The Jobs/Consumer Spending Link: Why We’re in Such Trouble Now

Feb. 7, 2011 - PRLog -- There are presently about 15.1 million Americans unemployed and looking for jobs while struggling to make ends meet. The problem is that there are only about 2.9 million available jobs. Do the math. That is five unemployed workers competing for one job. You don’t have to be a mathematician to figure out there is something wrong with this equation.

The ADP Employment Change for January saw the creation of 187,000 jobs, above the consensus estimate of 145,000, but well below the revised 247,000 in December. The shortfall was blamed on the snowstorms impacting about 70% of the country.

The initial claims for the week to January 29 saw a decline of 29,000 claims to a seasonally adjusted 415,000, better than the estimate of 425,000. The problem is that economists believe the weekly claims would need to fall below 375,000 to drive down the unemployment rate. At the current level, there is only modest job growth, and this was made evident last week.

There were high hopes for a strong non-farm payrolls reading. Sorry to disappoint.

The country added a disappointing 36,000 jobs in January, well below the estimate of 148,000 and the revised 121,000 in December. The only positive was a major decline in the unemployment rate to 9.0% from 9.4%, well below the 9.5% estimate. The decline may be due to workers leaving the workforce and not looking for work. The bottom line is that the dismal lack of job creation continues to point to a problematic jobs market.

So, what happened?

Quite simply jobs are not being created as fast as the government had hoped, despite it spending hundreds of billions on infrastructure and incentives and, in the process, building a massive deficit and adding to the over $14.0 trillion in national debt.

You’ve got to worry about this.

The problem is that jobs drive confidence and this gives consumers a reason to spend, especially on non-essential goods and services. The Durable Goods Orders for January fell a disappointing 2.5%, short of the 1.5% growth expected. Excluding transportation, the reading increased 0.5%, but it was below the 0.6% estimate and the 4.5% reading in December. The readings suggest that consumers are not yet comfortable spending on non-essential goods and services.

And when consumers do not spend, there is a domino effect down the line. In economics, this is known as the “multiplier effect,” where a dollar spent results in more spending. For instance, you spend a dollar at the store. That dollar is used to pay workers who in turn spend. This cycle continues and is a major driver of total spending in the economy.

This is why jobs are so important for increasing consumer spending and driving the economy. And this is why the jobs report was a major disappointment.

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