AS WE all know from listening to the campaign rhetoric from candidates of both parties, the U.S. economy is in disastrous shape. China and Mexico are stealing jobs right and left — per Donald Trump — and most people are working “longer hours for lower wages” — according to Sen. Bernie Sanders (I-Vt).
But what if the gloom and doom are not true? It is correct that the United States experienced an epic downturn in 2008-2009, one from which the recovery did not follow the sharp, V-shaped pattern of past rebounds. Americans were badly scarred by the experience, making their sense of anxiety and frustration over the economy’s sluggish pace that much more acute. And there is a good deal of academic research to suggest that the U.S. economy may have entered a period of “secular stagnation” characterized by chronic low interest rates and reduced growth potential.
For all that, the recent data do not support an apocalyptic view of the U.S. economy. To the contrary: In certain key respects, the healing is substantial, including, most important, in the labor market. Not only has the headline unemployment rate dipped to 4.9 percent, a figure generally considered consistent with full employment, but also the puzzling downward trend in labor-force participation — the share of the working age population either in a job or seeking one — appears to have reversed as well.
Specifically, the rate has gone from 62.4 percent in September to 62.9 percent in February, according to Labor Department figures. This is still well below the pre-recession rate of 66.2 percent. However, much of the decline reflects structural factors, chiefly the aging of the population, and it is particularly encouraging that the recovery reflects the return of lower-skilled workers to the labor market, according to a recent Wells Fargo report. The Labor Department’s broadest measure of labor underutilization, known as the U-6 unemployment rate, has almost returned to its pre-recession average and would have come all the way back if not for elevated rates of people working part-time for economic reasons.
Increased labor force participation, in turn, reflects an improving wage picture. Though overall wages are growing at just above 2.2 percent — higher than the rate of inflation — wages for individuals employed at least 12 months are now growing at a median annual rate of 3.2 percent, according to the Federal Reserve Bank of Atlanta.
The U.S. economy is by no means performing as robustly as it did in, say, the 1960s or 1990s. Income inequality remains a serious issue, as do productivity and long-term growth. But overall, the picture is not only not dire but also consistent with continued gradual normalization of monetary policy by the Federal Reserve. The U.S. economy retains immense dynamism and restorative power, and there’s nothing in the current picture to justify radicalism — either in condemnations of the Obama administration or in proposals for the next one.