Summary: Looking at today’s employment report (PDF here) we can draw one big conclusion. The economy continues to growth more slowly than we’d hope given the massive on-going monetary and fiscal stimulus programs (which cannot be continued forever). Oddly enough, this is not obvious to everyone.
Contents
- Good news. Bad news. Take your choice
- The cumulative change 2012 has been small
- This is bad news; worse might lie ahead
- For more information
(1) Good news. Bad news. Take your choice
Compare the July employment report results (seasonally adjusted) to the 90% confidence level for the monthly employment reports using the two metrics the Bureau of Labor Statistics provides. This month they disagree big-time.
(a) The household survey (CPS, source of the unemployment rate): a loss of 195,000 jobs in July, + or – 280,000 (not a statistically significant change). The population increased by 199,000, the labor force dropped by 150,000 and the number not in the labor force increased by 348,000. The report didn’t mention these odd swings.
(b) The establishment survey of non-farm employment (CES): a gain of 163,000 +or – 100,000 (a statistically significant change). Quite an improvement over recent CES monthly changes:
- April: +68,000
- May: +87,000
- June: +64,000
(2) The cumulative change 2012 has been small
The monthly numbers are noisy. More useful are the longer-term trends.
(a) The not seasonally adjusted change over the past 12 months of non-farm jobs per the establishment survey: 1.83 million (1.4%). That’s faster growth than both population and the labor force, both roughly 1%/year.
Due to revisions to the data, year-over-changes in the household survey are too complex for us to do here.
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(b) Look at the changes this year, the seasonally adjusted change from January to July (in thousands). The two reports have diverged somewhat on the number and per cent change in jobs YTD., with the establishment report showing faster growth than the household report. More important is that both show growth, roughtly steady over the past year.
The establishment survey:
| Jan-12 | July-12 | Change | % Change |
| 132,461 | 133,245 | 784,000 | 0.6% |
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The household survey provides looks at the civilian non-institutionalized population (age 16+):
| Class | Jan-12 | July-12 | Change | % Change | Annualized |
| Population | 242,269 | 243,354 | 1,085 | 0.4% | 0.9% |
| Not in labor force | 87,874 | 88,340 | 466 | 0.5% | 1.1% |
| Labor Force | 154,395 | 155,013 | 618 | 0.4% | 0.8% |
| Employed | 141,637 | 142,220 | 583 | 0.4% | 0.8% |
| Unemployed | 12,758 | 12,794 | 36 | 0.5% | 0.6% |
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(3) The details show continued slow growth
Many who look at these numbers debate the tiny details, but ignore the large fact: both measures show slow recovery from the depths of the recovery. Very slow recovery. These numbers are less accurate than the headline numbers.
- The number of long-term unemployed continue to shrink, down 16% YoY to a still-high 5.2 million.
- The number of discouraged workers (drop-outs from the labor force) continues to shrink, down 24% YoY to 852,000.
- Libertarians rejoice! The number of government employees continues to shrink, down 105,000 YoY (0.5%) to 22 million.
- With so many companies closely managing their workers’ hours, average weekly hours might no longer tell us much. It’s flat YoY at 34.5.
- The number of full-time jobs have risen faster than part-time (2.1% vs. 1.4%, from the Household survey). There are 27 million part-time jobs and 116 million full-time jobs.
- The alternative measures of unemployment (there is no “right” number) als0 improve. The broadest metric (the U-6) has dropped from 16.3% last July to 15.2% now (non-seasonally adjusted).
(4) The big picture
We are applying powerful fiscal and monetary stimulus to get this slow recovery. Near-zero interest rates plus borrowing $1.3 trillion dollars over the past 12 months — 8.3% of GDP — and we get only a 1.4% increase in jobs. America’s economy is among the strongest in the world lately, but only because of our borrowing. Italy’s deficit is aprox 2.4% of GDP; cut our deficit by 70% and our economy probably would look like Italy’s.
So far no evidence of the powerful sustainable recovery the optimists have promised so many times since the trough in Spring 2009. The reason is obvious: the stimulus provided first aid. It stabilized the economy, buying time for measures to rebalance our warped somewhat dysfunctional economy. We wasted that time, as we squandered our government’s spending (eg, our infrastructure is still rotting away). We have borrowed $6 trillion since the recession began in December 2007 (data here); we cannot keep this up forever.
Now for the bad news: the world economy is slowing. The economic and social stress of a slowly growing world might be heavenly compared to what lies ahead if the world slumps again into recession in its weak condition.
Really awful would be a US recession. One starting with an 8.3% unemployment rate and an 8%+ fiscal deficit.
But we’re probably not in a recession yet. The most reliable real-time indicators suggest stablity, or slowing growth. If you watch just one indicator, I recommend the weekly new claims for unemployment. It clearly flagged our descent into the 2008-09 crash.
For More Information about the US economy
- A status report about the US economy (we party so hard we cannot hear the alarms ringing), 27 March 2012
- About America’s economic recovery: the good news and the bad, 1 May 2012
- About the May jobs report – a few new jobs, bought at great cost, 1 June 2012
- The Titanic’s lessons for us about the coming economic crisis, 4 June 2012
- America is rich and powerful because we can borrow. Will this debt build a stronger America?, 5 June 2012
- US economic update. Everything that follows is a result of what you see here., 8 June 2012
Great analysis as usual, FM.
My only caveat is that there is still, in my opinion, a chance for a perceived (if not actual) recession before the election. Very slow growth can be spun into a serious threat of recession if you throw enough money at it and (per NPR this morning) Romney is outspending Obama 2-1.
I agree. That’s an important point. Individuals cannot directly perceive many important phenomena. GDP and employment in economics, where we see only the specific circumstances of our immediate and adjacent households and businesses. Climate change, even at the local level, where the daily and annual changes dwarf the tiny trends.
In both cases we rely on others to aggregate and explain trends, which although of great importance to us, cannot be directly seen by us.
Hence our vulnerability to misrepresentation and lies. In economics they are legion. Ditto in climate. For example, Steve Goddard documents the rash of local news media articles about horrific climate change (usually temperature and sea level) in areas where the local records clearly show no such change (global trends — homes prices or heat — do not affect every area at the same rate, or at all).
With all the detailed nuances in these Reports, this is a good fair summary from FM, I think.
The best metaphor I have heard recently to descibe our pathway is:
We are on a Jumbo Jet, trying to climb and really in a upward nosed Stall.
Headwinds, sidewinds, rain squalls make this orientation quite precarious as we could lose wing speed. (quite easily)
Breton
Interesting how little bang there’s been considering the Trillions that have been thrown at this problem. Somehow printing money so the FED can pump up financial asset prrices for the banks and the stock market just hasn’t helped the real economy. Looks like under some circumstances, low interest rates just aren’t enough.
“Interesting how little bang there’s been considering the Trillions that have been thrown at this problem.”
I hear that all the time, usually (but not always) from Republicans.
I say the same thing when walking through the hospital. Lots of sick folks. Cancer, heart disease, etc. Often fortunes have been spent but they’re still sick. Look at the waste! There are accident victims that get thousands of dollars of blood transfusions — but the’re still sick! I tell the docters to stop wasting money, but they don’t listen!
I am not, nor have I ever been, a Republican. Anyway, Bernanke, whose policy this is, is in fact a Republican for real. And I don’t see Mitt denouncing this policy either. So I have to assume that the policy of zero interest rates coupled with financial asset purchases etc by the Fed is essentially and fundamentally a republican policy.
But, in my state of confusion, I observe that this also must be Obama’s policy, since he doesn’t object to it, and in fact reappointed Bernanke to a second term. So we have a Democratic president supporting a Republican monetary policy which is pursued by his own appointees; at the FED with Bernanke – a current republican – and at Obama’s treasury department through Geithner – a former Republican now currently a Democrat.
***
On a less confusing note, Prince Bandar may by now be said to have achieved Schrödinger Cat Status as being both alive and dead at the same time until he should actually be observed in one or the other of these states. A primer in the political uses of Quantum Theory is this article: “A Quantum Theory of Mitt Romney“, David Javerbaum, op-ed in New York Times, 31 March 2012.
(1) “I am not, nor have I ever been, a Republican.”
I am a Republican, and have been for 30 years.
(2) “Interesting how little bang there’s been considering the Trillions that have been thrown at this problem.”
When we speak of “$ thrown at this problem” we’re usually speaking of fiscal policy — government spending — not monetary policy (changing monetary aggregate or interest rates). As you know, the Fed has no role in setting government spending.
(3) “financial asset purchases etc by the Fed”
That policy was a total success, as its purpose was to save the banks. Which it did. These purchases were investments, not spending. They might cost nothing, or even prove profitable; we’ll know when these are all wound down.
(4) “I have to assume that the policy of zero interest rates coupled with financial asset purchases etc by the Fed is essentially and fundamentally a republican policy. … So we have a Democratic president supporting a Republican monetary policy”
Not at all. Many aspects of public policy are non-partisan, from fire-fighting to economic policy. That is, they are within the broad consensus of a society at that point of time. These monetary policies were implemented during the crash by governments run by a wide range of ideologies, from the Bush Jr hard-rock conservatives to the commies in China.
(5) “Prince Bandar may by now be said to have achieved Schrödinger Cat Status”
I suggest that we assume Bandar is alive until evidence shows otherwise. The websites making these claims are not reliable.
“I hear that all the time, usually (but not always) from Republicans.” So I thought you were suggesting I was critical of Fed policy because I might be a Republican. My mistake.
“That policy was a total success, as its purpose was to save the banks.”
Of course it might have been better to put the banks in receivership and recapitalize the banking system with fed money, but since that’s a counter factual argument, I’ll leave it alone except to suggest that the real economy and/or the banks must still be in very bad shape considering the Fed’s persistent zero interest rate policy and the persistent talk/hope of more QE. Some success.
“Many aspects of public policy are non-partisan, from fire-fighting to economic policy. That is, they are within the broad consensus of a society…”
Well, the last time I lived in the inter-mountain West fire fighting cum logging were very much highly controversial partisan issues with no social consensus whatsoever and with frequent resorts to actual violence.
FM, there is no such thing as a socially neutral economic policy. All economic positions, tax policies, monetary positions etc all serve interests. To the extent that financial interests control both the Democrats and the Republicans, these issues are made to appear to be “non-partisan” but they are certainly not disinterested as one might say that the rules of mathematics are disinterested. Our elites are very much interested, and they use the image of non partisanship to secure their interests.
“I suggest that we assume Bandar is alive until evidence shows otherwise. The websites making these claims are not reliable.”
That’s why I said that Bandar had achieved Schrödinger Cat Status. I thought it amounted to saying the same thing. It was a joke.
I agree with most of what you say.
(1) “Of course it might have been better to put the banks in receivership and recapitalize the banking system with fed money”
Agreed. But that was and is outside the political consensus of both parties.
(2) “the last time I lived in the inter-mountain West fire fighting cum logging were very much highly controversial partisan issues”
Perhaps about the fire-fighting (certainly about logging). But more relevant is their reaction to firefighters when their homes are burning.
(4) “there is no such thing as a socially neutral economic policy.”
Agreed. My point was that there is along-standing bipartisan consensus about US foreign and economic policy. That consensus covers only a small fraction of public policy options. IMO all sensible policies for health care and foreign affairs lie outside the US area of consensus.
(5) “It was a joke.”
I have a defective sense of humor. Although I once wrong a funny geopolitical article: Top Secret US Government Documents about Iraq, 11 February 2006. It provoked a flood of outraged responses from people with no sense of humor. The Editor forbid further funny articles.
Unna remarks “Interesting how little bang there’s been considering the Trillions that have been thrown at this problem.”
Unbelievable tripe. That near-trillion bucks avoided another Great Depression. As in: 25+% unemployment, mass rioting, mass starvation, state police posted at the highways leading into every state with guns and huge billboards reading UNEMPLOYED MEN KEEP GOING, WE CAN’T FEED OUR OWN.
Or maybe you’d prefer another rerun of those Bonus Marchers getting trampled by mounted army troops who are armed with sabers…?
You can say what you like about Obama’s economic record, but right at the start of his administration, he figured out exactly what he had to do and he did it. Criticizing Obama’s massive stimulus to the economy to prevent another Great Depression and a catastrophic 15%-or-more collapse in the U.S. GDP and a lethal deflationary death spiral is like bitching and whining about your broken arm after you’ve bailed out of an airplane and landed on the ground. “A fat lot of good that parachute did me! I should never have wasted all that money on it!”
“You can say what you like about Obama’s economic record, but right at the start of his administration, he figured out exactly what he had to do and he did it. ”
Agreed. However, Obama’s economic (and national security) policy was an extension of the Bush Jr administration’s policies.
“Interesting how little bang there’s been considering the Trillions that have been thrown at this problem.”
Really, folks, this is a pretty anodyne statement. Think for a moment of all the fire power, both fiscal and monetary, that has been employed. Obama was very correct in his stimulus program and its fault was in that it was too small. I suggest that Obama supporters may want to inquire about why that was so.
In any case, I believe the stimulus should have been more and continuous with semi permanent employment programs until the economy righted itself. Except for the tax cuts, it was real money going into the real economy. That was a good thing, as they say. And still, the economy is either in recession or close to it with 8% plus unemployment, semi permanent zirp etc. Don’t you find that amazing? Mine was more a statement about the gravity and character of the economic problems we have than anything else.
“Somehow printing money so the FED can pump up financial asset prices for the banks and the stock market just hasn’t helped the real economy. Looks like under some circumstances, low interest rates just aren’t enough.”
Really, has monetary policy alone, even that which has affected the stock market positively, put these people back to work? Look around you.
“Unbelievable tripe. That near-trillion bucks avoided another Great Depression. As in: 25+% unemployment, mass rioting, mass starvation, state police posted at the highways leading into every state with guns and huge billboards reading UNEMPLOYED MEN KEEP GOING, WE CAN’T FEED OUR OWN.”
Well, now, we really don’t know that, do we? It’s a counter factual and so is a matter of speculation. Personally, I believe that Obama’s stimulus program was good but not enough. I speculate that Bernanke’s monetary policies have indeed kept the banks in business, but may not have had very much affect on the real economy. Is that thought so “unbelievable”?
Unna,
Whatever your personal political beliefs, and that you advocate somewhat leftist prescriptions (which I agree with), your analysis is standard GOP boilerplate. This is a commonplace today, and IMO why the Right is winning. More specifically, why Obama’s policies have so closely continued those of Bush Jr., despite the Left’s soaring hopes.
(1) “Really, folks, this is a pretty anodyne statement”
It’s inoffensive, but highly contentious. The effect of the fiscal and monetary stimulus programs is ground zero in the debate about US (and European) economic management.
(2) “I suggest that Obama supporters may want to inquire about why that was so.”
They have. At mind-bending length (although to what end I don’t know). To read about this I suggest starting with Ron Suskind’s Confidence Men (reviews here and here).
(3) “And still, the economy is either in recession or close to it with 8% plus unemployment, semi permanent zirp etc. Don’t you find that amazing?”
No, on several levels.
Employment has recovered unusually slowly, probably due to demographics (baby boomers retiring) and the next wave of automation (aka “the robot revolution” described here)
(4) “Really, has monetary policy alone, even that which has affected the stock market positively, put these people back to work?”
Belief that monetary policy is the only useful form of stimulus is a standard aspect of GOP thinking (like their anti-deficit rhetoric, not often applied in practice) going back to Milton Friedman. In many GOP circles it’s become an article of faith.
(5) “Well, now, we really don’t know that, do we? It’s a counter factual and so is a matter of speculatio”
Yep, like evolution.
The efficacy of fiscal policy is shown by a very large body of both theory and historical evidence. As usual with such things, nobody wants to be the group getting the placebo in order to prove things so thoroughly proven true.
(6) “Bernanke’s monetary policies have indeed kept the banks in business, but may not have had very much affect on the real economy. Is that thought so “unbelievable”?”
No, not for someone who gets their information from Fox News and National Review. For anyone else, yes (which is why your comment seems unusual, IMO). Especially about the effectiveness of near-zero interest rates. I suggest reading about the liquidity trap and zero-bound problem. Wikipedia is an easy place to start, but any Econ 101 text will work better (or read through Paul Krugman’s columns of the past 4 years). There is nothing unusual or theoretically unique about our situation. Japan has lived here for over two decades.
Correction made to above comment: employment growthing slowly due to demographics (baby boomers retiring) and the next wave of automation …
FM,
Do you really think saying that someone having doubts about the end of the economic world scenario is the same thing as being an evolution denier? And I really don’t understand the “Republican boiler plate” accusation. I don’t watch Fox TV because I don’t own a TV. Perhaps you’ve been watching it too much and you are confusing the slop for the sheeple there with the securely held positions of the Republican Establishment which is exemplified by Romney. He very much supports monetary (Freedman) solutions over fiscal interventions that might benefit ordinary people. That’s what I identify as the the “Republican” position and I disagree with it. Not because it’s Republican but because it doesn’t seem to be working very well. Frankly, I really don’t know what the Fox News position is.
As to long term zirp, it has been criticized by some as actually inhibiting lending at a certain point. (I believe this argument has been made by Bill Gross. I remember first hearing the argument years ago as applied to Japan.) As the risk of lending becomes higher than anticipated returns, lending itself is inhibited by low interest rates which otherwise are thought to encourage borrowing. Then there’s the destruction of worker pension plans which find it impossible to get the returns they need, the massive transfer of purchasing power from savers to speculators on Wall Street, the need to speculate to get yield which increases leverage and risk in the system. Yes, there are alternative and legitimate ways of understanding long term zirp. It’s been said that zirp is not working because this is a balance sheet recession, see Richard Koo of Nomura Securities, and not your ordinary slow down. There’s simply too much private debt in the system and because of that, households need to repair their balance sheets before lending can begin and true prosperity return.
Of course, Krugman discounts the issue of private debt. But you know what, that’s his considered opinion. Other very serious people do have other opinions and their disagreement with Krugman does not make them evolution deniers.
Sure, I like Krugman. I’ve read him for years so I don’t feel like rereading him again. But ridged attachment to orthodox opinion is is a disadvantage to thinking.
Whether we’re at or near a recession is a matter that’s very much being debated. Let’s all hope that your optimism is correct.
Look, we could go on and on about this. Let’s just gracefully agree to disagree.
(1) “Do you really think saying that someone having doubts about the end of the economic world scenario is the same thing as being an evolution denier?”
No, but then I didn’t say that. The point about “contrafacturals” is however structurally similar to rebuttals often used against well-established theories in science. Evolution is the most common example.
(2) “I don’t watch Fox TV because I don’t own a TV”
I didn’t say that you did. I said the opposite (“For anyone else…”). My point, repeatedly made, is that you’re echoing analytical theories used by opponents of the policy prescriptions you advocate. In fact those analytical views do contract your policy preferences. This is commonly seen on the left. For example in the frequent appearances of Zero Hedge and Mish Shedlock on Naked Capitalism and Matt Tabbi’s Rolling Stones blog. Perhaps this explains to some degree the failure you mention of the Obama Administration.
(3) “it has been criticized by some as actually inhibiting lending at a certain point.”
(a) Yes, that’s been said. There is zero evidence that this is so, and considerable evidence otherwise.
(b) Bill Gross is not an economist — and his frequent (usually wrong) economic analysis shows (eg, “Gross Confusion“, Paul Krugman, NYT, 20 December 2011). Also note his long series of incorrect forecasts shows (eg, Krugman, 30 August 2011 and Krugman, 16 October 2011). Gross’ performance markedly declined once his excellent economist, Paul McCulley, left (see “The Decline of Pimco Macro“, Krugman, NYT, 10 June 2011).
(4) “I remember first hearing the argument years ago as applied to Japan”
Again, yes that’s said. It is truly cracked to expect large-scale private loan demand from a nation with stagnant real GDP since 1989. Blaming that on zero interest rates shows a radical misunderstanding of cause and effect for credit.
(5) “As the risk of lending becomes higher than anticipated returns…”
Totally wrong. You confuse ZIRP, which describes the risk-free rate of return (ie, short-term treasury rates) with private lending rates — which are ZIRP plus credit spreads. Credit spreads are unaffected by ZIRP. For evidence, look at credit card rates.
(6) “there’s the destruction of worker pension plans”
Yes, like any powerful medicine ZIRP has large, serious side-effects. That’s different than your previous — and wrong — assertion that ZIRP was ineffective.
(7) “Of course, Krugman discounts the issue of private debt.”
Yes, conservatives say this frequently. It’s false, as evident to anyone reading his work — both professional and in the general media (also, he’s written several columns explaining why this accusation is both false and silly). This is more evidence of my larger point, that (probably unknowningly) you are repeatedly echoing GOP economic views. This is the supreme evidence of their ascendency, when their views become unconsciously absorbed by their opponents.
(8) “I like Krugman. I’ve read him for years so I don’t feel like rereading him again.”
Perhaps you should, as this brief discussion suggests that you have not understood the major themes of his articles.
(9) “Whether we’re at or near a recession is a matter that’s very much being debated.”
Are we in a recession now? No that’s not “very much” being debated. There is a very tiny number of economists who believe so (although I cannot think of any), since there are few (probably no) signs of that in the economic data.
There is a debate about the odds of recession. A few economists say a recession is close (eg, the highly respected Economic Cycle Research Institute; see here and here). A larger group expects a recession in Q4 or 2013 (eg, Nouriel Roubini).
{off-topic, but a follow-up to the important point I made above)
Another example of the Right winning in the most profound way possible: having their views adopted by the Left:
“Dems Nominate Anti-Gay Conspiracy Theorist for Senate“, Tim Murphy, Mother Jones, 3 August 2012 — Opening:
doesn’t the government tweek their employment records in certain ways to make things look better than they actually are?
There is no evidence that such a thing has ever happened. Also, it wouldn’t work. There are many indicators of employment: the ADP payroll data, unemployment claims (new and continuing), the various Fed regional surveys and Purchasing Manager indexes. They tend to paint the same picture. Tinkering with the Bureau of Labor Stats numbers would just raise questions.
what about the whole stir in left leaning media about them discrediting the underemployed, those who have been taken off of unemployment payroll, those who have just given up on finding a job and any others?
(1) “discrediting the underemployed”
Total nonnsense. BLS counts people and jobs. Any meaning to the numbers comes from the reader. Those complaints are part of the looney left’s fascination with controling reality by the labels applied.
(2) “whose who have been taken off of unemployment payroll, those who have just given up on finding a job and any others?”
What about them? They’re in the numbers, clearly counted. What more would you like BLS to do?
The first major US economist to say that the US is now in recession: Gary Shilling (twice Chief Economist at MER, now runs his own shop).
“Shilling: New recession has begun“, MarketWatch, 3 August 2012 — Excerpt: