Perspective on the Latest Employment Numbers
The BLS this morning reported U.S. job gains of 163,000 in July, which is good news in the eyes of the financial markets. The jobs data had been disappointing over the preceding three spring months. Before that, during the winter months, employment growth was strong.
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In terms of perceptions and politics, pundits will say that today’s report is good news for Obama’s re-election prospects, just as they said the spring jobs numbers were bad news for the President. But my interest is in economics and reality, rather than perceptions and politics. From a longer-term perspective, a few important facts have not been adequately discussed.
- The rate of job growth over the last two years, 137,000 jobs per month, inadequate as it is, has actually been greater than the rate of job growth during the George W. Bush Administration (101,000 per month) even if one excludes the two Bush recessions that occurred in the first and last years of his administration, respectively. The Obama Administration looks even better if one confines the numbers to private sector employment, since the government has been shedding jobs under Obama and was growing rapidly under Bush. Of course this is still nothing like the sort of progress we would ideally want to see - say, the 237,000 jobs that were created month in and month out on average during the 8 years of the Clinton Administration. And the number of long-term unemployed remains worryingly high. But the situation is a big improvement over the economy that Obama inherited three years ago.&
- An unemployment rate of 8.3% shows that the economy is still in unsatisfactory shape. (The July numbers show a rise from 8.21 to 8.25, which the BLS labelled “essentially unchanged” in the first sentence of its release.) Unemployment remains higher than what the Obama Administration hoped we would have by now at the time it took office in January 2009. Most of the difference can be explained by the fact that the level of economic activity in January 2009 - as a result of the free-fall in the last part of 2008 - was much worse than was realized at the time. The subsequent downward revision by the Commerce Department in the official statistic for the level of GDP at the start of 2009 can explain why the level of the economy is disappointing 3 ½ years later, more than the rate of growth over the intervening period. After all, those horrendous 2008 rates of decline in GDP and employment turned around during the six months immediately following the day Obama took office. &
- Most private-sector and independent economists agree that the Obama fiscal stimulus made a positive difference; that - together with TARP and monetary easing by the Fed, unpopular as they are in some circles — it helps explain the mid-2009 economic turnaround; and that it helps explain the moderate growth that followed (2 ½ % growth p.a. in the 2nd half of 2009 plus 2010). A good explanation for the disappointingly slow rate of growth in output and employment since the end of 2010 is that the fiscal stimulus has been withdrawn and the government sector has been contracting. (Since the November 2010 election, there have been enough Republicans in Congress to block the American Jobs Act and every other action that Obama proposes.) One can see this in the composition of both GDP and employment. Today’s jobs report features another 9,000 jobs cut in state, local, and federal governments, continuing the pattern that has held throughout the recovery: jobs and output in manufacturing and the rest of the private sector have been expanding, partially offset by contraction in the public sector.