Free Markets, Free People

employment


So, is America “back” economically?

Two good jobs reports back to back has got the Obama campaign trying out some new campaign rhetoric about how what they’ve done has worked and that America is “back”.

Is it?  Or is it premature to make that claim?  Well, on the one side, most economists will tell you that job growth is usually a lagging indicator and good job growth usually means the other underlying numbers for positive growth are good too.

But are they? 

Well, not necessarily.  In fact, one of the other leading indicators of a strong economy, GDP growth, isn’t going to be so hot according to many economists.  David Leonhardt reports:

But the jobs report isn’t the only measure of economic activity, and another major measure — of gross domestic product — doesn’t look quite so cheerful. The most likely situation is that job growth will slow in coming months, economists say, which will make President Obama’s economic narrative a bit more complicated than it now is.

On Friday, Macroeconomic Advisers, one of the most closely watched forecasting firms, reduced its estimate of economic growth in the current quarter to an annual rate of 1.8 percent, from 2 percent. And 1.8 percent growth does not generally lead to very strong job growth. In the fourth quarter of last year, by comparison, the economy grew 3 percent.

Beyond the current quarter, forecasters expect the economy will grow at an annual rate of 2 to 2.5 percent for the rest of the year, according to Bloomberg.

Based solely on the gross domestic product numbers, the obvious conclusion is that job growth will slow in coming months. Over the last six months, the average monthly gain in nonfarm employment has been 201,000; over the last three months, the average gain has been 245,000.

Sure enough, most forecasters do expect job growth to slow. Barclays Capital expects 200,000 jobs a month for the rest of the year. IHS Global Insight forecasts a slowdown to 180,000 jobs a month. Macroeconomic Advisers says it will slow to 140,000 jobs a month in the final three quarters of this year.

So what’s the drag on the GDP?  What is it that is causing this less than optimistic forecast for job growth?

A combination of things:

Why do economists expect growth to slow? The warm winter has probably pulled some spending forward into the last few months and will reduce spending in coming months, says Joshua Shapiro, an economist at MFR Inc. in New York. Rising oil prices also play a role. So does the continuing debt overhang, which makes a sustained recovery difficult.

Spending slowdowns, rising oil prices and the debt overhang all combine to slow growth.  Of course there are other things too that will effect it – increased regulation, for instance. 

Annie Lowrey reports on other concerns:

First, economists say that temporary trends increased growth in the fourth quarter and may not continue into next year. Second, the economy faces significant headwinds in 2012: some from Europe’s long-lingering sovereign debt crisis, and some from domestic cutbacks beyond the control of President Obama, whose campaign would like to point to a brightening economic picture, not a darkening one. Even the Federal Reserve is predicting that the unemployment rate will remain around 8.6 percent by the time voters go to the polls in November.

The fourth quarter benefited, for instance, from wholesalers restocking inventories of goods like petroleum, paper and cars, giving a jolt to growth.

“We had lean inventories, so those required additional production to satisfy demand,” said Gregory Daco of IHS Global Insight. “But once inventories are restocked, there is no need to restock them anymore. That means there’s going to be less production,” he said.

Inventories have been restocked and oh yeah, there’s the European sovereign debt crisis to contend with.  As well as:

Consumers also pulled back on their savings, helping to finance a recent spurt in spending. a trend that forecasters doubt will continue. Other short-lived factors include falling gasoline and commodity prices, and an increase in orders from Japanese companies returning to business after the devastating spring tsunami.

And finally we have the Chairman of the Federal Reserve:

He acknowledged that rising oil prices were “likely to push up inflation temporarily while reducing consumers’ purchasing power.” But the Fed expects the overall pace of increases in prices and wages to remain “subdued,” Mr. Bernanke said …

Bernanke also mentioned the continued depression of the housing market as a factor and he believes growth this year will be between 2.2 to 2.7 percent.  Such growth would indeed put a damper on employment growth.

Whether or not the forecasts will prove true obviously remains to be seen.  However the elements that should slow growth seem to be in place.  Consequently, the forecasts are less optimistic than Obama’s political campaign would have you believe.

After many “false dawns” (remember “green shoots”?) the possibility of another one looms large.  Sure, the economy is making progress. And yes, that’s good.  But overhyping that progress and then seeing the numbers go south again could be very damaging to an incumbent president’s reelection hopes.  Not that I expect that possibility to slow him down a bit from claiming to have saved the country from the abyss when in fact we’re simply crawling out from the one he helped create.

~McQ

Twitter: @McQandO


Economic Statistics for 2 Dec 11

Today’s economic statistical releases:

The big number today is the monthly employment situation. The BLS released the headline as "Unemployment rate falls to 8.6% in November; payroll employment rises by 120,000". The numbers behind the headline are less impressive. Actually, the headline isn’t all that impressive, considering that 120,000 new jobs is, at best, an anemic rate of job growth.  Also, it’s the time of year when a fair amount of hiring is seasonal, for temporary Christmas jobs, which can make the employment situation look better than it actually is, despite the seasonal adjustments to the data employed by BLS. Looking deeper, the labor force participation rate  continued to fall -0.2% to 64% as nearly half a million workers left the labor force.If the labor force participation rate was at the historical average of 66%, the unemployment rate would be 11.41%.  2.6 million persons were marginally attached to the labor force, about the same as last November.  The average workweek is unchanged at 34.3 hours, where it has been since September. Even worse, average earnings declined this month with the average hourly wage dropping 2 cents an hour to  $23.18. So, I think we can say that the drop in the unemployment rate is mainly due to people leaving the labor force, as the rate of job creation is weak.  Also, the lack of change in the workweek, and decline in wages implies that hiring pressure among firms is essentially non-existent as there has been no increase in the workweek for three months, and a glut of labor still exists as upward pressure on wages reversed this month. The only positive thing I can glean from this report comes from the household survey, where the number of respondents who are employed rose 278,000 to 140,580,000.

Monster.Com reports their employment index fell 4 points in November to 147 as online recruitment slowed.

~
Dale Franks
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We’re creating green jobs!

The president’s Green Jobs loan guarantee program, which we’re hearing a lot about, thanks to the Solyndra fiasco, does not appear to be a complete bust.  In all fairness, it has to be said that this program has been instrumental in directly creating jobs.  Indeed, the Washington Post reports that, after having spent  $17.2 billion of the original $38.6 billion appropriated for the green jobs program, the Administration can now claim the creation of 3,545 permanent new jobs as a direct result. That’s 3,545 of our fellow Americans who now have gainful employment, thanks to the Obama Administration’s Green Jobs program.  I’m sure they, and their families, are grateful.

Of course, if you do the math, that comes out to a cost of $4,851,904.09 per job. That seems…inefficient.  I’m pretty sure that if the government gave me $4.8 million, I could at least double that rate of job creation.

At this rate, once the entire $36.8 billion is spent, we may employ 7,000 people via the Green Jobs program. Or to put it in other terms, 4,000 fewer people than the increase in those who claimed unemployment compensation for the first time this past week.

~
Dale Franks
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Economic Statistics for 2 Sep 11

The Unemployment situation is the big report today, but it’s not the only one.

The Monster Employment Index rose slightly from 144 to 147 as the number of job want ads increased a bit.

Big deal. The headline number today is, of course, the Bureau of Labor Statistics’ report on the national employment situation, and it’s not good. The headline unemployment rate remains unchanged at 9.1%, and no net new payroll jobs were created last month. Last month’s increase in jobs was revised downward to 85,000.

To the extent there is any positive news to this report, it is in the underlying data. The labor force participation rate rose very slightly, from 63.9% to 64%. The U-4 unemployment rate (Total unemployed plus discouraged workers, as a percent of the civilian labor force) fell from 10% to 9.6%. The U-6 rate (Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force) also fell from 16.3% to 16.1%. The number of employed persons also rose from 139,296,000 to 139,627,000.

The bad headline number, though, pushed the Dow down more than 200 points as of 6:40 this morning.

~
Dale Franks
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Observations: The QandO Podcast for 21 Aug 11

In this podcast, Bruce and Dale discuss Rick perry, the Obama jobs plan, and much more.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.


Unemployment situation for July

The headline numbers for the the July employment situation show that 117,000 new non-farm payroll jobs were added last month, while the unemployment rate dropped to 9.1%. But, the true story is—as we’ve come to expect—more complicated when you delve below the fold.

Private payrolls rose by 154,000 jobs, while government payrolls declined by 37,000. Average weekly hours were unchanged at 34.3, while hourly earning rose slightly to $23.13.

The decline in the unemployment rate to 9.1 was not a reflection of the increase in non-farm payrolls, but a decline of 193,000 in the labor force, as workers dropped out of the labor market. As a result, the labor force participation rate continued to decline to 63.9%.  In addition, the total number of employed persons declined from 139,334,000 to 139,296,000, meaning that 38,000 fewer people were actually working last month, compared to June.

The U-4 unemployment rate, which includes discouraged workers, held steady at 9.8%, while the broadest measure of unemployment/underemployment, the U-6, which includes workers who have part-time jobs for economic reasons, dropped 0.1% to 16.1%.

Overall, the report is not positive. At best, it can be said that we’re about the same last month as we were in June.  The trend over the last few months is not good, however, as the table below illustrates.

 

  Mar 2011 July 2011
U-4 9.4% 9.8%
U-6 15.7% 16.1%

 

Finally, if we go back to the historical average of labor force participation prior to the recession, which was 66.2%, the proper size of the labor force should be 158,662,000, rather than 153,228,000. Use that figure to calculate the employment rate with the 139,334,000 persons actually employed, and you get an actual unemployment rate of 12.2% for July. The caveat here, of course, is that with the first tranche of Baby Boomers so close to retirement, some number have just retired early and are out of the labor force permanently, so that historical participation rate may no longer be valid.

In any event, once you add in the workers who’ve gotten discouraged, and workers who have part-time jobs because full-time employment isn’t available, this month’s employment report makes it clear that real unemployment is actually back on the rise.

~
Dale Franks
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The QandO Podcast for 05 Jun 11

In this podcast, Bruce, Michael, and Dale discuss Weinergate, employment, and the budget.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.


Observations: The QandO Podcast for 08 May 11

In this podcast, Bruce, Michael, and Dale discuss the death of Bin Laden, and the economy.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.


February Employment Situation

Once again, the headline unemployment number for February, which droped from 9.0% to 8.9%, hides much weakness in employment, despite the 193k new payroll jobs. Indeed, the BLS’ own U-3 unemployment rate, which is calculated in a similar fashion to mine, increased from 9.8% to 10.4%.

For my methodology, the numbers look like this:

Civilian noninstitutional population: 238,851,000
Historical participation rate: 66.2%
Proper labor force size: 157,641,660
Actually employed: 138,093,000
Actual unemployment rate: 12.4%

At the end of the day, we need another 8 million new jobs to bring us back to full employment.