PPRC 2016: Getting through the slumps and slacks

The slump seen in prices of commodities managed by recyclers will continue as the United States encounters its eighth consecutive year of economic expansion and employment growth is expected to slow, according to economist Bill Strauss, who spoke during the keynote session of the 17th annual Paper & Plastics Recycling Conference Oct. 19 in Chicago. 

In the “Economic Insights” keynote session, Strauss, senior economist and economic adviser at the Federal Reserve Bank of Chicago, said the path of the current recovery is restrained compared with past deep recession recovery cycles. Since World War II, expansions have typically lasted about five years, he said.

“Part of our weakness is we’ve seen the dollar strengthen,” Strauss said. “The rest of the world lowered interest rates and made us far more attractive.” 

He added, “Even in the eighth year of expansion, we have slacks.”

Those slacks include the nation’s labor markets. Wages across the country have remained low due to slacks in labor markets. “The good news is in the second quarter we started to see a bump,” Strauss said.

Strauss called the markets impressive as the United States added more than 2.4 million jobs during the last year. “This is impressive, adding jobs at a more robust rate,” Strauss said. 

However, he said, during the most recent recession, 6 percent of working Americans lost their jobs. It wasn’t until 2014 that the country fully recovered those jobs, Strauss pointed out.

He used a baseball reference when describing where labor markets stand today: “We’re in the bottom of the eighth inning of labor markets given the path we’ve been on,” Strauss said. As people make more money, they will spend more.

Beyond labor markets, Strauss said sectors throughout the economy continue to improve. The manufacturing sector came out of the recession “vibrantly,” he said. “From manufacturing to construction, I can’t find one that has slack,” Strauss said.

With the unemployment rate at 5 percent, Strauss questioned the audience attendees: “How many of you think our labor market is normal?”

Without a single hand being raised, he said, “Shocking, I never thought in my life I would be at a level that we normally think of as a natural rate and people would not think that this is a normal type of labor market.” (He said he has asked more than 16,00 people that question and only about 14 people have raised their hands.)

The share of those unemployed more than six months remains significantly high. Strauss explained that “a lot of work is being done” to determine how the country is in its eighth year of expansion and a quarter of workers cannot find a job for six months or more.

With the unemployment rate remaining below the natural rate, employment growth is expected to slow.

“Employees working part time for economic reasons remains somewhat elevated,” he offered. 

The U.S. has added workers despite a plunge in productivity growth. Productivity saw a gain between 1 percent and 1-1/4 percent while gross domestic product (GDP) expanded by 1.3 percent over the past year, he said. Still, growth is quite poor, Strauss said. “Yes we’re growing but it’s not like we’re setting the world on fire,” he said.

He predicted the growth over the next three years will be much of the same – decent, but not extraordinary. The outlook for the economy, he said, is to expand at a pace around trend through 2019.

The Federal Open Market Committee (FOMC), which is the branch of the Federal Reserve Board that determines the direction of monetary policy, expects GDP to grow around this trend over the next three years, Strauss said.

And yet, the United States will have a difficult time sustaining 2.4 million workers with just 1 percent growth.

Referring to the country’s productivity growth as “abysmal,” Strauss said, “A large part of the weakness in productivity growth has been the weak pace of investment, which will reverse itself as we move forward.”

Regarding other investments, Strauss highlighted how low energy prices benefit the U.S. as natural gas prices have declined and remain low. While the U.S. at one time imported 60 percent of its oil needs, today with the increase of hydraulic fracking, the country imports 30 percent.

He also shared how in 2015 light vehicle sales in the nation set a record; although, Strauss anticipates sales of these vehicles will edge lower. Light truck sales year to date are up 7.1 percent while passenger cars are down 8 percent, Strauss said.

Alternative-powered vehicles, including hybrids, he added, are a small fraction of total vehicle sales compared with diesel and gasoline sales. Their market share represents 4 percent, and have been in decline for the past two years

The housing market is anticipated to continue to improve through 2017.

“The United States is probably the strongest country out there, relatively speaking,” Strauss said.

The 2016 Paper & Plastics Recycling Conference is Oct. 19-21 in Chicago at the Marriott Chicago Downtown Magnificent Mile.