Labor Market and Consumer Demand

   "Slow growth in the labor market largely reflects  slow growth in the demand for goods and services." -- Congressional Budget Office.

   When  workers have more money, they buy more stuff.

   Henry Ford knew that when he paid factory workers more than the going rate. That way, the workers could buy the very cars they were manufacturing. In short, the auto pioneer was building his own market.
   Clearly, wages and consumer demand are interrelated, and while there may be a lag in trends, when pay levels go up, so does consumer demand for stuff. And when folks lose their jobs, they cut back on purchases.
   That insight shows up in a new report by the Congressional Budget Office (CBO), noting that "considerable slack remains in the labor market," and that "the economy is about 6 million jobs short of where it would be" if the jobless rate were back to its prerecession level.
   Nonetheless, the U.S. economy is ticking up slowly, but still-weak prosperity among workers is holding back overall demand. Meanwhile, boosting the minimum wage would increase income for lower-level workers, enabling them to buy more stuff and thus contribute to economic growth.
   Obviously, workers who are already making more than the minimum wage would likely wind up paying higher prices, but if their employers are able to sell more stuff, everybody benefits.

   Meanwhile, signs of economic recovery are beginning to sprout, like early spring crocuses. "Global activity has picked up, largely on account of advanced economies,"
according to the International Monetary Fund. However, "the recovery is still weak and significant downside risks remain," the IMF added.
   Even so, the Federal Reserve in Washington is continuing to pull back its support of recovery, anticipating that the U.S. economy will soon be strong enough to stand and grow on its own.
   Not all major central banks are as optimistic, however, and some in Europe and Asia are still priming the economic pump by adding to the money supply.
   "As yet the recovery is neither balanced nor sustainable," Bank of England governor Mark Carney old a news conference last week. The New York Times reported him as saying that higher interest rates are not in the near future and that any hike will be gradual.
   In Japan, the economy grew by only 1 percent in the fourth quarter, despite expectations of a faster pace. In Europe, the pace of economic improvement is not much better, according to official reports.
   So things seem to be about to get better worldwide, but it's not yet time to plan a party.