Last week: More than a year after the recession ended, the U.S. economy remains stuck in the slow lane with virtually no forward momentum. The Conference Board Coincident Economic Index® for the U.S. was virtually flat this summer. The industrial core of the economy has moderated as inventory rebuilding slowed. Also, the much larger service sector has shown no sign of picking up steam. The good news is that there is no sign that the service sector or the economy as a whole is beginning to slip. To the contrary, The Conference Board Leading Economic Index® for the U.S. rose again in August, suggesting growth is likely to continue into 2011. It is not much growth – certainly not enough to generate more than 100,000 new jobs on a consistent basis. But it is growth nonetheless.

FACT OF THE WEEK

141,000

Here is the most fascinating part. There is some academic work suggesting that men are more comfortable taking risks than women. Indeed, one paper (Barber and Odean, 2001) asserts that men tend to be more confident, and grow still more confident with success. The question raised, but unanswered, is whether the financial crisis was intensified because more men than women were responsible for assessing risk.

FACT OF THE WEEK II

8.9 percent. The S&P 500 increased by that much during the month of September (as of September 22). This end-of-summer rally is attributed to four factors: 1) less concern about the economy heading into a double-dip; 2) an increase in merger & acquisition activity; 3) upward revisions in some valuations; 4) the need for some short-sellers to cover their positions. Market participants might quibble about which is the more important or valid factor. The larger issue is what is not being given as a reason for the rally. There is little discussion about brighter near-term prospects for profit growth. And without that ingredient, how much longer can the rally continue?

QUESTION OF THE WEEK

If the U.S. economy really is a full year out of recession, why isn’t job growth better? When will it get better?

The economy is trying to recover from a very steep recession, but it’s also facing daunting structural readjustment on several fronts. Right now, the economy is weak, demand is not rising enough to warrant adding more than 100,000 new jobs a month. Second, hiring is expensive. Average hourly wages are rising by about 1.7 percent (year-over-year) while the CPI is rising by 1.1 percent. Where is the revenue to pay new workers?

Third, there is some mismatch between the few jobs available and the skills job seekers bring to the employment interview. Economists debate the degree of the mismatch, but there is no question that some employers would be hiring more if they could find the people they think they need. Fourth, even when there is not a mismatch, there is a geographic problem. To fill one of the vacancies, a family might have to move. But as many as one family in four owes more on their mortgage than the house is worth on the market. That prevents some job seekers from moving.

Fifth, there is a wage problem. Older workers might find a new job, but at a lower or perhaps much lower salary than they used to make. This is a big adjustment for people in this situation. Sixth, there is a change in the financial system. The whole economy, including consumers and business, are busy reducing debt. Banks and financial firms are trying to pare down exposure to risky debt and build up capital.

This makes it a little more difficult for small businesses, especially new businesses, to obtain funding. Without funding, they are limiting hiring. And pre-recession, most new jobs were created by small and new businesses. A lot of them were tied directly or indirectly to building (homes or businesses). Residential and nonresidential building have slowed and are still awaiting recovery. Finally, this is not an exhaustive list of the factors to be overcome in order to reignite the great American job machine. It will happen, just not very quickly.