Released today, the US employment report for July shows the 33rd consecutive month of positive job gains, by my count. Earlier in the week, the US Department of Commerce reported showed that the 2nd quarter was the 16th consecutive quarter of positive GDP growth. Of course, the growth in employment and income has not been anywhere near as strong as one would like, nor is it as strong as it could with a more intelligent fiscal policy in Washington. But it is much better than what most other industrialized countries have been experiencing. Many European countries haven’t even recovered from the Great Recession, with incomes currently still below their peaks of six years ago.
US job growth has averaged 186,000 per month over the last two years, and 167,000 per month over the last three. Most people are aware of the improvement relative to the horrendous job losses during the 2008-09 recession, but they are probably not aware of how the recent recovery looks compared to the previous business cycle. During the six years of recovery between the end of the 2001 recession and the economic peak at the end of 2007, job growth averaged 100,0000 per month, substantially lower than the current job count. The difference is even greater if one looks at private sector jobs numbers, because government employment expanded substantially under the Bush Administration whereas it has been contracting in recent years.
GDP growth has fallen well below 2% in the last three quarters. But, that can also be blamed on the US's dysfunctional fiscal policy. Washington politics have been the obstacle to a normal robust recovery, through a combination of factors, including spending cuts in 2011 and 2012, the expiration of the payroll tax holiday in January 2013, the sequester in March, and now needless business uncertainty arising from battles over the country's debt ceiling and the federal budget. Given all that, it is surprising that private consumption and investment have held up as well as they have.
The right policy response, of course, is fiscal stimulus in the short term, not fiscal contraction, combined with steps to address the problems with funding entitlement programs in the long term. Our current pattern of pro-cyclical fiscal policy is exactly backwards.