(By Mani) Strictly speaking, the U.S. economy has technically transitioned from recovery to expansion. Total real GDP at present is 1.7 percent larger than its prerecession peak. However, many parts of the economy are struggling to get back to previous highs.
Perhaps nowhere is this deficiency more evident than in the labor market. The U.S. economy lost 8.8 million jobs in the recession but has only recouped roughly 3.8 million of those lost jobs. That leaves an "employment deficit" of roughly five million jobs.
"Although the economy is technically in expansion, employment is less than halfway back to its prerecession peak," Wells Fargo economist John Silvia said in a client note.
In an environment where employers have been reticent to add new workers, it comes as little surprise that income growth has been rather muted, as well. Transfer payments, such as social security, unemployment insurance and food stamps, have been a key driver of income growth in this economic cycle as opposed to wages and salaries.
"In fact, between the prerecession peak for income in the second quarter of 2008 and June 2012, transfer payments increased 18.9 percent while over the same time period wages and salaries increased only 4.2 percent," Silvia added.
After subtracting transfer payments and adjusting for inflation, income growth in this cycle has been close to the weakest recovery. From the absolute trough of the economic cycle in June 2009, personal income less transfer payments is up just 6.6 percent. The average expansion would have posted an 11 percent recovery by this stage of the recovery.
Just as employment is still a far cry from it prerecession peak, personal income ex-transfer payments are also a shadow of its former self, still 3.4 percent smaller than its high in March 2008.
"The best jobs recovery was following the 1975 recession, the worst was following the 2001 recession and the current cycle is well below average and only slightly better than the 2001 cycle," Silvia said.
However, the latest employment data showed that the country added more than anticipated jobs in the month of July, although the report also showed an unexpected uptick by the unemployment rate.
The Labor Department said nonfarm payroll employment increased by 163,000 jobs in July following a downwardly revised increase of 64,000 jobs in June. Economists had expected employment to increase by about 100,000 jobs compared to the addition of 80,000 jobs originally reported for the previous month.
However, one month of good data is not enough to change the perception as wages still remain weak and household wealth is still subdued. Despite the job growth for the month, the unemployment rate edged up to 8.3 percent in July from 8.2 percent in June. The increase surprised economists, who had expected the unemployment rate to come in unchanged. The increase came despite another labor participation rate fell to 63.7 percent from 63.8 percent.
As a result, the jobs data for the month of August, which will be released in September, will be watched closely to confirm whether the U.S. employment is on the uptrend.