Lew says economy growing, wages lag

In a speech Wednesday to the Economic Club of New York, Treasury Secretary Jacob Lew said he expects a stronger second quarter and second half of this year but that the nation still faces the burden of millions of unemployed workers and lagging wages.

The U.S. labor market 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 unemployment rate held at an almost 6-year low of 6.3 percent. Still, the so-called participation rate, which shows the share of 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 nonfarm 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 Tuesday 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."

In a panel discussion after his speech, Lew said Europe has more to do to bolster its economy and 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.

Information for this article was contributed by Matthew Boesler of Bloomberg News.

Business on 06/12/2014

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