The economy speaks – and votes - Fabius Maximus website

There is no most important economic statistic. The key number varies depending on the conditions and trends. Now the weekly new claims for unemployment insurance (UI) deserves that honor.

Reported weekly (high frequency data)
Accurate (among the hardest of numbers, with only small revisions to the previous week)
A leading indicator for the economy
A major driver of the public’s view of the economy, and so how they vote

That’s bad for Obama and his fellow Democrats. Today the Department of Labor reported that 484 thousand people filed claims. The fourth highest since December 12. It’s a volatile number, so we should watch the moving average — which has remained stable at 450 -465 thousand since mid-December. Now at 474 thousand, the second highest of the year (it was 481 thousand in the last week of January). That’s equivalent to 25 million people losing their jobs per year. That underestimates the total losses, since aprox 20% of workers are not covered by UI (e.g., independent contractors, self-employed), and the unemployment rate is higher for uncovered workers. So the job loss rate is probably running at aprox 30 million per year — of America’s 139 million jobs!

This shows much stress on the US economy. Unless the recovery shows up soon, it spells doom for the incumbent party in November. We should recognize the randomness of this, how it makes elections a roll of the dice.

We should hold the President no more responsible for the US economy than the weather. The economy is too large, the government’s tools too weak, the power too distributed (among the Executive, Congress, the Fed, the States), the data’s quality too lousy, economic theory too immature, the lags too long (bills signed today have full effect next year). The extreme example of this insanity: the defeat of Bush Sr in 1992 because of “the worst economy in 50 years”. “It’s the economy, stupid”. In fact it was the lightest recession since the 1930’s, and was already over.

The Republicans will campaign claiming they have a magic nostrum to bring prosperity. They will spin victory in November as a repudiation of the Democrats, of economics, perhaps of arithmetic (see here and here). This shows rational self-government, just like that in a paleolithic tribe. If the rains come we see this as a sign of God’s favor, so we reward the Chief. Failure of the rains shows the God’s anger, requiring sacrifice.

Our Constitutional machinery does not work well because of grit in the gears. We’re the grit.

Other posts about employment