Is it superficial?

Is it superficial?

According to a recent report by the US government, 3.21 lakh new jobs were created in US, in the month of November, out of which 3.14 lakh were in the private sector.

 Earlier in the months of September and October also, significant number of jobs were created. Rate of unemployment is 5.87 per cent, which is lowest in six years. 

Encouraged by these figures, the US administration boasts that its economy is not only performing better than other developed economies, its fundamentals are also getting stronger. It is being said that during November, 2014, a large number of Americans went on holidays and spent a good amount on shopping. Jobs were added in almost all segments including manufacturing, education and health and thanks to US government's economic policies, economy could go on the path of recovery.

Since 2007-08, the US and European countries have been facing a serious economic crisis, considered to be worst-ever economic crisis since the great depression of the 1930s. The crisis supposedly started with sub-prime lending in USA - lending to those who lacked the capacity to repay. To somehow take the economy out of recession, the government started giving huge bailout packages, which was unprecedented. According to a rough estimate, it gave a total of 1.6 trillion dollars (US$ 1600 billion) bailout packages. Insurance giant AIG was given a huge bailout package of 170 billion dollars. Similarly hedge funds, banks and other big companies were also granted huge bailout packages and somehow they were saved from failure.

Though the US has started recovering from a long recession, Japan’s economy too is responding to the stimulus and the Eurozone, as a whole, is reporting a growth of 0.2 per cent (third quarter of 2014). The global economic growth in general, has being gradually slowing down from 3.9 per cent in 2011 to 3.2 per cent in 2012 and 3.3 per cent in 2013 and 3.4 per cent in 2014 (projected). It is generally believed that riding on the policy of quantitative easing (QEs), the US has embarked on the path of recovery from its economic crisis; with average rate of growth in the last 3 years being more than 2.2 per cent.

However, whether this recovery is sustainable or short-lived, nothing can be said perfectly. After the big US banks, hedge funds, other giant financial structures and companies were razed to ground and incomes and employment of people continued to decline, economists started raising doubts about, whether the US economy would ever be able to revive.

When conventional measures of monetary policy became ineffective, novel and unconventional methods were adopted. A new kind of monetary instrument in the name and style of QEs was adopted, in which Federal Reserve (Central Bank of USA) started purchasing financial assets from banks and other private institutions, with a view to increase liquidity in the system. Generally, in case of cheap money policy, the Central bank purchases government bonds from the banks and in this process, the Central bank influences rate of interest to go down and, on the other hand, when the Central bank wants to increase the rate of interest, it sells government securities. To increase demand in the economy, we need to reduce interest rates. However, if interest rate is already hovering around zero, it is not possible to lower it down further. Therefore, Federal Reserve adopted a novel method in the name and style of QEs, whereby Federal Reserve infused money into financial system, not by purchasing government bonds, but by buying financial assets from commercial banks and other private institutions.

These measures indirectly helped other countries also as flow of capital increased into these economies, thanks to capital injected into US financial system. This helped other economies, though only temporarily. And therefore, when the Federal Reserve announced receding of QEs, global markets (mainly stock markets) suffered huge set back.

Employment data

While the release of employment data by US government, US policy makers and people in economic world are thriving, in the meanwhile, dollar has also appreciated. However, at the same time, apprehensions are also being expressed about the authenticity of these employment figures. The recently published Household Survey Report had stated that employment of males above 20 years of age declined by 3.06 lakh whereas female employment registered an increase by 3.32 lakh, which unequivocally implies that there was only a marginal increase in net employment. The survey report also tells that employment of those with bachelor degree and higher gained, while employment of people with less than bachelor degree declined.

Even if we accept that jobs increased during the month of November, 2014, other indicators of manufacturing sector hint at possible reduction of jobs in future. We must also note this fact that more than half of the additional jobs are low paid jobs or jobs with long duration duties. This shows that with increase in jobs, quality of jobs has gone down. This is no doubt true that Federal Reserve had been pumping dollars into financial institutions and they helped in generating more demand, and therefore, it is possible that more jobs are created for the time being. 

However, it does not imply that the same situation would continue in the future as well. For giving strength and speed to economic activities, it is essential that fundamental of US economy are strengthened. However, statistics of the performance in one month or even of a quarter is not sufficient to draw any conclusion about sustainability of recovery of US economy. (The writer is Associate Professor, PGDAV College, Delhi University)

DH Newsletter Privacy Policy Get top news in your inbox daily
GET IT
Comments (+)