She may consider herself a “master legislator” but Nancy Pelosi is definitely not a master communicator. Thursday she gave a mess of a press conference in which she downplayed the unemployment rate and said consumer confidence needed to go up even though it just hit an 18 year high.
“The unemployment rate in May was 3.8%, the lowest it’s been in 18 years. Is that good news?” Pelosi was asked by a reporter.
She replied, “This isn’t just about the unemployment rate, it’s about wages rising in our country so that consumer confidence is restored.”
She went on to claim that unless wages rise American families will be saying to themselves, “Hip, hip, hooray, unemployment is down. What does that mean to me and my life?”
There’s more than one problem with all of this, but let’s start with the fact that the low unemployment rate signifies that a lot of people who previously lacked jobs now have them. So for all of those people, and their families, low unemployment means something very substantial.
Second, you’d be forgiven for thinking, based on her comments, that consumer confidence is low right now. But actually, consumer confidence hit at an 18-year high last month. From Market Watch:
The level of confidence Americans expressed in the economy remained near an 18-year high in May, suggesting steady U.S. growth in the months ahead…
The consumer confidence index rose to 128 from a revised 125.6 in April, the Conference Board said Tuesday.
Third, Pelosi doesn’t seem to grasp that there is a connection between low unemployment and rising wages. When unemployment is high, wages tend to fall a bit because competition for labor is low. When competition for labor increases, that normally results in a rise in wages and eventually in inflation as employers raise the cost of goods and services to cover the increasing cost of labor. Pelosi is right that wages haven’t been rising as much as expected even as unemployment has gone down, but that may just mean the level of unemployment at which wages will start to rise hasn’t been reached yet. From the Washington Post which looked at this question recently:
The idea is that lower unemployment means companies will have to start paying people higher wages as they compete over the dwindling supply of workers, which will then eat into their profits enough that they have to raise prices. Economists used to think this happened at around 5 or 6 percent unemployment for no other reason than that sounded pretty low, but, well, it didn’t. Nor did it when joblessness fell to 4.5 or even 4 percent. The best you can say is there are signs that it might happen soon. Alternative measures of wage growth have shown it growing at a slow and steady pace, and inflation has already in fact risen back to the Federal Reserve’s 2 percent target. But if you look at the average hourly earnings for production and nonsupervisory workers — the only numbers we have that go back to the last time unemployment was this low — you see a different story right now: stagnant wage growth no matter how low unemployment is.
What’s going on? Well, as economist Adam Ozimek points out, this might not be as mysterious as it seems. Despite our low unemployment rate, there’s still a smaller share of 25-to-54-year-olds, who, for the most part, should be too old to still be in school but too young to be retired, working today than there was before the recession hit in 2007, let alone the last time unemployment was this low in 2000. Once you control for that, wage growth is right about where you would expect it to be. Which is to say that we need a lower unemployment rate than we used to for workers to have the bargaining power they did before.
We may not know what that unemployment rate is yet (the one at which wages start rising), but the fact remains that we’re still heading in the right direction. Pelosi’s contention that only Democrats can bring about higher wages doesn’t make any sense unless Democrats have a plan to drive unemployment even lower. Repeating the phrase “better deal, better jobs, better wages” and name-checking “social justice” is not going to get it done.
Here’s her statement about unemployment and consumer confidence: