While gross domestic product in the United States has been expanding since the middle of 2009, helped by strong growth in consumer spending, Friday's non-farm payroll employment report is probably the most unambiguous indication yet that the economy has moved out of recession.
On 7 May, the Department of Labor reported that non-farm payroll employment rose by 290,000 in April. This was the biggest increase in employment in four years. It was also the fourth consecutive monthly increase and the fifth month of increase in the past six months.
While hiring for the 2010 census boosted the increase in non-farm payrolls, the bulk of the increase came from the private sector, where employment increased 231,000.
The report noted that since December, non-farm payroll employment has expanded by 573,000, with 483,000 jobs added in the private sector.
Some indicators in the report that often lead total employment show that the increase in employment is likely to continue in coming months. The average work week for employees on private non-farm payrolls increased by 0.1 hour to 34.1 hours in April, the highest in more than a year. Temporary help services added 26,000 jobs in April, and employment in this industry has increased by 330,000 since September 2009.
However, although the latest employment reports indicate that non-farm payroll employment has begun to recover, at 130 million in April, it remains far below the previous peak of 138 million seen at the end of 2007.
The continuation of the recovery in employment is important for the sustainability of the US economic recovery as a whole. Earlier reports from the Department of Commerce had shown that while consumer spending had fully recovered from the recession in the first quarter of the year, personal income has been seriously lagging.
On 30 April, the report on gross domestic product by the Department of Commerce showed that the US economy grew at an annual rate of 3.2 percent in the first quarter of 2010. Personal consumption expenditures grew 3.6 percent.
Even after adjusting for inflation, the level of personal consumption expenditures in the first quarter was higher than the peak in the previous expansion cycle in the fourth quarter of 2007.
Disposal personal income has also stayed resilient, the first quarter's level of real disposal personal income being the same as that at the previous cycle peak in the second quarter of 2008.
However, the underlying trend in income has been much weaker. Real personal income excluding current transfers in the first quarter remained near the recession low and was 6.5 percent lower than the previous peak in the second half of 2007.
The weakness of personal income is hardly surprising in view of the weak recovery in employment thus far.
Clearly, the recovery in consumer spending so far owes much to fiscal and monetary stimuli. Real personal income excluding transfers was 4 percent less than real personal consumption expenditures in March. This is clearly an unsustainable situation. If the underlying trend in personal income stays weak, the recovery would be left vulnerable to an end to macroeconomic stimulus.
Fortunately, the latest employment report indicates that the recovery in employment is gaining momentum.
If sustained, growth in employment should lead to growth in personal income in coming months, which should in turn underpin further growth in consumer spending and the economy as a whole.
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