Tag Archives: NFP

Chart of the Week

This, below, is the best chart of the week. It’s like an optical illusion. You have to stare at it for a while. Note that the right scale is inverted. Tweeps were quick to confirm their favorite political theories – George Bush “put the economy in a ditch,” Obama never “created or saved” any jobs. Jeremiah debunks president centered economic theories here.

EmploymentThe point of plotting both these lines is to show that one of them is bogus. The blue line is the one that’s economically relevant. The black line, U3 Unemployment, is a proxy measure for the blue one. What is astonishing is that U3 held up so well for so long. All serious observers have switched to U6, nonfarm payroll, and labor force participation. Even if you’re looking at NFP, you have to crack the report and look at the categories.

No one takes the headline numbers seriously, especially not U3. It’s not technically wrong. It’s just irrelevant, and then CNN serves it up as feel good propaganda. The Fed has kept ZIRP for almost seven years now. They are either trying to destroy capitalism, or they see a weak economy. Jeremiah is not prone to conspiracy theories. We disagree with the Fed’s prescription, but not the diagnosis.

Back before Chairman Yellen, the Fed set a benchmark of 6.5% unemployment before they would raise rates. The reason this is “chart of the week” is that it shows the corresponding figure, 62% on the blue line, that would mark the return of a healthy job market.

See also: New Fed Bashing Hero


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Potemkin Economy

It’s not so unusual for Jeremiah to agree with Paul Krugman.  That is, we agree on the nature and severity of our employment problem, which Prof. Krugman frames poignantly in his editorial.

These dry numbers translate into millions of human tragedies — homes lost, careers destroyed, young people who can’t get their lives started.

By the way, if you don’t know that Friday’s employment report was dismal, we invite you to peruse table B-1 and discover where the 204,000 new jobs were created.  One post calls them “dead end jobs,” while labor force participation continues its five year descent.

labor forceKrugman deserves credit for framing the problem.  Many pundits seized on the headline number and declared victory.  That’s propaganda.  You will be better informed if you can keep track of which pundits are political shills.

We differ from the professor, however, on solutions.  He seems to have dropped monetary stimulus, at last, but he is still promoting fiscal stimulus.  His editorial also features a straw man, in the form of “debt scolds” unwilling to finance the stimulus.

There are two good arguments against further fiscal stimulus, one practical and one philosophical.  We have already run trillion dollar deficits for five years, including the ARRA stimulus program.  This approach isn’t working.  One analysis found costs up to $500,000 to create a single job.

This brings us to the second argument, which is that we do not trust the federal government to administer a stimulus competently, or even honestly.  We would prefer to have value producing jobs in the private sector, rather than Potemkin jobs in the government.

In clinging to the textbook approach, Krugman is, so to speak, “fighting the last war.”  We differ from his approach because we have a different analysis of the root cause.

Keynes’ great insight was to reanalyze employment in terms of how entrepreneurs make decisions in the real world.  Entrepreneurs today have different reasons not to hire than they did eighty years ago.

Happily, Prof. Krugman does not have to visit the real world.  The Fed does that for us, in the form of their beige book survey.  Entrepreneurs today are fearful of what they perceive to be an anti-business environment in general, and health care reform in particular.

Boeing tangles with the NLRB, and lays off 5,800 workers.  J.P. Morgan tangles with the DOJ, lays off 19,000 workers.  ANR tangles with the EPA, lays off 1,200 workers.  We read stories like this every day in the business press.  It’s not cause and effect, but it creates a climate of fear.

Real intellects know when to adapt their methods.  If Keynes were alive today, he might just say, “let’s try helping the private sector, this time.”

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Employment Situation

Friday is NFP day, the monthly Non-Farm Payrolls report from the Bureau of Labor Statistics.  Its proper name is “Employment Situation,” and it includes statistics like the unemployment rate and average hourly earnings.  If you are evaluating the president’s performance on job creation, you will get one more of these before the election.

Governor Romney described last month’s report as a “kick in the gut.”  President Obama says he inherited a bad situation, and that we are now “net positive” on jobs.  Whom to believe?  The chart below shows the last four years of data, so you can decide for yourself.

As you can see, we were losing jobs at a ferocious rate when Obama took office.  The nadir was January 2009, when we lost 818,000 jobs.  This may have been the bottom of a trend, or it may be down to the Economic Recovery Act, which passed in February 2009.  By the way, this stimulus package cost $800 billion.  The Act has its own web site, which details how the money was spent.

“During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy.  In the early stages of recovery though, gains are expected to surpass 250,000 per month.”

Those negative bars going up to February 2010, plus the bad months earlier in 2008, add up to 8.8 million lost jobs.  Since then, we have recovered 4.0 million.  Economists generally expect a stronger bounce back from recession – the quote above is from Haver Analytics.  To Jeremiah’s eye, it looks like the bounce was proceeding nicely through May 2009, and then knocked back over the summer.

Voters will probably blame Congress, the President, or George W. Bush, depending on their existing prejudices.  That’s the reason for printing this chart before NFP day.  You can develop your own theory whether things are improving or not, with two bars yet ’til the election.

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Long-Term Unemployment

Today the Bureau of Labor Statistics released its monthly report on our unemployment situation.  The stock market rallied in celebration of 163,000 new jobs.  President Obama took a bow.  On the other hand, our unemployment rate is still 8.3%.  Governor Romney stood on that number.  Whom to believe?

Employment statistics are ridiculously spin-prone, especially “rate of change” statistics like this howler (the author was quickly caught out by his readers with math skills).  The fundamental question is, how many people are working?

These jobs are going, boys, and they ain’t coming back.

To form your own opinion, start by reviewing the BLS report.  Below is their chart of the employment to population ratio.  You can see that the old level was around 63% and the new level is around 58 or 59%.  Many economists think this is the new normal.

The report goes on to enumerate those who are underemployed, discouraged, or marginally attached.  Brutal stuff.  The BLS counts 5.2 million Americans as “long-term unemployed” because they have been out of work for six months or more.  The danger for these workers is that the longer you’re out of work, the harder it becomes to find work.

America, as a whole, faces the same danger.  Look at the 5% drop on that chart again.  We have been at this level for more than three years.  It will take roughly 15 million private sector jobs – government jobs don’t count – to plug the gap.

We don’t need another jobs bill called “jobs bill.”  We need actual jobs.  We need to know what is keeping companies from hiring, and fix it.  Whichever candidate has the best answer, gets Jeremiah’s vote.

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