President Barack Obama, in his State-of-the-Union address, attempted to persuade a skeptical public that the economy is now very strong. And certainly if you drive a car, you’ve no doubt seen that gas prices are lower. You might have heard President Obama also say that 14 million jobs have been added, although fact checkers put the number at 9.3 million.
Are these good news stories? Yes and no.
GAS PRICES: Given that nothing else changes when gas prices go down, paying $1.69 per gallon instead of $3.99 per gallon is always good news. However, one trip to Midland/Odessa in Texas, or anywhere in the province of Alberta in Canada, may paint for you a different picture. Oil production is a huge boost to those economies and adds thousands of jobs to them. But in oil-production land, it’s feast or famine. Prices are either going up, thereby creating lots of well-paying jobs, or prices are going down, forcing oil producers to cut back production and lay off personnel.
What is making the price go up and down? Simply put, OPEC nations are flooding the world market with oil at cheap prices in an effort to discourage North American oil producers from tapping into more local, and plentiful, reservoirs. And their tactic has been effective, judging by the current struggling economies in areas with oil wells.
JOBS: In December, 292,000 new jobs were added to the economy. The U3 unemployment figure announced monthly by the Department of Labor is, for the month of December, remaining at 5%. 5% to 5.5% is considered by economists to be full employment (the premise is that 4 to 5.5% of the employable population will choose to not work). That’s the good news. However:
- Household income is down. It is rising, but is still down from the statistically worst time of the Great Recession. This means more people are working at jobs that pay less money. Inflation is slow at 1.5%, but when income is down, every price increase hurts. This is why the economy feels sluggish, and Barack Obama’s spin falls on mostly deaf ears.
- Labor participation rate is at its lowest since the 1970s. This rate is the percentage of employable Americans either working or looking for work. The low rate is reflective of the fact that many Americans have simply given up looking for work.
- The long-term unemployed don’t get counted. Actually more accurately put, they are counted as having voluntarily retired. In November, 2015, the economy added 211,000 jobs. It also saw 319,000 people lose their full-time jobs and accept part-time jobs instead. There are 6 million of them in the U.S. today. Some people, rather than accepting what seem to be the only jobs available right now, low-paying part-time jobs, are opting to wait until jobs paying similarly to the ones they lost are available. These people are unemployed, but once they pass the 99-week threshold of unemployment compensation, the government no longer has any way to determine that they’re actually still seeking work. So, the Department of Labor counts them as having voluntarily retired. But they’re still unemployed.
Those who will enjoy the greatest financial prosperity in 2016 will likely be those who know how to adapt. These people will adapt to lower, or higher, prices of gas, and will adapt to higher, or lower, paying jobs.