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After the recent string of unexpectedly weak economic statistics (e.g., the ADP report, the Case/Shiller housing price slump, and the ISM manufacturing index) I was pleasantly surprised this morning to see that the jobs numbers weren't bad at all. Yes, private sector jobs only increased 83K in May, after a downwardly-revised 251K in April, according to the establishment survey. But the household survey, which is often overlooked, reported a gain of 373K private sector jobs in May, after a loss of 11K in April. These two surveys can often move in different directions, but over time they move together, as the top chart above shows.
Both surveys are now showing that in the past six months, jobs growth has actually picked up, as we see the chart above. Abstracting from the May weakness in the establishment survey, which is most likely due to the same tsunami- and weather-related disruptions that impacted the ISM and ADP numbers, private sector jobs are growing at almost a 2% annualized rate, the fastest we have seen since early 2007. That's not a great number, but it is enough to bring the unemployment rate down over time—albeit very slowly, and in fits and starts—as the next chart shows.
The other encouraging part of today's jobs report—from a taxpayer's perspective—was the news that public sector jobs are declining at an accelerating pace. As shown in the chart above, according to the establishment report the public sector has pared over half a million jobs (ignoring the census-related bulge last year), while the private sector has created about 2 million. We haven't seen public sector job losses of this magnitude since the recession of 1981-2. I've been arguing for a long time that cutting back on the size of government and on government spending is necessary, and on balance a net positive for the economy. Government spending has grown so much in recent years that it is suffocating the private sector, so cutting spending should be stimulative. We are now seeing evidence that a significant shrinkage in the bloated public sector workforce doesn't necessarily lead to a painful result for the economy as a whole. In fact, cutting back government spending can free up resources that can be put to better use by the private sector, making the economy stronger over time. This is a trend that is now firmly in place, and that's very good news.
On a related note, the bulge in weekly unemployment claims data over the past month or so continues to look like faulty seasonal adjustment factors have been the real culprit, rather than any meaningful deterioration in the economy. Auto sector layoffs that typically occur in July were moved forward, and that was not anticipated in the seasonal factors. That means that as we approach July and the expected layoffs fail to occur, we should see a "surprising" decline in the weekly claims data. By then it will be clear to the market that all the recent gnashing of teeth and wringing of hands was misplaced. The economy may have hit a mild soft patch, but it is not sinking and is likely to continue to grow. Optimists will once again be rewarded for their patience.
18 comments:
Scott,
Don't you think that the large layoffs in the public sector will (if not already) affect hiring in the private sector. If you have millions of unemployed public sector workers they will obviously have less money to buy goods and services from private sector companies who will in turn higher less as demand decreases for their goods and services. I don't think we can say that there is no negative and only positive impact on these public sector employment losses. Perhaps these folks will all go out and find jobs in the private sector or start their own companies, but I doubt it.
The US employment to population ratio was down again in May 2011 from year ago -- more at:
http://wjmc.blogspot.com/2011/06/us-employment-to-population-ratio.html
Many economists believe that reporting the number employed as a percentage of the civilian population provides a more accurate description of the current state of employment than conjecturing the number of "unemployed" in a population.
The household sector has bounced back to levels from 2004, when the population was much smaller. A simple increase is not good news when you need a spike to get back to levels that support the amount of debt in our system.
Scott,
I am sorry, I didn't see the Household Survey's increase of 373k private sector jobs. Can you point it out to me?
The takehome message from Scott's blog seems to be this:
The economy is improving and the stimulus was a failure.
The silly part of Republican economic theory is the inability to understand that workers are also somebody's customers. They are forever trying to cut labor costs and then can't figure out why business is lousy.
Jason: you can find the private sector job gain by looking at Table A-8 from the BLS.
http://www.bls.gov/news.release/empsit.t08.htm
Jason: you can find the private sector job gain by looking at Table A-8 from the BLS.
http://www.bls.gov/news.release/empsit.t08.htm
John - the silly part of Liberal economic theory is thinking you can take a bucket of water from one end of a pool, pour it into the other side of the pool, and expect there to be more water....
TSNH:
If you have a bag of widgets to sell for a buck, and you're with 10guys, one of which has 50 bucks and likes the widget. He buys one widget because he only has use for one. The other 9 guys like the widget but don't have a dollar to spare to buy one. So, you sell one widget, put a dollar in your pocket, and off you go.
But, if the guy with 50 bucks can get some work out of the other 9 guys, and pay them nine bucks, then they can buy nine more widgets from you.
In the first case, you sell one widget. In the second, you sell 10.
Isn't there a difference between 1 and 10?
With all do respect, your pool analogy is "all wet."
optimism is not a strategy.
Scott,
Thanks for the link. However, I don't see 373k anywhere. The closest figure is a seasonally adjusted 319k for non-ag private industries.
Can you further focus me in on that figure you used?
Go to the two columns on the right (April and May), and subtract line line 7 (govt.) from line 5 (total non-ag employment), then compare the difference. Total employment fell by about 40K, but government employment fell by 410K, so private employment rose by about 370K.
"The silly part of Republican economic theory is the inability to understand that workers are also somebody's customers. They are forever trying to cut labor costs and then can't figure out why business is lousy."
Any so-called "Republican economic theory" mocked by those who insist on Govt intervention is really a mocking of just basic free-enterprise.
When Obama banned gulf drilling, that killed jobs, because they were productive economic activities being forbidden. When CO2 is banned or limited, productive economic activities will be curtailed and jobs will be lost.
When you have enterprises cutting labor costs to survive, that is creating more not less economic efficiency, and is simply ending a job that cannot be sustained. They have no business doing that any more than a construction company has any business building spec homes in a city with thousands of foreclosures just because they did it in 2006.
One enterprise cutting their costs to be sustainable can lead to healthy long-term when the enterprise is sustained and labor is realigned to more productive activities. To make that become a win/win, though, you need a DYNAMIC economic system that can absorb and create new jobs. The "Republican economic theory" is that new job creation is important, and that you need to support job creation by not punishing job creators - small business - so hard. Fighting foolish NLRB demands, overregulation, govt squandering of wealth, and opposing confiscatory taxation all help job creation.
Liberals dont get it - they bash the job creators, tax them, regulate them, hound them, haul them up in front of Congress to berate them ... and then wonder why they arent laying those golden eggs of jobs any more. there were 20 million jobs created in 8 years under Ronald Reagan. Under the reecnt Pelosi Congress and President Obama, millions of jobs lost, and no real plan to get them back except for failed keynesian prime-the-pump money-wasting. Liberals never let facts get in way of a self-interested theory.
Personally, I think this administration has done a rather good job following the worst administration in the history of this country that was chasing windmills in Iraq, advocating self-regulating bankers/industries and lying while doing it. Sorry most people already know this.....
Scott, your 373K data point is suspect because none of the classifications balance within the A-8 total non-ag employed; e.g., wage & salary workers + unincorporated self-employed do not equal the total estimate of persons employed in non-ag industries. Likewise, private industries + government does not equal the total reported for non-ag wage and salary workers.
John, your first scenario allows the guy with 50 bucks to buy his widget and use the rest of his $49 in whatever way else he feels is necessary. If he WANTS the other 9 guys to work for him that's his choice. THIS IS HOW CAPITALISM WORKS.
Your second scenario suggests that he is forced to use that $49 to hire the other 9 guys for whatever the government feels is necessary. THIS IS HOW COMMUNISM WORKS.
Scott,
Would love to see you do a chart on the unemployment rate vis a vis recessions going back much farther than the one you posted today, say perhaps into the '60s. The unemployment rate this time around has declined much more swiftly than it did during the last recession, and I would be curious to see where this decline stacks up against earlier ones. There is no bigger believer in free-market capitalism than me on the planet, but it drives me nuts to constantly hear Republicans carping about the "jobless recovery." My guess is that all the recoveries have been "jobless" to a certain extent at this stage, but would love to be able to show this graphically to my Republican friends.
Don,
Check our Mark Perry's post on Carpe Diem regarding past recoveries post recession. Looks like this recovery is about average for the past 20 years but not as good as earlier recoveries (e.g- post '80-'81 recession). I did a little media research of my own and found that the media was very hard on the Bush administration post '01 Recession through 2005, saying there was no "job recovery" at all.
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