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Friday, August 07, 2009

Jobs Report Roundup

Most everything that can be said about the jobs report has already been said, so here's a roundup of various reactions. The point I want to emphasize is that it's far too soon for policymakers to begin easing up, they need to plan as though this is just a temporary aberration in the numbers. If that turns out to be wrong, then the plans do not need to be executed, but it's essential that we are ready to react if needed (e.g., though I think the political climate makes any action highly unlikely, policymakers could enact expenditures that kick in if the numbers in future reports fail to meet predetermined thresholds so that if there is sufficient improvement in the economy, the money won't be spent):

A remarkable jobs report, by Free Exchange: ...[T]he new nonfarm payroll employment data released by the Labor department this morning ...[shows] July job losses of just ... just 247,000... Just as remarkable, the unemployment rate actually declined, from 9.5% to 9.4%. This may end up being a short-term aberration, but it is a very unexpected and positive one.

Manufacturing employment fell by 52,000 for the month, the first time in ages that the number has been below 100,000. Health industry and government employment moved upward. Meanwhile, hours and earnings both rose, in a very good sign for the job market.

The news isn't all good. Since the recession began a total of 6.7 million jobs have been shed, and nearly 15 million people are currently out of work. And the number of long-term unemployed (those out of work for 27 weeks ore more) has reached 5 million—a third of those currently out of work. It is those workers that will have the most difficulty finding new employment, which is what must happen for the unemployment rate to decline to "normal" levels.

But this is one of the best economic reports America has seen to date...

Does this mean our problems are over?:

Has Unemployment Peaked?, by Brad DeLong: Almost surely not, alas. But a mere -247K on payroll employment is a good number--or, rather, a less-bad number than we all were expecting.

Economic glimmers of light, by Felix Salmon: What does it mean when employment and unemployment both move in the same direction? It might be an error in one of the two pretty fuzzy datasets, or it could be, as Agnes says this morning, a real turning point. That’s certainly what the bond market seems to think.

My feeling is that it’s far too early to say that unemployment has stopped rising, and that clearly nobody believes employment has stopped falling. ...

All the same, on such a happy day it would be churlish not to take some joy from today’s figures. The most vertiginous part of the economic plunge is clearly over, and there’s some real hope for (modest and painful) economic recovery going forwards...

The Least-Bad Jobs Report in a Long Time, by David Leonhardt: The story of today’s jobs report is pretty simple: given what was expected, it’s very good news. ... The one thing that doesn’t deserve much excitement is what will probably garner many of the headlines: the drop in the unemployment rate. It happened only because more people stopped looking for work and were thus ineligible to be counted as officially unemployed. The share of adults with jobs actually fell: to 59.4 percent, from 59.5 percent.

So the job market and the economy are still in bad shape. But, all in all, this was a very good report.

Anyone have any graphs?:

Employment Report: 247K Jobs Lost, 9.4% Unemployment Rate, by Calculated Risk: From the BLS:

Nonfarm payroll employment continued to decline in July (-247,000), and the unemployment rate was little changed at 9.4 percent, the U.S. Bureau of Labor Statistics reported today. The average monthly job loss for May through July (-331,000) was about half the average decline for November through April (-645,000). In July, job losses continued in many of the major industry sectors.

Employment Measures and Recessions Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 247,000 in July. The economy has lost almost 5.7 million jobs over the last year, and 6.66 million jobs during the 19 consecutive months of job losses.

The unemployment rate declined slightly to 9.4 percent.

Year over year employment is strongly negative.

Percent Job Losses During Recessions The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up over the last year, and the current recession is now the 2nd worst recession since WWII in percentage terms (and the 1948 recession recovered very quickly) - and also in terms of the unemployment rate (only early '80s recession was worse).

With fewer job losses ("only" a rate of 3 million job losses per year), and the dip in unemployment rate, this will be consider an improvement. It is still a weak employment report. Much more to come ...

[See also Employment-Population Ratio, Part Time Workers, Average Workweek, Unemployment: Stress Tests, Unemployed over 26 Weeks, Diffusion Index]

Employment Report, by spencer: The employment report was very encouraging.

Most importantly, aggregate hours worked were unchanged at 91.1 as compared to 104.1, 101.7 and 99.7 over the last three quarters. An unchanged reading is a massive improvement from the 8% to 9% rate of decline over the past three quarters. With positive productivity this impies that thrird quarter real GDP growth could easily be positive..

Moreover, the manufacturing work week rose from 39.5 to 39.8 hours and overtime hours were 2.9 hours versus 2.8 in the second quarter. Much of this was auto and confirms the other reports that at least auto output is rebounding. The hours worked together with productivity strongly impies that manufacturing output rose in July -- to be reported about mid-month. Moreover, the average workweek and overtime hours are traditional leading indicators.Wage growth improved, but not enough to reverse the sharp slowing in average hourly earnings growth.

With hours worked stable and hourly earnings rising average private weekly earnings rose from $611.49 to 614.34.
The improvement in weekly earnings is a welcome sign... Tax cuts are offsetting some of this weakness but a sustained recovery requires growth in real income.

The consensus forecast is for a very weak recovery. But the consensus forecast is always for a weak recovery. The actual historic record is for recoveries to be proportional to the recession. That is, severe recessions have strong recoveries and mild recessions have weak recoveries.
I'm not making a forecast or taking a position that the consensus is wrong, or that those who expect no recovery are wrong either. But at every bottom economists always have a long list of reasons why this recovery will be weak. And they are usually wrong. In 1981, I won the National Association of Business Economists annual forecasting contest by forecasting an average or normal recovery from the 1980 recession. It was the strongest forecast in the competition.Footnote. Despite the increase in the minimum wage the teenage unemployment rate actually fell.

What's going on with broader measures of unemployment?:

Jobs paradox?, by Paul Krugman: ...[H]ow do we measure unemployment? ... It comes, instead, from a survey in which people are asked whether they’re working and, if not, whether they’re looking for work. And what this month’s data show is a relatively large rise in the number of people “not in labor force” — neither working nor looking for work. That’s how the unemployment rate can fall even with fewer people working.

Isn’t U6, the broadest measure of unemployment, supposed to include people who are discouraged and stop looking? Yes — but at least according to the survey, that’s not the reason more people have dropped out of the work force.

Basically, though, what you need to bear in mind is that these are imperfect measures, subject to a fair bit of noise. When the trend in the labor market is very strong in either direction, the measures move together. But when you have the kind of scene we have now — the employment situation is drifting down, but not plunging — occasional mixed signals are likely. No big deal.

The basic story is that things are sort of stabilizing — but they’re definitely not improving yet.

Robert Reich is far from claiming victory:

The New Employment Numbers: Things are Worsening More Slowly, by Robert Reich: The economy is getting worse more slowly. That's just about the only clear reading that's coming from the economic reports, including this morning's important one on employment. ...

So let's be grateful that the economy is getting worse more slowly than it was. But don't be lured into thinking we're ever going back to where we were. Most of the jobs that have been lost are never coming back. New ones will replace some of them, eventually, but hardly all of them. The structure of the American economy is changing. We will emerge from all this with an economy that looks strikingly different from the one we had in 2007. More on this to come.

Justin Fox also notes "bad news" in the report:

Jobs! Jobs! Jobs!, by Justin Fox: ...The bad news is that there are no real signs of economic life in the details of the employment report, just a slowdown in the pace of losses in most of the big categories. The most significant job creation was in health care, which added 19,600 jobs. But that's nothing new, and it's not unmitigated good news—we want to cut health care spending, don't we? The federal government added 12,000 jobs, "arts, entertainment, and recreation" added 10,000 (who knew?). Oh, and the auto industry supposedly added 28,000 jobs, but I'll let the BLS explain that away:

In motor vehicles and parts, fewer workers than usual were laid off in July for seasonal retooling. ... In large part, July's seasonally-adjusted increase reflects the fact that previous job cuts had been so extensive that there were fewer workers to lay off during the seasonal shutdown.

The above numbers are seasonally adjusted—which is necessary to do, but adds lots of potential for weird statistical quirks like the auto employment increase. Without the seasonal adjustments, employment fell a whopping 1.3 million in the month. And there were 5.9 million fewer jobs in July 2009 than in July 2008. ...

The CBPP takes a look at long-term unemployment, and the news isn't good:

CBPP Statement, by Chad Stone: Today’s employment report shows that labor market conditions remain extremely harsh for job-seekers, generating a record level of long-term unemployment. One third of the unemployed (33.8 percent) have been looking for work for 27 weeks or more — the highest percentage ever recorded in data going back to 1948 and well above the peak reached in the severe 1981-82 recession (see Figure 1).

The report also shows that the deterioration in labor market conditions has slowed considerably from earlier this year, suggesting an economic recovery may be in sight. But that news must be tempered by the ongoing plight of the long-term unemployed....

Why did the unemployment rate fall?:

Why exactly did the unemployment rate fall?, by Rebeccas Wilder: Please correct me if I'm wrong. But the labor force is really big, 154,503,000 (see Table A on the BLS news release). Compared to that, the number of unemployed is really small, 14,462 (see the same table).

If the decline in number of unemployed, -267,000 was 63% the size of the decline in the labor force, -422, which shift is the dominant factor in the falling unemployment rate?

Unemployment rate = unemployed/labor force

I'd say the sizable shift in the really small numerator. Apparently, the AP does not think so:

One of the reasons the rate went down, however, was because hundreds of thousands of people left the labor force. Fewer people, though, did report being unemployed.

I'm pretty sure that this should read: The main reason that the unemployment rate went down was due to the number of unemployed falling significantly as workers left the labor force.

Unemployment Rate Falls as Employment-Population Ratio Declines, by pgl: BLS reports even more job losses in July:

Nonfarm payroll employment continued to decline in July (-247,000), and the unemployment rate was little changed at 9.4 percent

But the unemployment rate was 9.5 percent in June. Had the Administration been Republican, Lawrence Kudlow would be hailing this report as good news. Paul Krugman offers a different tone:

Some readers have asked how it’s possible for unemployment to fall when the economy is still losing jobs, albeit at a slower rate. The answer is a bit annoying. First, the jobs number and the unemployment number are based on different surveys — a survey of establishments in the first case, a survey of households in the second. Sometimes employment rises by one measure while falling by the other, although it happens that this month there isn’t much difference in the jobs number.

The household survey also showed job losses – with its figure being 155,000, which drove the employment-population ratio down from 59.5% to 59.4%. The labor force participation rate, however, also fell from 65.7% to 65.5%. The employment picture got a little worse last month or as Paul concludes:

the employment situation is drifting down, but not plunging — occasional mixed signals are likely. No big deal. The basic story is that things are sort of stabilizing — but they’re definitely not improving yet.

Finally, policymakers should look at the numbers the way Michael Mandel does and plan accordingly. It's far to soon for policymakers to ease up, and in fact, they ought to planning for more stimulus in case this is correct:

The Calm before the Storm?, by Michael Mandel: This morning’s jobs report seemed to show a firming-up of the labor market, with the unemployment rate dropping a tad, from 9.5% to 9.4%. Job losses have slowed too, down only 247,000 in July.

But one month’s numbers do not make a recovery. I’m betting that this may be just a temporary pause before the labor market worsens again towards the end of 2009. What happened is that the government has poured an incredible amount of money into the economy, through both monetary and fiscal stimulus. Policymakers have managed to blunt the downward spiral, which is a tremendous achievement. No depression on Bernanke’s watch.

But consumers are still cutting back, and the personal savings rate still has more to rise. I would treat this as the eye of the hurricane, with more yet to come.

    Posted by on Friday, August 7, 2009 at 09:51 AM in Economics, Fiscal Policy, Unemployment | Permalink  Comments (64)


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