The September employment report issued today was pretty much in line with expectations, which is actually somewhat unusual. It did, however, shed some new light on the economy's recovery. For one, it confirmed that employment in the private sector is growing, at an annualized rate of about 1.2–1.5% over the past six months. This is neither spectacular nor horrible; in fact, it is only a bit less than the average pace of job growth in the previous recovery. And it is still the case, as I have noted previously, that the household survey is leading the establishment survey, which is typical in most recoveries because the household survey is better able to pick up jobs created by small startups. The household survey shows that the private sector has created about 1.7 million jobs year-to-date, while the establishment survey pegs the number at 900K.
The most startling thing in this report was news that the public sector is shedding jobs like never before (third chart). With most of the census workers gone, we now see that public sector jobs are shrinking at a significant rate (1.7% annualized since the end of last year). This spells bad news for those who are losing their jobs, but it's good news for the economy, since it means the reversal of the trend towards ever-greater government bloat that has been a drag on growth for years. It also means that state and local governments are biting the bullet and cutting costs, and that is something that simply must be done. So, to the extent that a shrinking public sector is resulting on a drag on growth (which is not really significant, since there has only been a net decline in public sector emploment of some 250K year to date), this is not really bad news, it's a necessary adjustment, and it is freeing up resources which will ultimately be put to better use by the private sector.
Adding it all up, the private sector is doing a decent job of creating new jobs, and the public sector is undertaking the difficult task of trimming bloated budgets. Given the headwinds coming from fiscal and monetary policy, this is not at all a bad combination of events.
Why is this report different from the ADP report? I thought the two were tracking pretty close to each other earlier in the year.
ReplyDeleteThe decline in public sector jobs is welcome.
ReplyDeleteWe still have a problem of public pensions; many fire and police public employees can retire after 20 or 25 years of service, and military federal employees can retire after just 20 years of service, plus full medical.
There is further goods news on this front, and that is Obama plans for a US exit from Iraqistan, excellent news for our economy, as this will result in less drain on the private jobs and wealth-creating sector. All told, the CBO says Iraqistan will set us back $3 trillion.
The private-sector jobs growth is glacial; bring on the tax cuts, reg cuts, and QE2.
Scott is right. There's nothing exciting about today's jobs report and nothing disappointing, given current policy. Benjamin is right: bring on the tax cuts and the regulation cuts. I'm uncertain with regard to QE2, but I don't think it is necessary. What is needed most is for all workers, including small business owners, to keep more of what they earn.
ReplyDeleteWorkers’ total cash earnings are up at a 4.4% annual rate so far this year, enough for consumer spending to keep moving upward while also leaving room for households to pay down debt.
President Obama continues to lament any reduction in local government jobs, something that is absolutely necessary. Cities and states became bloated coming out of the last recession, fueled largely by inflated property values and corresponding taxes, and needed to cut back.
The economy is headed in the right direction. It could use lots of help from fiscal and monetary policy changes.
Mmanaged Acounts:
ReplyDeleteI don't understand the timidity with regard to QE2.
Some hint at a rise in inflation, in the future.
Milton Friedman said first you get an increase in GDP, then inflation, following QE (he advised Japan to go serious in QE, until they had real inflation. They were timid, and perhaps just staved off deflation for a while).
So, we would first have to see GDP expand seriously for a few years, before any inflationary threat emerged. Then, the Fed has real tools for reining in inflation, and we may hope the federal fiscal deficit would retreat as well.
The idea that QE would lead to uncontrollable inflation was not something Milton Friedman contemplated. Moreover, some have recommended a staged, $100 billion a month in QE, again a very nice idea.
There are times you have to suffer short-term from monetary policy, such as Volcker's clamping down in the 1980s.
We are in the opposite camp today. We need monetary expansionism.
Here is what MF wrote in 1998 regarding Japan (from the Hoover Institution):
"INCREASE THE MONEY SUPPLY
The surest road to a healthy economic recovery is to increase the rate of monetary growth, to shift from tight money to easier money, to a rate of monetary growth closer to that which prevailed in the golden 1980s but without again overdoing it. That would make much-needed financial and economic reforms far easier to achieve.
Defenders of the Bank of Japan will say, "How? The bank has already cut its discount rate to 0.5 percent. What more can it do to increase the quantity of money?"
The answer is straightforward: The Bank of Japan can buy government bonds on the open market, paying for them with either currency or deposits at the Bank of Japan, what economists call high-powered money. Most of the proceeds will end up in commercial banks, adding to their reserves and enabling them to expand their liabilities by loans and open market purchases. But whether they do so or not, the money supply will increase.
There is no limit to the extent to which the Bank of Japan can increase the money supply if it wishes to do so. Higher monetary growth will have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately. A return to the conditions of the late 1980s would rejuvenate Japan and help shore up the rest of Asia."
There is caution, and then there is do-nothingism.
Sometimes you have to take some chances to get ahead.
Benjamin, I'm especially grateful for your quote from Milton Friedman. However, I'm not certain QE as we define it is what he was recommending to the Bank of Japan.
ReplyDeleteMy understanding is that QE does not add new money to the economy. Instead, QE uses borrowed money either from member banks or the Treasury. If this is correct, QE2 would not promote higher inflation, nor would it increase the demand for money.
Lower tax rates, not just the extension of the "Bush tax cuts," would put more money into the hands of corporations and consumers. Since consumer spending accounts for 70% of growth, let's give consumers more of their own money to spend. I doubt very many businesses will hire new workers simply for a tax credit, but they will hire if more workers are needed to increase production to satisfy demand. I know that's what I'll do in my business. I'm not hiring more people now because I don't see the potential for enough increase in demand in 2011.
If I was certain QE2 would promote economic growth I'd be for it. As it stands, I think there's adequate cash in banks and corporations are flush with cash. My argument is that we let consumers keep more of what they earn, they'll spend much of it, thus increasing demand and thereby increasing the need for more jobs.
Thanks for your posts, Benjamin.
Mmanaged accounts:
ReplyDeleteWell, I am just a layman, not a professional economist.
My reading of MF is that the Fed now should buy bonds with currency.
I complketely agree that tax rates no federal spending need to be curtailed. I have long advocated a cap--16 percent of GDP--on federal outlays, and a balanced budget.
I add to that that no state gets back less than 95 cents for every dollar they send to DC, nor more than $1.05. Now, several states (mostly rural states) have a deep economic stake in continued federal outlays, as they receive back so much more than they send to DC. Alaska and Kentucky come to mind.
This "doubled balanced" budget would go a long way to promoting private sector growth.
Well, I am off to carry my snowball through hell....