Despite more Americans finding employment, workers shouldn't expect any big changes in their paychecks just yet.
Workers can be forgiven if they don’t rejoice in Friday’s jobs report.
Employers added 214,000 jobs in October, pushing the unemployment rate down to 5.8%. This is another sign the U.S. economy is starting to get on a roll.
Businesses have added an average of around 230,000 jobs a month since January, when the unemployment started off at 6.6%. Stocks have been hitting all-time highs. And the Federal Reserve just announced that it was ending the third round of its stimulative bond-buying program thanks in part to the fact that the labor market has been improving.
Despite these positive trends, though, there still remains significant slack in the labor market. Millions of discouraged workers who want a job have given up looking — or are working part-time when they prefer full-time employment.
Moreover, the long-term unemployed are still much less likely to find a job now compared to before the 2007-2009 recession, and employees still don’t feel confident enough about their situation to quit their job in search of a high paying one. Meanwhile the unemployment rate lags the pre-recession low by more than a percentage point.
This might help to explain why Americans are still so pessimistic about their personal finances.
Almost three in four Americans think the economy was permanently damaged by the Great Recession, according to research by Rutgers University, which is actually more pessimistic than right after the recession. Moreover, only 37% say their finances are good or excellent shape, per recent Pew Research Center data.
Workers also understand that whatever raises they do get probably won’t outpace inflation. Take the Employment Cost Index, which measures workers salaries and benefits. Before the recession, the ECI rose at a year-over-year rate of more than 3% for about two years. Since 2009, though, the ECI hasn’t jumped above 2.2% (which, to be fair, was last quarter.)
And while the Fed did decide to end its bond-buying — otherwise known as quantitative easing — short-term interest rates remain essentially at zero, with expectations of a small hike potentially put off until well into 2015. By keeping rates so low for so long, the Fed is essentially signaling that consumer demand just isn’t there. Yet consumer demand is an essential ingredient in the recipe for gaining raises.
“We didn’t hear anything that causes us to reconsider our outlook that the Fed will follow a ‘lower for longer’ course when it comes to interest rates,” wrote USAA’s John Toohey in a recent note. “The U.S. recovery from the 2008–09 financial crisis has been slow and at times fragile, so our thinking is that the Fed will not want to risk a setback by raising rates too quickly. What is ending now is the third round of QE since late 2008; after the first two wrapped up, economic gains soon stalled. The Fed has not forgotten this.”
This jobs report seems to be another brick in the slow rebuild of the U.S. economy following the disaster of six years ago. It is encouraging that the Fed feels the economy is strong enough to chug along without it pumping billions of dollars into the financial system each month.
But workers should remember how big a hole we’ve needed to climb out of. Millions are still struggling to get by, or even get a job. And without strong bargaining power, or full employment, workers shouldn’t expect a raise anytime soon.