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What's Up with the Drop in Unemployment?

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What's Up with the Drop in Unemployment?

Economy

What's Up with the Drop in Unemployment?

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SCOTT SIMON, host:

The latest employment numbers from the labor department show that the unemployment rate is at its lowest in nearly six years, down to 4.4 percent. The numbers were released on Friday, and they are better than Wall Street expected. But exactly how good are they?

To talk about how this fits into the larger economy is David Leonhardt, economics columnist for the New York Times, who joins us from our studios in New York. David, thanks very much for being with us.

Mr. DAVID LEONHARDT (New York Times): It's good to be here.

SIMON: A 180,000 new jobs and low unemployment, that's good news. What about the rest of the economy?

Mr. LEONHARDT: That certainly is good news. The rest of the economy is a little bit unclear at this point. I think a lot of people know that the housing market has really weakened a lot. There are a lot of problems in the mortgage industry. And we're not exactly sure where the economy is going. Alan Greenspan, the former Fed chairman, said he thinks there's a 30 percent chance of recession in the next year or so, and so that's where a lot of the uncertainty comes in. And that's why this jobs report was treated by a lot of people as good news.

SIMON: What are the numbers are you looking at to try and help assess the overall economy?

Mr. LEONHARDT: One of the things about the job market is, it's arguably the economic measure that matters the most, because it gives you a sense for how the economy is affecting ordinary people's lives. But it's relatively slow to respond to twists and turns in the economy. It's one of the last things that tends to get a lot worse when we're headed into a recession.

And so it's important to keep your eye on other things, things like the housing industry, things like how much consumers are spending on big items, which are called durable goods like washing machines and computers, and things like how much businesses are spending on their own new buildings and their own computers. And all those things are in this funny little middle ground right now, were they have weakened, and they haven't weakened enough yet to make us really, really worried, but it's not clear what's going to happen from here.

SIMON: Are there details in this report that might be beyond the headline but something that you pick upon?

Mr. LEONHARDT: There are. The number that tends to get the most attention each month is either the unemployment rate or the number of new jobs that were created. But I actually think the most important number in this report is the number that shows you how fast wages are increasing, because the vast majority of the population is getting a wage at any one point. Unemployment is really important because it has such a big effect on people's lives. But at any given time, a relatively small fraction of population is unemployed.

And what was so troubling about this economic expansion, which began in late 2001, is that most people didn't get wage gains through 2002 and '03 and '04 and '05. And only late last year did people - did most workers start getting wage gains that were faster than inflation. And we've seen that continue. We now have about six months of that.

That's not nearly enough to make most people feel really good about the economy, but it's going in the right direction and that continued last month. Wages are increasing about two percent a year faster than inflation at this point.

SIMON: David Leonhardt, economics columnist for the New York Times. Thanks very much.

Mr. LEONHARDT: Thank you.

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