Treasury Secretary Jacob J. Lew said the U.S. needs to boost the economy’s capacity to grow so the benefits are shared more widely, as unemployment is “still too high” and wages are lagging.
Lew, in a speech to the Economic Club of New York that focused on broad challenges facing the economy, said he expects “a much stronger second quarter and second half of this year. Nevertheless, we cannot escape the fact that millions of Americans continue to struggle.”
The labor market in the world’s largest economy has improved this year. Payrolls pushed past their U.S. pre-recession peak for the first time in May. It was the fourth consecutive month employment increased by more than 200,000, the first time that’s happened since early 2000.
The jobless rate held at an almost six-year low of 6.3 percent. Still, the so-called participation rate, which shows the share of working-age people in the labor force, held at 62.8 percent in May, matching the lowest since March 1978.
Lew said the expansion needs to be stronger to reach more Americans.
“While corporate profits and non-farm productivity have risen, hourly compensation only just started rising, and not by enough to make up for lost ground,” he said. “As our economy grows and our workers become more productive, this progress needs to reach the lives of more hardworking Americans.”
Citing historical trends, Lew said the U.S. economy grew an average 3.4 percent a year from 1948 to 2007. The Congressional Budget Office projects that, after the economy returns to so-called full employment, growth will average 2.1 percent.
The U.S. economy contracted for the first time in three years in the first quarter as companies added to inventories at a slower pace and curtailed investment. The World Bank projected yesterday that the U.S. economy will grow 2.1 percent this year, down from a 2.8 percent forecast in January.
The policy debate over the “long-term challenges stemming from an aging population and the cost of health care” should revolve around “building a firm foundation for future economic growth,” Lew said.
“The crisis we face today is the need to make sure the economy is expanding fast enough to support a growing middle class and greater opportunity for all Americans,” he said. “Investments that boost growth and job creation today, tomorrow, and 25 years from now will put us in a stronger position to address our future fiscal challenges.”
Lew urged U.S. lawmakers to approve increased spending on infrastructure “to make investing in America even more appealing.”
“Building our roads, railways, bridges, and ports has been one of the most historically bipartisan ways to create jobs today and lay a foundation for future economic expansion,” he said.
The U.S. also needs to “create more higher education options,” he said. “We should ask ourselves if earning an undergraduate degree in three years might be a better, more cost-effective option for some students to get their education.”
Lew, in a panel discussion after his speech, said Europe has more to do to bolster its economy. He reiterated his view that countries with current-account surpluses “could be doing more to generate demand.” Lew will visit Germany, one of the countries he has said could boost demand, next week.
Lew also said he is concerned that Europe’s efforts to strengthen its banks are insufficient and not moving quickly enough.
On China, Lew said the leaders of the world’s second-largest economy understand that they need to move toward market-determined exchange rates. “They need to do it sooner rather than later because it very much affects the ability of the United States and China to work closely economically,” he said.