U.S. Economy Still at Risk

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The US Federal Reserve Board recently released its semiannual Monetary Policy Report to Congress. The report is intended to present a clear assessment of the state of the US economy and outline the monetary policy.

It instead however, provided a bleak outlook for the rest of the year. Add to that the Fed Chair Janet Yellen’s testimony before the House of Representatives and the Senate and her speech in Cleveland, it is clear that the economic recovery is entering potentially dangerous waters.

Job Creation Slow

According to the report there has been a significant reduction in the average monthly creation of jobs, 210,000 so far in 2015, compared with 260,000 last year, a drop of 19 percent. For manufacturing employees nationwide there has been good news, as 850,000 jobs have been created since 2009.

Even so, the growth in this sector does not show an actual increase in jobs in the sector as it is still employing around 1.5 million less people than it did prior to 2007. So in reality it is just reclaiming some of its lost ground.

Productivity Down

Both the report and the statements by Yellen point out a sharp decline in the rate of economic growth in 2015 as compared to 2014. This includes a contraction in the first quarter, caused by, among other things, a decline in industrial production and domestic spending.

Productivity growth has also been sluggish as businesses hold on to their cash on their balance sheets, instead of investing it in capital expenditure. The fact that labor productivity in the business sector has declined in both the fourth quarter of 2014 as well as the first quarter of 2015 is an additional cause for concern.

The combination of slowing investment and reduced productivity combined with slowing job creation does not really create a very positive outlook. Despite politicians touting a recovery, the figures just do not add up, making it clear why the Federal Reserve is still reluctant to raise its benchmark federal funds rate.

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