(Bloomberg News) The sharpest drop in unemployment in more than a quarter century obscures a simple fact: The jobs market still isn't working for many Americans.
Some 6.3 million people have been out of work and looking for a job for more than six months. The employment-to-population ratio is lower than it was when the recession ended as companies have been slow to add to payrolls. And big sources of hiring in the past-government, health care and retailing-may not be able to reprise that role in the future as lawmakers limit outlays and consumers curb spending.
"The trends are a little bit scary," said Nobel laureate Michael Spence, a professor at New York University. "There's been a break in an important part of the social contract" for many Americans who are finding they can't get ahead.
Mixed messages from the jobs numbers make decisions more difficult for Federal Reserve Chairman Ben S. Bernanke and his central bank colleagues as they wrestle over monetary policy.
Rising prices and falling unemployment-the jobless rate dropped to 8.8% in March from 9.8% in November, the biggest four-month decline since 1983-suggest that the Fed should raise rates from near zero later this year to keep inflation in check, according to Joseph LaVorgna, chief U.S. economist for Deutsche Bank Securities in New York.
He sees yields on Treasury securities rising, with the two-year note hitting 1.25% to 1.5% and the 10-year note climbing to 4% by the end of the year. They were 0.81% and 3.58% at 5:16 p.m. April 8 in New York, according to Bloomberg Bond Trader prices.
Depressed Employment
Alan Krueger, a former Treasury official, argues that policy makers shouldn't be tightening monetary policy in the face of depressed employment and elevated long-term joblessness.
"I would like to see QE 2.5," with the Fed completing its second round of quantitative easing in June and then buying more Treasury securities thereafter, said Krueger, who is now a professor of economics at Princeton University in New Jersey.
That's not likely to happen, said Roberto Perli, a former Fed official who is managing director of International Strategy & Investment in Washington. The threshold for additional purchases beyond the $600 billion in QE2 is "very high at this point," he said. The debate at the Fed instead focuses on how fast to remove the record stimulus the central bank has pumped into the economy.