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A Look At The Economy

A Look At The EconomyOn the heels of a better-than-expected job report in July 2005, a Fletcher economics expert examines employment trends in the United States.

Medford/Somerville, Mass. [08.12.05] In July, the United States recorded the biggest jump in job growth in three months. But what do these monthly employment reports really mean? According to renowned economist Lisa Lynch,William L. Clayton Professor of International Economic Affairs at The Fletcher School, there's more than meets the eye to the monthly totals reported by the government, especially given the country's streaky pace of economic recovery.

"This has been kind of a wacky recovery, frankly, and no one has been able to forecast particularly well the growth and employment numbers from month to month," she said on The NewsHour with Jim Lehrer.

One major indicator of the health of the economy has been the interest rates set by the Federal Reserve. During periods of recession, the Fed will cut a key short-term interest rate in order to boost spending. Lately, with the economy strengthening, the Fed has been raising that rate.

Along with a rising interest rate, there are some fears of inflation.

"I think what happens with these job reports, they jump around a lot from month to month and there's some concern that if you see a set of months where the employment numbers well over 200,000 and a set of months with rage increases that are very hefty, that that may raise concerns of inflation and the Fed may change the rate of its measured pace of increasing interest rates," said Lynch, the former chief economist for the US Department of labor.

Another area of concern is manufacturing, the only sector to lose jobs in the month of July.

"You have manufacturers making announcements of proposed job cuts going forward over the next three years that are large," Lynch noted on the NewsHour. "That obviously gives you pause, and especially, I think, in the manufacturing sector is ominous in terms of looking forward for future growth in that sector."

Also worth observing, according to the Fletcher economist, are trends relating to the age of the labor market. Lynch noted a recent study by the Federal Reserve Bank of Boston as exploring some of these developments.

"We see that teenagers and young adults are not in the labor market to the same extent that they had been in the past. But a lot of that seems to be related with people staying on in school or returning to school. So that's a good thing," she said.

But the number of what Lynch calls "prime age workers," younger than 55 years old – especially women in this category – has declined.

"There seems to be some indication that a lot of those workers have dropped out of the labor force in greater numbers given where we are in the recovery than has been the case in the past," she said.

Lynch also noted the presence of more 55-plus workers in the labor force.

"What comes out from that study that's particularly interesting is that people 55 years and older are much more likely to be in employment today than they would have been in the past at this stage of the business cycle. So what seems to be coming out is that as the work force is aging, people are staying on and work longer."










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