Today, initial jobless claims data for the past week came out. Initial claims fell by 12,000, sparking some small hopes that, perhaps, the jobs situation might improve. However, jobless claims data mostly means that new people aren’t being laid off. It doesn’t indicate much about what is happening with job creation. (We’ll get August 2011 job growth data tomorrow.) So, while it’s nice that lay offs appear to be slowing a little bit, we are still having problems with job creation, even though there were 117,000 net jobs created in July. Companies just aren’t hiring at the rate that many would like to see.

Why Jobs Are Important to the Economy

Of course, it’s nice to have a job for the purposes of your personal economy. Having money coming in is usually a good thing. However, when you lose your job, that really affects how you can pay your bills. While you can apply for unemployment, you might not end up with enough to completely make ends meet. And this is where things start to spill over into the wider economy.

Our economy is largely based on consumer spending. Indeed, consumer spending makes up about 2/3 of our economic activity. When you aren’t making money — because you’re unemployed — you don’t have money to spend. And that just keeps the economy down. So far, a lot of the measures meant to help the economy have been aimed at keeping interest rates low and helping businesses. The idea is that once businesses are profitable, they will turn around and start hiring again. Unfortunately, that hasn’t been the case in this instance. Some of the bigger companies have been returning to profitability (in some cases they are doing better than ever), but it doesn’t seem to affect their hiring much. After all, the recession taught them that they could make do with fewer workers — pocket the savings themselves.  Plus, small and medium businesses — the hiring backbone of the economy — haven’t been doing as well. Even though they are hiring, wages are lower and employees are working shorter hours. As a result, the jobs picture remains somewhat disappointing. And people haven’t been spending money, and the economy is risking a double-dip recession.

What’s Good for the Economy Isn’t Good for Your Personal Finances

Another issue is that many people are being more frugal, saving more and spending less. Part of the reason that we got so used to solid economic growth for a time was due to increased spending, much of debt fueled. Indeed, “easy money” appears to be a double edged sword. Sure, it spurs economic growth at a rather rapid pace. But it also seems to cause its own problems. Consumers end up in debt, treading water, until everything starts to fall to pieces. And, of course, instability rises. When you have a bigger boom, the resulting down cycle is bound to be bigger, too.

It’s something to think about. Do we want to see our economy continue as it has been, focused on consumer spending? Or is now a time to shift to more modest expectations: Slower, more stable economic growth?

In any case, no matter what happens there is still an employment issue that needs to be resolved.



Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.