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 bought at great cost. A cost we cannot long continue to pay, borrowing and squandering the money ($ which instead could be rebuilding America). Just like Japan since 1989.
Contents
- Conclusions
- About the recovery
- Household survey
- Establishment survey
- Unemployment
- Other important metrics
- Other posts in this series
- For more information about US economy
(1) Conclusions
Here we examine the April 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. Slowing slow growth, as shown by this from ECRI — through March. The April numbers (1.6%, 1.2%) are small ticks up in these lines.
(2) About the recovery
To understand the jobs report one must first understand the recovery of which it is one aspect: during this period the government’s public debt increased $1.03 trillion — 6.5% 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 increasingly unconventional monetary policy.
In other words, organic growth has not yet resumed. The US economy has stabilized and slowly improves only due to the massive “drugs” of monetary and fiscal stimulus (the former boosted with QE3 as the latter winds down). Both have severe side-effects, which at some unknown point in the future will become problematic or untenable. But the worst side effect was unexpected: 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
The Current Population survey is a simple survey of households, with large error bars but no revisions. It’s worth watching because it’s the basis for the headline unemployment rate, it gives some 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. Note that 1/3 of the new jobs during the past year are part-time jobs. {That’s from the March report; appears here in error}
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| Description | April 2012 | April 2013 | Change | Change |
| Employed | 141,934 | 143,579 | 1,729 | 1.2% |
| …Employment-population ratio | 58.5% | 58.6% | +0.1 | 0.2% |
| Full-time | 113,999 | 115,674 | 1,675 | 1.5% |
| Part-time | 27,996 | 28,050 | 54 | 0.2% |
| Unemployed | 11,910 | 11,014 | -896 | -7.5% |
| …Unemployment rate | 7.7% | 7.1% | -0.6 | -7.8% |
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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.
These are in thousands, not seasonally adjusted numbers.
| Description | April 2012 | April 2013 | Change | Change |
| Total nonfarm | 133,400 | 135,494 | 2,094 | 1.6% |
| Total private | 111,051 | 113,232 | 2,181 | 2.0% |
| Total government | 22,349 | 22,262 | -87 | -0.4% |
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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 seasonally adjusted numbers of the 4-week moving averages (source here) of April 2012 and 2013. Faster decline than either the CPS and CES surveys.
- April 2012: 378,500
- April 2013: 357,500 (-5.5% — weak improvement)
(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.
Any way you count it, unemployment has decreased during the past year. Slowly. These are non-seasonally adjusted.
| Metric | April 2012 | April 2013 |
| U-1 | 4.8% | 4.3% |
| U-2 | 4.3% | 3.9% |
| U-3 | 7.7% | 7.1% |
| U-4 | 8.3% | 7.6% |
| U-5 | 9.1% | 9.0% |
| U-6 | 14.1% | 13.4% |
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(6) Another important metric: wages and hours worked
April 2012 vs. 2013 (seasonally adjusted), from the Establishment Report:
- Average private nonfarm hours worked per week: 34.5 vs. 34.4 (no significant change)
- Average weekly earnings of nonfarm private workers: $808 vs. $821 (up 1.6% = no real change after inflation)
Better days are coming, for some of us.
(6) Other posts in this series
- The April jobs report shows continued slow growth, bought at great cost, 3 May 2013
- The greatest monetary experiment, ever, 20 June 2013
- Status report on the US economy. Recession? Collapse?, 25 June 2013
- Look at the US economy: see the trends!, 1 July 2013
- Good news about the US economy!, 2 July 2013
(7) For more information about the US economy
- A certain casualty of the recession: the US Government’s solvency, 25 November 2008
- 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
- The Robot Revolution arrives, and the world changes, 20 April 2012 — about structural unemployment
- 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
- America’s strength is an illusion created by foolish borrowing, 10 October 2012
- Did the US fall into recession during 2012? Are we in recession today?, 6 March 2013
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“The US economy has stabilized and slowly improves only due to the massive “drugs” of monetary and fiscal stimulus (the former boosted with QE3 as the latter winds down).”
Hard to square this with the numbers. Fiscal stimulus has been “wound down” for ages now. The government sector (government consumption purchases and gross investment) has made a negative contribution to GDP growth for 10 consecutive quarters. Maybe you think a smaller government is a good thing, fine, many do, but there is not way it is “boosting” the economy. It is an open question how effective QE3 has been at stimulating real demand, but at best, it is helping to push against negative pressure of fiscal austerity.
If you don’t like those data, try these: The best measure of the amount of the stance of fiscal policy is the change in the structural primary budget balance (surplus or deficit adjusted for the business cycle and interest payments). A move toward deficit shows expansionary policy, a move toward surplus shows austerity. From 2009 to 2013, the movement of the SPBD has been +4.1 percent, that is, a massive tightening of fiscal policy. Under current law, it will be another +1.4 percent from 2013 to 2014. (Check out a the relevant charts here: http://www.economonitor.com/dolanecon/2013/04/04/why-hasnt-the-us-become-another-greece/
In short, we can’t even discuss the slow US recovery without acknowledging that fiscal policy has been strongly procyclical.
Edit: Should have read “for 8 out of the last 10 quarters”
Ed,
Thanks for commenting!
You are of course correcting in that the fiscal stimulus is shrinking, which slows GDP *growth*. My point is that the deficit supports GDP at a higher *level* than it would be at a balanced budget.
It is a flows and levels distinction, of the sort that so often causes confusion. I have discussed this in greater detail in posts about fiscal policy.
My point here was that we are wasting the money being borrowed (not much to show for it), — and even worse we are missing the opportunity to borrow at low rates and cheaply re-build America’s infrastructure. Borrowing to spend in Afghanistan and Iraq, for example, has done little for America — either economically or geopolitically (and probably has done little for them).
I agree with you that levels are important. However, having said that, we should note that the level of government spending in the United States is relatively low by international standards–lower than the average among the OECD group of market-oriented democracies. Among OECD members, only Australia, Switzerland, Korea and Estonia have lower ratios of government spending to GDP. Even there we must qualify. The US system puts less spending in the hands of the national government than other OECD countries, only about 60 percent of total spending. The US federal government thus has the lowest spending as a share of GDP of any OECD country. (That is the focus of fiscal policy discussions, since states, by law, must balance their noncapital budgets and so contribute very little to the macroeconomic impact of fiscal policy one way or the other.)
When you say “My point is that the deficit supports GDP at a higher *level* than it would be at a balanced budget,” you are saying one of two things: One might be that taxes are too low (because spending is already very low), so higher taxes must be the main channel for cutting the deficit in the short run). The other is that you are simply expressing a truism, that even though fiscal policy is now procyclical (that is, each year decreasing its contribution to growth even while the economy is still operating below potential), it could by *even more* procyclical if spending were cut even more and taxes raised. Of course, I could not disagree with that, but I would disagree with the implication of your post that an even more rapid shrinkage of government starting right now would spur growth.
Finally, I do agree with your idea that we are not getting our money’s worth out of what the federal government spends. Yes, by all means, more on infrastructure and less on wars.
“that, but I would disagree with the implication of your post that an even more rapid shrinkage of government starting right now would spur growth.”
That attributes to me a daft belief. Worse, it is the *opposite* of what I have said since Spring 2008, when I began warning of the downturn (to vehement criticism from conservatives who said there was no recession, which continued thru late 2008).
Nor is it IMO valid extrapolation from either the two sentences in this post, or my comment reply to you.
During the past five years I have said that during this downturn we could be borrowing large sums at low interest rates to rebuild America — doing so cheaply due to excess capacity in the relevant industries (eg, construction).
Instead we have borrowed to support much foolish spending that does little or nothing for America. This is the equivalent to Japan’s feckless deficit-funded spending since 1989, just as Richard Koo of Nomura predicted. Since we cannot continue these deficits forever — or probably even for long — this is a valuable opportunity being squandered. The For More Information section has links to posts discussing this in greater detail.
My guess (emphasis on guess) is that you are extrapolating based on assigning my views to a political party. If he says X, then he is a conservative and so believes W, Y, and Z. This is a common trope in comments, and says much about why the political debate in America has become so dysfunctional.
OK, I am happy to learn you are not daft. We don’t disagree much after all, I guess. However, let me assure you I based my comments on what appeared to me to be a reasonable interpretation of what you said in your post, not on your putative party affiliation (which I do not know and would not want to guess at). Here is the passage I keyed in on:
“In other words, organic growth has not yet resumed. The US economy has stabilized and slowly improves only due to the massive “drugs” of monetary and fiscal stimulus (the former boosted with QE3 as the latter winds down).”
I took this to imply that you thought “organic growth” would “resume” if only the government would stop “drugging” the country with “massive monetary and fiscal stimulus.” In plain language, that would suggest that you thought that the economy would be healthier if monetary and fiscal policy were tightened now–views that are common among “austerians” (for fiscal policy) and “inflation hawks” (for monetary policy).
Rereading the whole post in the light of your further explication, I see that was not what you had in mind. But honestly, given your phraseology, I think you can understand how it might be interpreted as I originally did.
Ed,
First, thank you for commenting here. Having someone of your knowledge and experience makes an invaluable contribution.
Re: massive drugs
This is the problem with discussions about technical subjects to a general audience. Metaphors, esp medical metaphors, work well. But people can interpret metaphors in radically different ways.
When a doctor administers massive doses of drugs to my child, it wouldn’t occur to me to try stopping the treatment — in hope lower dosage would make things better.
But people with more exposure to the war on drugs might see that metaphor differently.
As might people with little trust in the authorities involved. Lot’s of that around, often with good reason. Vaccines, police, politicians, economists, climate scientists … it is a long list.
If the US economy follow a Japan’s, as some expect (eg, Albert Edwards of Society Generale), confidence in economists might decrease.
You state “Note that 1/3 of the new jobs during the past year are part-time jobs.” But your chart shows that only 54K of 1729K new jobs are part time. The BLS Empsit report for April show an increase of 401K part time jobs — about 23% — (of which only 15K are for economic reasons). The numbers in your chart for part time are different from those in the EmpSit report. Can you unravel this?
Art,
Great catch! Thank you for pointing this out. This is a template. That was a note in the March report, entered in the wrong spot — so I didn’t erase it when preparing the April report. As you said, it doesn’t match the numbers. I have struck that out in the text.
This change in the month to month numbers provides an important reminder: these numbers are small changes in a large, complex economy. They have to be used carefully, which means presenting multiple perspectives in order to draw reliable conclusions. That’s what we attempt to do in these reports, looking at different aspects of the household and establishment surveys — supplemented by the unemployment claims data — to draw cautious conclusions.
Much analysis of these numbers, especially at high profile websites like Zero Hedge, consists of data-mining these reports for individual numbers — triumphantly highlighting them to validate a particular belief. An extreme case was conservatives talking about uncontrolled growth of government under Obama, when in fact the numbers showed temporary hires for the decennial census.
Here we have another example: the volatility of YoY changes in the not-seasonally number of part-time workers. Looking at the YoY changes during the part year shows no obvious clear pattern. The YoY gains during the past 6 months range from zero to 500,000. This is odd, since the news media gives us stories of employers replacing full-time with part-time jobs to reduce benefit costs (esp in preparation for ObamaCare). I would like to see an expert’s analysis of this.
Thanks. If 25% of new jobs were part time it would indeed be significant. I guess the volatility in this inidicator is another example of the error margin in the household survey, and the need to look at sevearl months’ data before declaring a trend.