- The Washington Times - Monday, September 5, 2005

With an energy crisis looming, the government reported mixed information about the economy in recent days. Two of the broadest measures of the economy — nonfarm payroll employment and total output of goods and services, which is measured by gross domestic product (GDP) — reflected healthy increases. Other data relating to incomes, personal saving and inflationary pressures from rising energy costs had ominous implications.

The Labor Department reported Friday that nonfarm payrolls increased by 169,000 jobs in August after rising by 242,000 in July and 175,000 in June. Nonfarm payroll employment is now 1.5 million jobs higher than it was when George W. Bush became president. However, two-thirds of that net employment increase, or nearly 1 million jobs, occurred in the government sector. Also, the unemployment rate declined from 5 percent to 4.9 percent last month. That’s the lowest unemployment rate in four years.

Normally, when the unemployment rate falls below 5 percent, it indicates a tightening labor market, which should lead to rising earnings for the vast majority of private-sector workers. For example, the last time the unemployment rate fell from 5 percent to 4.9 percent was July 1997, when inflation-adjusted average weekly earnings were 2.1 percent higher than the previous year for production and nonsupervisory workers, who comprise 80 percent of the private-sector workforce. Those inflation-adjusted earnings would rise another 5.3 percent before reaching their cyclical peak 25 months later. For July 2005, however, inflation-adjusted average weekly earnings for the 90 million production and nonsupervisory workers in the private sector were less than they were at the trough of the 2001 recession and 3 percent below their most recent cyclical peak.

Meanwhile, the Census Bureau recently reported that inflation-adjusted median earnings for full-time male workers declined by nearly $1,000 last year. Comparable earnings for women decreased, by more than $300 in 2004, for the second consecutive year.

Average weekly earnings and median full time annual earnings are falling perhaps because the labor market isn’t as tight as the headline unemployment rate would suggest. In fact, if the labor-force participation rate in August 2005 were as high as it was in July 1997 (the last time the jobless rate fell to 4.9 percent), then the current unemployment rate would be 6.3 percent, nearly 30 percent higher than the reported rate of 4.9 percent.

The Commerce Department reported last week that the personal saving rate actually turned negative for July. Thus, in the face of soaring energy prices (gasoline, heating oil, jet fuel, natural gas, etc.), inflation-adjusted earnings have been falling for a majority of workers and total personal outlays (consumption) now exceed total personal income, which means that households in the aggregate are spending more than they are earning. That doesn’t leave much of a cushion for dealing with another full-blown energy crisis, should one erupt.

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