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The June jobs report: continued slow growth, bought at a high cost

5 July 2013

Summary: The news media focuses on the month-to-month changes in the jobs report, which consist mostly of noise. Strong months confirm the optimists; weak months confirm the pessimists. In fact the trend of growth remains the real story, with the US economy near stall speed — supported only (like the other developed nations) by massive multi-year fiscal and monetary stimulus. Slow growth from programs we cannot long continue. Worst we have squandered much of the money borrowed, which could be rebuilding America. Just as Japan has done since 1989.

Economy

Contents

  1. The big picture
  2. About the recovery
  3. Household survey
  4. Establishment survey
  5. Unemployment
  6. Other important metrics
  7. Other posts in this series
  8. For more information about US economy

(1) The big picture

Here we examine the June employment report from the Bureau of Labor Statistics. They conduct two surveys: one of households, one of businesses. They are not directly comparable, each giving different perspectives on the US economy. This report paints a picture consistent with the many other streams of information about the economy: slow growth, slightly above the average of the past 12 months.

How well has the recovery run? There is no “best” metric. The most commonly used by economists is the ratio of civilian employment to the population. It paints a grim picture. The red line shows the trend from the pre-crash high, adjusted for demographics (boomers retiring).

June Jobs

(2) About the recovery

To understand the jobs report one must first put it in a larger context: during this period the government’s public debt increased $901 billion — 5.7% of GDP (see debt here and GDP here), one of the higher fiscal deficits in the world. Our shiny recovery results from massive borrowing and spending — plus large and unconventional monetary policy. Organic growth has not yet resumed.

The US economy slowly improves only due to the massive “drugs” of monetary and fiscal stimulus (the former boosted with QE3 as the latter winds down). Drugs administered by experts are good; the US slow growth is better than Europe’s suffering under austerity. But fiscal and monetary policy, like powerful drugs, have severe side-effects which at some unknown point in the future will become problematic or even untenable. And the withdrawal has begun: the sequester, still taking effect, and the future “tapiring” of Fed stimulus.

The worst side effects were unexpected:

  • Years of deficit spending left little improvement in our infrastructure. Like Japan, we spent trillions with little to show for it.
  • Years of extreme monetary stimulus have distorted the economy, in ways perhaps difficult to unwind.
  • The stimulus eliminated pressure for reform. We have had the New Deal stimulus without the New Deal reforms (some of which failed, but the others laid the foundation for the great post-war boom).

(3) The Household survey

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The Current Population survey is a simple survey of households. Compared to the survey of businesses it has large error bars but no revisions. It’s worth watching because it’s the basis for the headline unemployment rate, it gives useful data not in the more-accurate business (establishment) survey, and because some research suggests that the household report shows inflection points before the establishment survey.

Here are the numbers, in thousands, not seasonally adjusted. The June gain of 160 thousand more workers employeed is 17% larger than the average gain of the past 12 months — 137 thousand.

Description June 2012 June 2013 Change Change
Employed 143,202 144,841 1,639 1.1%
…Employment-population ratio 58.9% 59.0% +0.1 0.2%
Full-time 116,024 117,400 1,376 1.2%
Part-time 27,178 27,442 264 1.0%
Unemployed 9,334 8,495 -839 -9.0%
…Unemployment rate 7.5% 6.8% -0.7 -9.3%

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(4) The establishment survey

The second survey asks employers to report the number of jobs. Over one or more quarters it usually shows a similar pattern of growth as the household survey, giving us confidence in the results. During the past year it shows slow improvement at the roughly same rate as the household report (as usual). However, the household survey has shown slower growth during the past few months than the establishment survey. Attention conservatives: under the Keynian socialist the number of government employees continues to shrink. Time to update your predictions.

The June gain of 195 thousand jobs is roughly the same as the average of the past 12 months — 187 thousand. The birth-death model produced 31% of the total job gain (132,000 of 422,000, not seasonally adjusted) — the largest percentage boost to the total since June 2012.

These are in thousands, not seasonally adjusted numbers.

Description June 2012 June 2013 Change Change
Total nonfarm 134,556 136,805 2,249 1.7%
Total private 112,709 114,998 2,289 2.0%
Total government 21,847 21,807 -40 -0.2%

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(5) Measures of Unemployment

(a) New claims for unemployment insurance are one of the most accurate and useful real-time metrics

Compare the change in the 4-week moving averages (source here) of June 2012 and 2013 (seasonally adjusted). This show a decline in unemployment at roughly the same rate at the household survey.

  • June 2012: 345,500
  • June 2013: 380,750 (-9.3%)

(b) The unemployment rate – a complex metric that gets far too much attention

The analysts at BLS calculate six measures of unemployment, from narrow to broad definitions. None is more real than the others; none are easily comparable to the rough estimates of unemployment during the 1930s (the first reliable surveys were in the early 1940s). Most people consider U-3, or U-4, or U-5 as the most useful measure. U-6 includes people with part-time jobs who prefer full-time work, and so includes underemployment. These are not seasonally adjusted.

Any way you count it, unemployment has decreased during the past year. The broader the measure, the slower the decline. U-1 down 13.3%; U-6 down 3.3%.

Metric June 2012 June 2013
U-1 4.5% 3.9%
U-2 4.4% 3.8%
U-3 8.4% 7.8%
U-4 8.9% 8.4%
U-5 9.9% 9.3%
U-6 15.1% 14.6%

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(6) Another important metric: wages and hours worked

Looking at nonfarm private workers in June 2012 vs. 2013 (seasonally adjusted), from the Establishment Report:

  • Average hours worked per week: 34.4 vs. 34.5 (no significant change)
  • Average weekly earnings: $808.40 vs. $828.35 (up 2.5% = aprox 1% after inflation)

Better days are coming, for some of us.

(6) Other posts looking at the economy today

  1. The greatest monetary experiment, ever, 20 June 2013
  2. Status report on the US economy. Recession? Collapse?, 25 June 2013
  3. Look at the US economy. Do you see the coming boom?, 1 July 2013
  4. Good news about the US economy!, 2 July 2013

(7) For more information about the US economy

  1. A certain casualty of the recession: the US Government’s solvency, 25 November 2008
  2. Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime., 14 August 2009
  3. The Robot Revolution arrives, and the world changes, 20 April 2012 — about structural unemployment
  4. America is rich and powerful because we can borrow. Will this debt build a stronger America?, 5 June 2012
  5. America’s strength is an illusion created by foolish borrowing, 10 October 2012

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20 Comments leave one →
  1. guest permalink
    5 July 2013 6:00 pm

    “under the Keynian socialist ”

    Keynesian or Kenyan?

    Like

    • 5 July 2013 9:26 pm

      “I am now a Keynesian in economics.”
      — Just after a broadcast interview with four newsmen (6 January 1971), according to Howard K. Smith, one of the interviewers.

      Everybody is a Keynesian when it’s their ox being gored.

      When their supporters among the wealthy and banking interests were hurt, Bush Jr and the GOP event amnesiac about Ayn Rand, small government, and social Darwinism. The only question was how many trillions in spending, subsidies and guarantees the government should provide.

      Like

  2. Jordan permalink
    6 July 2013 4:56 pm

    Are you against Keynesian policy that you talk about? Since without such Keynesianism as provided with Bush Jr and Obama, what would unemployment be? would it not be much worse? So what are you against, really? Against high unemployment which is kept lower with stimulus, or against helping unemployed. Will you please decide for once.

    How many trillions in spending, subsidies and guarantees the government should provide? That is your question.
    My follow up question is; Provide for what purpose? Answers are totaly different if you decide on what purpose government should spend. The present purpose is to save banks. My answer to how much to spend on such purpose is: $0.

    If the purpose is to reduce suffering of unemployed and poor, then the answer is; There is no limit to how much of fiat money needs to be spent to help reduce human suffering.

    You lament about how such unlimited spending (not purpose defined) is unsustainable. That is what neoliberal/ classical economists (who do not study money) lament about Japan for last 2 decades. Why are they, and you wrong? Because they never studied where the money that is spend in such way comes from.
    You say that such money is borrowed. That is true initially, but later on it gets payed off and it is borrowed from other sources to be payed off, from sources that will never ask to reduce their lendings to the government. The sources are banks that need such lending to government to be able to create new lending on which they make money and profits.

    The real story is that there is no limit to government spending unless politicians decide so basing their assumptions on wrong knowledge. Debt limit is such decision that politicians decide on because they want to blackmail government institutions for their own gain.

    Like

    • 6 July 2013 5:34 pm

      “The real story is that there is no limit to government spending unless politicians decide so ”

      I know of no professional economist saying such a thing. It’s not a deduction from MMT; economists working on MMT describe the currency and inflation as limiting factors to government deficit spending. Like mainstream Keynesians, they believe that neither is a significant factor at this time (events of the past 5 years show this to be correct).

      “Provide {fiscal deficits} for what purpose?”

      I have written many posts about fiscal policy, its use in a downturn, and the opportunity this downturn provides to rebuilt our infrastructure.

      Like

    • 6 July 2013 5:44 pm

      “The present purpose is to save banks. My answer to how much to spend on such purpose is: $0.”

      Define “save banks”.

      Taken literally that’s mad. During the crash keeping banking institutions running was a prime recommendation of every economist I know. I described this as step one of three in my October 2008 recommendations. Actual US, EU, and China policy acted similarly.

      But “banks” are not the same as “bank depositors”, “bank managers”, “bank shareholders”, and “bank bondholders”. The need to save the banks and their depositors does not imply using government funds to protect all bank stakeholders. In fact doing so produced the destructive moral hazard that permeates our economic system today.

      There were other ways to protect the banking system: the US S&L crisis, Sweden following the 1991-92 bubble (see Wikipedia), even Russia (see this post). All in some form nationalized the insolvent banks, fixed them, and re-privatized them. So the citizens bore not just the costs but reaped some of the benefits of the recovery.

      Like

    • Jordan permalink
      6 July 2013 7:39 pm

      I am aware of all you pointed to me in your replys and i agree with it. But since i was talking in the context of helping to reduce suffering of unemployed by use of deficit spending, then spending for such purpose can be unlimited since inflation can occur only after employment is at full so there would be no more spending for such purpose.

      That way i said it was correct with MMT and all Keynesians, but somehow you pull it out of context and avoid the problems in your writing.

      Here is my sentence again that is important; ”

      If the purpose is to reduce suffering of unemployed and poor, then the answer is; There is no limit to how much of fiat money needs to be spent to help reduce human suffering”
      The other one that you point to is a side note to counter your point of dangers of spending limitations that do not exist at the present. No it is not correctly said, it needs some addition.

      But if you want to avoid what is important by sticking to your arguments about side issues then there is no use of trying to correct your illusions and idealogy. Gold bug idealogy.

      Will you, please, decide what are you against? Are you against Helping unemployed using utility of fiat money or against high unemployment that such fiat money kept lower then it would be otherwise?
      That is also a question that Krugman asks repeatedly in his blog, trying to get such conundrums out in the light of the day. Maybe you will get it one day.

      Like

    • 6 July 2013 8:17 pm

      (1) “That way i said it was correct with MMT and all Keynesians, but somehow you pull it out of context and avoid the problems in your writing.”

      I quote what you said. All we know is what you say, not what you mean. I was replying to your statement that there were no limits on the government’s ability to run deficits. There are.

      (2) “to reduce suffering of unemployed by use of deficit spending, then spending for such purpose can be unlimited since inflation can occur only after employment is at full so there would be no more spending for such purpose.”

      I written dozens of posts on this subject with similar themes. My point is that our deficits are not helping the people. When this is all over nobody will be able to say where the money went. Gone like last winter’s snow. It need not be like that.

      (3) “But if you want to avoid what is important by sticking to your arguments about side issues

      You seem deaf to the warnings of many economists, senior central bankers, leading Wall Street investors, the BIS, etc. Whatever, dude.

      (4) “then there is no use of trying to correct your illusions and idealogy.”

      Certainly not the way you are doing so, incorrectly representing what I say and making stuff up.

      (5) “Gold bug idealogy.”

      Making stuff up. Nothing I have said is remotely like “gold bug ideology”, and I have repeadly written against that.

      (6) “Are you against Helping unemployed using utility of fiat money or against high unemployment that such fiat money kept lower then it would be otherwise?”

      That’s crazy, the exact opposite of what I have said. Nothing I have said contradicts Krugman, or mainstream economics. You ignore what I’m said, and are arguing with shadows from your head. Perhaps arguing with voices in your head.

      Like

  3. Jordan permalink
    6 July 2013 5:12 pm

    Another thing that you are wrong about is about monetary stimulus / supposedly too low interest rates that supposedly destorts economy. What formula/metrics/model did you use to decide on what interest rates should be? WHat model did you use to decide that present interest rates are distortive?

    Lets try the model that FED used and been using for last 60 years. The model is called Taylor rule which decides level of interest rates in combination with Philips curve in boom times. Using such model, the real interest rate should be NEGATIVE 2.4%. So, in reality, the interest rate is much much higher now then it should be if followed last 60 years of setting up of it.

    But you talk as if it is too low and as so, distorting the economy. Yes, it is distorting the economy, but because it is too high at the present to keep unemployment low.
    Interest rates are too high if followed economic models that were being used for last 60 years.

    “Going by your gut” model will surelly tell you that interest rates are too low because they were never been so low as long as you were alive. That is what your gut tells you, and it is opposite of reallity.

    Rest of the post is great as usual, but these two points you are mistaken badly, just as those that led us to this unemployment debacle used your kind of thinking and models. This kind of logic and thinking that you present about fiscal and monetary policies is

    EXACTLY what brough to us this kind of economy.

    Like

    • 6 July 2013 5:24 pm

      “What formula/metrics/model did you use to decide on what interest rates should be? WHat model did you use to decide that present interest rates are distortive?”

      Two minutes with Google will show you that this is a concern held by a large number of economists, Wall Street investors, and senior central bank officials.

      For a summary see this chapter of the hot-off-the-press BIS 83rd Annual Report: VI. Monetary policy at the crossroads.

      Like

    • Jordan permalink
      6 July 2013 7:21 pm

      This is what Paul Krugman has been writing for last 4 years. I was only using his writings. Search for Taylor rule and interest rates on Krugman’s blog in NY Times. Also read his post from July 5, “On the political economy of permanent stagnation” Please note what he says about monetary tightening.

      If you do not believe my words please check it out for yourself and read his posts on Japan and interest rates and how are decided. You complain about blindnes of listening to the gut instead of checking out the info. There you have a chance to hold yourself to that principle.

      Like

    • 6 July 2013 7:36 pm

      I have no idea what you are attempting to say, as it appears to have no relationship to anything here.

      As for Krugman, he has been quite clear that he prefers expansionary fiscal policy to our current reliance on monetary policy plus slightly contractionary fiscal policy. He, correctly IMO, considers that the only politically viable option. But that does not make our current policy less mad.

      He has repeatedly, as I have, described this downturn as an opportunity to rebuild our infrastructure — both building cheaply and borrowing at low rates.

      Try using quotes when replying. My guess is that you have an inaccurate understanding of what I am saying.

      It is a common problem in comments; people will spend absurd amounts of time replying to conversations existing only in their head, rather than a few minutes reading to see what I actually said.

      Like

    • Jordan permalink
      6 July 2013 7:47 pm

      I am talking about this sentence and the whole paragraf above it.
      “Years of extreme monetary stimulus have distorted the economy, in ways perhaps difficult to unwind.”

      There is no distortion of easy money when reality is that interest rates are too high when using formula that have been used for last 60 years by FED.

      You are claiming that interest rates are too low, when reality is that they are too high.

      This is what Krugman was clamoring about all these years; Interest rates are too high for present level of unemployment if using standard formula for targeting by FED.

      There is no distortion of easy money as you claimed in an earlier and the current post.

      Like

    • 6 July 2013 8:20 pm

      “You are claiming that interest rates are too low, when reality is that they are too high.”

      I have said no such thing. That’s an inference you draw, incorrectly.

      “There is no distortion of easy money as you claimed in an earlier and the current post.”

      I’m done attempting to reason with you. Read the recent speeches of Fed leaders or the BIS report I cited.

      Like

    • Jordan permalink
      6 July 2013 8:35 pm

      “But fiscal and monetary policy, like powerful drugs, have severe side-effects which at some unknown point in the future will become problematic or even untenable. And the withdrawal has begun: the sequester, stil”

      “But FISCAL and monetary policy”

      I did not infer from this incorectly. This can mean only that there is “easy money” or in other words “interest rates are too low” .
      Using words like “powerfull drugs” which have negative conotations it is clear that you are giving negative conotations to fiscal and monetary stimuluses which are only things keeping unemployment lower then they would have been without stimuluses.

      It shows that you would want fiscal and monetary stimuluses reduced which would raise unemployment.

      So, this begs repeting the decision making request.

      Like

  4. Jordan permalink
    6 July 2013 8:24 pm

    Let me try again by being more direct and concise (which i tried to avoid out of respect for you and all i learned from your writings).

    Your part 2) About the Recovery is all wrong.
    It should go like:

    Because of limitation of Zero Lower bound / interest rates at zero when they need to be much lower to reduce unemployment trough monetary policy only. Interest rates can not go lower then 0 even tough they should be below zero by following Taylor rule that FED has been using for last 60 years at setting monetary policy. This makes money hard to get by (no easy money- no distortion from it) and fiscal policy should accomodate for having hard money within an economy.

    FED does not control fiscal policy, FED can legaly control only monetary policy. Fiscal policy is the sole job of the Congress and in the conditions of hard money the Congress must provide stimulus to compensate for limitation of too high interest rates/ hard money.
    Since Congress is repeatedly refusing to provide needed stimulus to the economy FED president Ben Bernanke is going close to the legal and sometimes crossing the legal treashold that is within FED’s powers in order to give aditional push to the economy. Ben is doing what never before has been attempted all at once in order to compensate for Congress’ refusal to ease up the money supply that is needed. Those programs were all tried previously at some point in time but not all at once as these last 4 years, and is still not enough when Zero lower bound is too high for the interest rates that are needed in order to reduce economy.

    Such unprecedented actions by Bernanke is having some side effects that are easy to fix once economy recovers fully. Side effects like income inequality and credit fraud that is coming back online again.
    These actions are aimed at economy have high price with very little benefit and it all is going on because Congress refuses to do their part of the Keynesian policy proposals.

    Congress is to blame for FEDs unprecedented actions that are not enough and can not be a replacement for adequate fiscal policy stimulus that only Congress has legal powers to bring about.

    Side effects are inflation of paper assets like Stocks and Bonds, and other securities. This inflation increases the inequality and the private debt burden but which would be easy to solve once Congress gets its act together. It is clear that GOP is doing the full blown blockade of Congress and its duty to help the economy and the population with standard Keynesianism.

    Like

    • 6 July 2013 8:31 pm

      Since you are having so much fun arguing with the voices in your head, I’ll not interfere. Since you don’t understand what I’m saying, your rebuttal is nothing of the kind. But this is too funny to let pass:

      “Such unprecedented actions by Bernanke is having some side effects that are easy to fix once economy recovers fully. Side effects like income inequality and credit fraud that is coming back online again.”

      “Income inequality” as “easy to fix”. Check back once that’s happened and tell us about it.

      Like

    • Jordan permalink
      6 July 2013 8:51 pm

      Yes, it is easy to fix income inequality from economic perspective but not politicaly easy to fix, but if FDR did it with 94% marginal tax then it could be done again, but that has to go trough Congress and if Congress gets its act together that would also mean that Congress would bring back 94% tax.

      All it takes to fix income inequality is implementing 90% marginal tax rate.

      Like

  5. 6 July 2013 8:44 pm

    Jordan’s comments show a common problem in discussions: people label a post in their mind as belonging to a team — and their replies address that team’s views. Replies are ignored.

    Here Jordan appears to be arguing with Niall Ferguson, or some other lay proponent of conservative economics. Someone of the austerian or austrian schools. He’s having fun shadow-boxing, obviously winning in his mind vs. his imaginary opponent.

    I see this most frequently in the posts about climate science. I’ll explain why some advocacy in a mainstream rag ignores or misrepresents the current state of research as described by the IPCC. Someone will leap in to defend science against my claims that the world is not warming. I reply that I said no such thing; in fact I said the opposite. More denunciations, name-calling.

    Any explanations for this? It’s over my pay grade. One comment pointed out that drug production and importing is one of America’s chief industries. Cause and effect?

    Like

    • Jordan permalink
      6 July 2013 8:56 pm

      “But fiscal and monetary policy, like powerful drugs, have severe side-effects which at some unknown point in the future will become problematic or even untenable. And the withdrawal has begun: the sequester, stil”

      “But FISCAL and monetary policy”

      You wrote that, not Niall ferguson, and i am arguing against that sentence and the whole 2: part.

      I did not infer from this incorectly. This can mean only that there is “easy money” or in other words “interest rates are too low” .
      Using words like “powerfull drugs” which have negative conotations it is clear that you are giving negative conotations to fiscal and monetary stimuluses which are only things keeping unemployment lower then they would have been without stimuluses.

      It shows that you would want fiscal and monetary stimuluses reduced which would raise unemployment.

      So, this begs repeting the decision making request.

      Sorry, but you started projecting.

      Like

    • 6 July 2013 11:46 pm

      “I did not infer from this incorectly. This can mean only that there is “easy money” or in other words “interest rates are too low” .”

      It means no such a thing. Medicines often have severe side effects (as I have said several times). That doesn’t mean that the patient is better off without them. This is simple medicine, and common sense. Did I really need to say this?

      I have explained all this to you several times. I provided links and pointers to experts explaining this in more detail. I have provided links to posts explaining this in more detail. Those posts also cite still other authorities explaining this.

      In reply I get nonsenses like this and your “gold bug” comment, just making stuff up. I cannot imagine why you persist in rebuttals to something I clearly state that I do not believe — and that contradicts what I have said.

      Like

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