The unemployment rate is declining. Good news, right?
Not so this time, because when it comes to the economy, perspective is everything.
Policymakers need to change their perspective in order to change our economy for the better. Rather than focusing on spending, look at business investment conditions.
When considering the number of people working, the recent decline in the unemployment rate is bad news. The April report from the Bureau of Labor Statistics showed the national unemployment rate at 7.6 percent, down from 7.7 percent in March. However, most of the decline was due to the fact that nearly 500,000 people left the labor force.
The percentage of the working-age population that is working or looking for work has declined over the past five years. The U.S. civilian labor force is currently 155 million people, approximately 1 million more than at the start of 2008. As a percent of the population, however, it is 3 percent lower.
Over the same period, Idaho's labor force has grown by about 18,000 workers. But while our state's unemployment rate has dropped to 6.2 percent from a peak of 8.8 percent in 2010, there are 20,000 fewer workers on nonfarm payrolls.
Without a greater need for workers on the part of businesses, the labor market outlook is unlikely to change.
In June 2009, the 18-month U.S. economic recession ended. As measured by the drop in real gross domestic product, it was the worst recession since the early 1980s. The economy contracted at an annual rate of 1.7 percent in the third quarter of 2008, close to the 2-percent drop in the second quarter of 1980.
The early 1980s recession was followed by another period of declining GDP in 1981. Unemployment rose to 10.8 percent in 1982 and remained above 9 percent until late 1983. While declining, the inflation rate still averaged 10 percent annually through 1982.
In terms of GDP growth, inflation and unemployment, today's economy looks strong.
This is little comfort to the 11.7 million American workers who are still looking for jobs. Policymakers at the Federal Reserve have said they will not consider conditions to have improved unless the unemployment rate drops at least another point. This corresponds to jobs for roughly another 1.5 million workers.
To achieve such an economic rebound, we need increased private investment.
Investment is fundamental to long-run growth for any economy.
In terms of private investment, this economic recovery is one of the worst on record.
After the recession in 1980, private investment in equipment, software and property rose 12.3 percent and 13.1 percent, respectively, in two quarters that followed.
After the subsequent 1982 recession, investment spending grew 9.1 percent in 1983 and more than 30 percent in 1984.
There is little investment to help today's economy. Since the end of the recession, private U.S. investment has grown at an average annual rate of only 5.4 percent.
Despite rising income, Idaho businesses are not investing and hiring. According to the most recent report from the Division of Financial Management, nonfarm proprietors' income has grown 5.8 percent and farm income at 28 percent per year since the end of the recession.
A historical perspective does not shed a favorable light on our economic outlook. U.S. policymakers must change their focus and consider why businesses are unwilling to invest.