The May employment numbers raise concerns that are being echoed in recent retail sales numbers and in the bond markets. The U.S. and world economies may be edging closer to a crisis of deflation and insufficient demand. The 78,000 new jobs added in May represent a percentage increase of less than 0.06 percent in the U.S. workforce. That is far less than half of the historic average rate of job growth (including recessions) over the past half century and means that jobs grew at a pace that was significantly slower than U.S. population growth.
For several years the United States has managed to maintain significant overall growth in economic output despite unusually weak growth in both the number of jobs and in wages. Some economists have been suggesting for more than a year that ultimately we will run out of consumer demand to absorb our expanding output if there is not strong growth in both employment and wages. Recent retail sales numbers suggest that a softening is already starting to occur and the recent dramatic decline in long-term interest rates indicate that bond purchasers are not only not worried that prices will rise but appear to be expecting that they might actually fall. That, in a word, is deflation.
The U.S. government should urgently review policy that will both expand employment levels and raise wages. It should take note that the regimen of tax cuts that was intended to produce new jobs has failed. Total employment in the United States has grown by less than two-thirds of one percent since January 2001. That is a rate of less than two-tenths of a percent per year. We have not had a normal recovery and we are drifting in a period of continued stagnation that may well end in another sharp and painful downturn.
Scott Lilly is a senior fellow at the Center for American Progress.