The Economy Remains a 'Puzzlement'
Washington (Jun 6) On Friday we learned that the U.S. economy surprised on the upside by adding 280,000 new jobs in May, and that 32,000 more jobs had been created in March and April than originally reported. The fact that economic growth is still sluggish, while more and more workers are finding jobs, suggests that productivity -- output per man-hour -- is slowing. That fact detracts a bit from the good news, since in the long-run wages can’t rise without causing inflation if productivity does not increase.
Although the labor market is improving, American consumers have suddenly and unexpectedly fallen in love with thrift. In the first quarter, personal consumption expenditures were at the lowest level in five years. In the last six months the personal savings rate jumped a full percentage point, from 4.6 percent to 5.6 percent. This is good news, unless it isn’t. We have had enough of over-indebted consumers causing a financial upheaval, but economic growth would certainly take a jump if consumers would spend more of the cash they save when they fill their tanks with low-priced gas.
Which brings us to facts that seems to belie consumer parsimony:
Leisure and hospitality industries are leading the job-growth parade, even though consumers are saving more and spending less, and the strong dollar is scaring foreign tourists away.