of the nation. In order to fully understand what the new facts and figures mean, let’s recap our outlook over the Great Recession and the last decade.
Michigan State University (MSU) Economics Professor Dr. Charles Ballard spoke about the nationwide effects of the recession.
“It was by far the worst downturn since the Great Depression of the 1930s,” Ballard said. “With over eight million job losses, the economy was reeling from the blow.”
Ballard spoke about Michigan’s economic highs and lows regionally during this time.
“Michigan had a horrible decade in the first decade of this century,” he said. “Michigan employment peaked in the spring of 2000 and bottomed out almost exactly ten years later in the spring of 2010.”
“There’s no way to overstate how horrible the Great Recession was,” Ballard said. “Even though our economy is more diversified than it was before, if you go back 50 years — 25 percent of our economy was the auto industry, and now it’s six percent. But still, a huge downturn in the auto sector like we had in the great recession has to be bad for Michigan, and it was in a big way. So, the most astonishing statistic is that in one month — from December 2008 to January 2009, we lost more than 100,000 jobs. From the top to the bottom, we lost 18 percent of all the jobs we had, which was not distributed evenly across all sectors. Michigan lost half of its manufacturing jobs in that period and then, in the last six years, we’ve gained some of them back.”
Locally, large employers including MSU, Sparrow Hospital, the State of Michigan and other businesses headquartered in Lansing including Liquid Web and Niowave, aided the area from being virtually wiped out, much like southeastern Michigan cities were.
“The Lansing area is close to its all-time high for employment rates,” Ballard said. “Michigan is still well below its all-time high for employment, which was achieved in 2000. That’s because there are parts of Michigan, especially in the southeast side of the state, that were hit even harder than Lansing.”
Even after the recession began to release its grip, there were still many people looking for jobs in the workforce.
“It’s really only in 2015 that we finally got the labor market tight enough that workers could start getting noticeable wage increases, and so that’s why household income went up quite strongly in 2015,” Ballard said.
While the new numbers show great improvement and look promising for the nation’s economy in the future, political uncertainties can greatly impact the outlook for 2017 and beyond.
“We’re not really sure what policies will be enacted,” Ballard said. “We’re not sure what the administration’s proposals will be. A lot of policies require congressional approval, and the Federal Reserve has considerable power over interest rates.”
Federal interest rates were increased last December, after keeping it near zero for seven years. This December, rates were increased for the first time this year. This 0.25 percent increase takes the rate of 0.50 to 0.75 percentage points. This increase will affect homebuyers, savers and investors.
Ballard spoke on the increased interest rates.
“The Federal Reserve has indicated a willingness to continue on that path, perhaps three more rate increases in the next year,” he said. “And that is certainly consistent with a lot of the things with policies that might be enacted next year.”
Many of President Trump’s proposed plans and stances have been controversial and contradictory, so uncertainty is in the air for many businesses. One of such proposed changes is a not an increase, but rather, a cut. With this campaigned tax cut, the U.S. deficit would be increased, according to Ballard, by about half a trillion dollars per year.
“That will mean that the U.S. Treasury will have to go into the credit markets, more and more, to look for people who are willing to lend us money, to refinance our existing debt and to finance new debt. That certainly seems like it would put upward pressure on interest rates, regardless of what the Federal Reserve does. I think they’re quite likely to respond to that by fulfilling the suggestion that they would raise interest rates.”
The unknown, and unanticipated effects are both especially hard on small business, according to Rob Fowler, president of the Small Business Association of Michigan (SBAM). Fowler is very aware of the impact of national changes on Michigan’s economy and business.
“Uncertainty is always a challenge for business and the sooner it comes clear what part of that agenda is going to be implemented, the better I think — for our businesses here in Michigan,” Fowler said.
One thing that’s become more certain is the need for businesses, especially small businesses, to attract talent and retain employees. Many professionals start off at small companies and then find jobs at larger corporations. Small businesses have had trouble in the past retaining employees, especially with being able to afford to offer health care to their employees, with the Obamacare generation. This is one major change that might be altered with the new President’s plans and proposals. Although the new jobless rates are down, there might be a whole new set of issues to face. Gone are the days of thousands of able-bodied workers looking for jobs, but rather workers ready for wage raises and better benefits.
“I think some of our members would say now you’ll have to pay more,” Fowler said, of attracting and retaining talent, “which is an issue if you’re in business, but it’s a really good issue for Michigan.”
Although some political facets like proposed legislation, laws and rates are unknown and fairly difficult to predict, the nation’s job rates reports show a light at the end of the recession’s tunnel.
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