South-Western College Publishing - Economics  
Economy May Be Perking Up
Topic Productivity and Growth
Key Words Jobs, Wages, and Economic Growth
News Story As the manufacturing industry grew at it fastest rate in more than a year, employers added nearly twice as many jobs in May as they did in April. Wages and consumer confidence also took an upward path. Taken together, this new data has eased some fears that the economy will continue in its worst slump in more than four years.

The Labor Department reported that the job market grew by 157,000 new jobs. Only 80,000 new jobs were created in April. The report was based on the department’s monthly survey of national employment. During this same period, the unemployment rate held steady at 4.5 percent.

Not only did the economy provide more jobs in May than in April, the same Labor Department report said that workers were paid more on average. When looked at over the last 12 months, average hourly wages rose 3.8 percent.

Consumer confidence also rebounded in May. According to the Consumer Confidence Index, consumer confidence rose in May after hitting an eight-month low in April. The closely watched index is a measure of the degree of optimism about the economy based on consumers saving and spending activities. When consumer confidence is high they are likely to spend, indicating a healthy growing economy. When consumer confidence is low they are more likely to save, indicating the economy may be in trouble.

Even with this good news, some analysts are not ready to declare the slump is over. There is still the fear of rising energy and food prices draining purchasing power from the consumer and there is still a fear that a housing slump could affect the health of the economy.

“The labor market is not sort of chugging along independently,” said Nigel Gault, chief United States economist for Global Insight. “If housing turns down more steeply and spending starts to weaken, then the labor market will start to weaken.”

Even the likelihood of continued overall growth has been questioned. “We’re not fading,” said Robert J. Barbera, chief economist at ITG. “But there’s nothing booming about these numbers. And there’s nothing here that suggests the Fed will do anything but dust off old speeches.”

Discussion Questions:
1. Visit Describe why the index is a “lagging indicator.”
2. The article indicates that hourly wages were increasing by 3.8 percent. Discuss the affect inflation has on those increasing wages.
Multiple Choice/True False Questions:
1. When the consumer confidence level is falling consumers are likely to save less.
  1. True
  2. False
2. With quickly rising food and energy prices rising, consumers will spend more on other products.
  1. True
  2. False
Source Jeremy Peters, “Several Signs the Economy Is Reviving”, The New York Times Online, June 2, 2007.
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