Four Years On, Economic Recovery Still Sluggish

June job numbers are out, and the unemployment rate is still 7.6%. As the U.S. enters its fifth year of recovery, guest host Celeste Headlee asks Sudeep Reddy of the Wall Street Journal where we go from here.

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CELESTE HEADLEE, HOST:

This is TELL ME MORE from NPR News. I'm Celeste Headlee. Michel Martin is away. Coming up, we'll head to the barber shop, the guys give us their thoughts about what's going on in Egypt and many other things. That's later in the program. But first, it may be a little hard to believe, but this week starts the fifth year of economic recovery in the United States. Since the recession officially ended, there has been a lot of very slow progress.

Every month it seems we hear news of very small gains in hiring, especially in the private sector. Today's unemployment numbers continue that trend. U.S. employers added 195,000 new jobs and the unemployment rate stayed steady at 7.6 percent. Joining us to dig a little deeper into those numbers is Sudeep Reddy of The Wall Street Journal. Thanks for being here again.

SUDEEP REDDY: Thanks, Celeste.

HEADLEE: All right, so let's talk about this unemployment rate that we got today. Same as it was last month, the country, for the most part it seems like, has kind of stopped obsessively watching this number. But what does it mean at this point - today's report?

REDDY: Today's report shows that we're making continued progress in the labor market, and steady progress. If you look at where we've been in over the four years of recovery, we've had a lot of ups and downs, a lot of choppiness. And there have been moments each year where we've seen the labor market really start to fall apart, where we come in after a few months and job growth really starts to slow sharply and we worry about whether the recovery is ending, and we're not at that point right now.

We're at the point where it looks like we're actually going to see continued improvement over the coming months. We've had relatively strong gains over the last six months. It's an average of 200,000 jobs a month added. That's not spectacular, but it is still strong enough to highlight ongoing progress, which is what's important.

HEADLEE: And in Wednesday's job numbers, it showed that fewer people filed for unemployment. So there - also good news?

REDDY: Exactly. We're seeing fewer people getting laid off than we were seeing before and that's usually accompanied by employers wanting to go out...

HEADLEE: Private sector or public sector?

REDDY: Certainly in the private sector, and that's what we're talking about here. In the public sector, we're actually seeing, primarily at the federal government level, job losses. And that's because of the government cuts, spending cuts, since March. The sequester, that's going to be weighing on us for quite a bit longer. We actually haven't gotten to the worst of the sequester, which is one reason we should be a little bit cautious and not get too excited right now.

The spending cuts started in March, but a lot of agencies are only now starting the furloughs of their workers, and so we're going to see that hit the economy in the next few months. And that means the federal government, certainly, is not going to be hiring for a while and that just slows down the pace of progress. And, of course, any firms that are tied to federal government contracts, whether they're defense suppliers or janitorial firms, they're also going to take a hit as contracting falls.

HEADLEE: To a certain extent, many of them didn't start the furloughs because they were hoping Congress would do something before they had to.

REDDY: Exactly. They were trying to push it off longer. And certain agencies have avoided, have managed to avoid, furloughs altogether by getting a little bit more flexibility in their budgets, but they were hoping for more for Congress and obviously, you're not going to really get very much from Congress these days.

HEADLEE: Yeah, all right. Well, let's talk a little bit about unemployment and especially unemployment benefits. One of the things that I guess is beneficial about being able to look back over four years of numbers is we can kind of see trends, right?

I mean, one of the things we can look at is that they extended unemployment benefits and there was a lot of controversy over whether doing that would encourage people to stay home and not apply for work. What are we seeing now, as we look back over these four years in terms of unemployment benefits and what effect they had on job searches?

REDDY: We're finding that there were some people - and there have been a fair number of economic studies that have found some effect from extended unemployment benefits. When you extend them out as long as you have, and during this recession, it was as long as 99 weeks somebody could have claimed unemployment benefits. When you extend them out that long, some people will take longer to find a job.

When you're doing the humane thing, which is providing some support for the people who are worse off in society, who are struggling through this, that means that they're going to have a little bit of a cushion and maybe not go and rush out and take a job that they don't want, a job that isn't exactly the right kind of pay that they were looking for. And it stretches them out a little bit longer. But we have to remember, unemployment benefits are a fraction of the pay these folks were getting in their prior work. It's just a very small amount of money.

When you talk to people who have been on unemployment benefits, it's barely being able to buy the groceries, sometimes not even enough to cover the rent, often not enough to deal with car troubles that you need to find a job. It's not enough to deal with the everyday life issues. It's enough to maybe survive, which is the trouble with all of this. What we've also seen is as unemployment benefits extensions have expired, we were at 99 weeks and that's coming down based on the state, it's coming down to...

HEADLEE: State-by-state, right?

REDDY: State-by-state at a different pace, based on their unemployment rate. And we'll come to a point where people who were getting those extended benefits are just dropping out entirely from the labor force. Some people who have been out for so long, the 4 million-plus people who are unemployed, long-term unemployed, those folks are going to just give up because it's so hard to find a job. And in many ways, we won't even see them in the numbers after a while, and that's the real tragedy of this, is we've lost a lot of people throughout this downturn.

HEADLEE: If you're just joining us, we're breaking down the latest job numbers with Sudeep Reddy of The Wall Street Journal. Where are the jobs - I mean, we've talked before, many times about why it's more difficult for someone, people, for whatever reason, sometimes throw out a resume if they've been unemployed for more than six months. But there are certain jobs, especially temp jobs, where there is room for growth if you want to take a temp job. Where are people finding work?

REDDY: Temp jobs is one area, and that's usually a good sign for the overall economy. If temp jobs...

HEADLEE: Why is that?

REDDY: Temp jobs can be a leading indicator. If a company - if you imagine yourself as a CFO and you're worried about the finances of a company - of your company, you've got some orders coming in, but you're not sure whether they're going to be consistent over future months. If you're trying to hire because you're uncertain about that, you'll take in some temp workers, and you'll give them some work and if you start to see the orders coming in - if you start to see the business picking up, then you might convert them into full-time workers.

And so a pickup in temp employment is generally a good sign for the overall economy, because it suggests this pickup. But temp workers, of course, are often not getting proper benefits; they obviously don't have the job security. There's a lot of angst.

HEADLEE: Or even sometimes the same pay.

REDDY: Exactly. And these tend to be lower-paying jobs in most cases, and so that's one of the troubling elements of being in a temp environment. But if you don't have anything else then, of course, most people would prefer a temp job over nothing.

HEADLEE: But what does that mean for an economist? If you look at where job growth is in temp jobs, that means an uncertain economy, right?

REDDY: Exactly. And temp jobs are a reflection of what we're seeing throughout the recovery. A lot of the gains have come in lower-paying service jobs. They've come in areas that aren't the kind of jobs we would've wanted in a strong recovery. If you just look at the latest month in June, the bulk of the gains came in lower-paying service jobs, the retail sector - a lot of those jobs, of course people want, but they're not the highest-paying jobs out there.

The food services sector added 52,000 jobs - that's a quarter of the gains over the entire month and obviously if you're working in food services, whether it's a restaurant or somewhere else, those aren't going to be high-paying middle-class jobs that we're talking about.

HEADLEE: A lot of them don't have benefits...

REDDY: Exactly.

HEADLEE: You know, many people, for a long time we've been hearing about how what's happening overseas - the economic uncertainty, especially in Europe, has hurt the U.S., obviously it hurt exports. What I found kind of interesting is that we're now beginning to see domestic sales going up.

We got an incredible sales report from Ford Motor Company - of its domestic sales, which haven't been doing well for a long time - so are we beginning to make up some of the ground we're still losing in Europe?

REDDY: We are making up some of the ground, and that's a great example. The auto sector is one area that is doing very, very well right now. And it's obviously partly because the U.S. government stepped in and stepped in at the right moment during the downturn to save the auto sector. And...

HEADLEE: And also they've kept interest rates low, which encouraged people to buy a car and buy a house.

REDDY: Exactly, that helps. And we have to remember, there were an incredible number of people who decided to put off buying a car back in the deepest parts of the downturn, and so we have pent-up demand. People who might've waited for a couple years are now seeing a little bit of improvement out there, a little more stability in their own jobs, less fear that they're going to lose their job, going out and buying a car. People are also going out and buying houses.

The elements that you want in a strong economy of domestic demand, consumers feeling good, are here right now. The problem is, we're actually, despite our very slow growth, we're doing much better than a lot of the world right now. They're really starting to go through what we've been going through for a few years. Europe is struggling to get out of a recession and it will be probably the rest of the decade, if not longer, before they have - they can look forward to the kind of growth that we're seeing now, which is a pretty troubling prospect for them...

HEADLEE: Yeah. Yeah.

REDDY: ...And even the faster-growing economies from earlier in the recovery like China, are starting to go through these convulsions where they might start slowing down. And so the risk is all of this can accelerate and create a big drag on us overtime, but right now we're actually doing OK.

HEADLEE: But there's another risk, Sudeep, and that is that we have another political headache coming and the fight over the next government shutdown begins in September. And that could cause another economic hiccup for us, right?

REDDY: It absolutely could. We saw this year after year, where the private economy, where companies were starting to gain some confidence, where people were starting to gain some confidence, and you watch all this dysfunction around you and it can lead to bad things in Washington, it can lead to bad things around the rest of the economy. What we have to keep in mind is that we're going into a midterm election year and that is going to create a lot of nonsense in the political realm.

People are going to be fighting viciously because the Democrats, obviously, are going to try to take back the House so they can pass more legislation. It's going to lead to some sharp words in Washington and beyond. And all of this can create some political baggage that weighs down our recovery even further.

HEADLEE: Yay. Sudeep Reddy covers economics for The Wall Street Journal. Bring in the sunshine. He joined me here in our D.C. studios. I want to emphasize, for today, the news is good.

REDDY: The news is good.

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