Pimco's El-Erian: 'Economy Continues to Heal'

Wednesday, 08 May 2013 08:08 AM

By Michael Kling

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We've got the rocket of economic data filled with fuel. The question now is if we can achieve lift off, according to Mohamed El-Erian, CEO and co-CIO of fund giant Pimco.

The stock market has reached a record high and the jobs report on Friday exceeded expectations.

"The question now, and it is an important one, is whether positive interactions among the two will create sufficient momentum for the U.S. economy to attain escape velocity," El-Erian writes in an article for Fortune.

Editor's Note:
Economist Warns: 50% Unemployment, 100% Inflation Possible

El-Erian notes three positive factors from the jobs report.

First, the economy created 165,000 new jobs in April and an average of 212,000 a month over the last three months. That job creation, he says, is "close to the threshold that triggers a stronger set of mutually reinforcing endogenous dynamics."

Second, the unemployment rate fell to 7.5 percent because of new jobs, not because of another drop in labor participation.

And lastly, the number of long-term unemployed fell below 4.4 million, indicating that "the labor market is doing a better job at re-engaging those facing the highest risk of skill atrophy."

Still, there's plenty to worry about, he notes, as many people continue to face poverty, alienation and inadequate training and education.

"Nevertheless, recent job gains are real, and they constitute a notable step in the right direction."

An improving jobs picture may validate rising stock prices and increases the chances for a "self-reinforcing" economic cycle.

"We should not underestimate the potential contribution to national well-being of the interactions between an improving labor market and financial markets that are buoyant for the right reasons."

The recent good news shows that the "economy continues to heal."

"At the margin, it reduced the risk of financial bubbles and increased somewhat the possibility of a beneficial virtual economic and financial cycle. But critical mass is yet to be attained."

Others don't see as much sunshine in April's job report.

"We see lots of issues that don’t seem to add up to a robust economic recovery — or a recovery at all, in some instances," states Nonprofit Quarterly, a news outlet covering nonprofits.

For instance, the unemployment rate for men 20 or older increased 0.2 percent; unemployment for teenagers 16 to 19 seeking work is 24.1 percent; the number of people working part time for economic reasons increased 3.6 percent; the average weekly hours of all employed people fell from 36.6 to 36.4; and the number of people not working increased from 88.9 million a year ago to 90.4 million last month.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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