Friday, January 7, 2011

The employment situation fails to improve

According to the December employment numbers, the employment situation failed to improve as I had hoped, and as had been suggested by the decline in unemployment claims and the surge in the ADP estimate of new private sector jobs. But while it failed to improve, neither did it deteriorate. Both the establishment and the household surveys report that the U.S. economy has been creating about 120,000 new private sector jobs a month, on average, over the past year, and the rate of growth has been fairly steady throughout the year.

Although this is about the rate of new job creation needed just to keep up with the 1% per year average growth in the labor force, the unemployment rate has declined because the labor force has shrunk (at least two million people have apparently stopped looking for jobs, so they are no longer considered to be part of the labor force). So while it's good that more people are working, we are far from a situation that might be called healthy or normal. In any event, it was probably premature to expect a pickup in job growth in December; the new and improved outlook for fiscal policy (e.g., the extension of the Bush tax cuts) didn't become a reality until after the elections, and few businesses are going to be reacting immediately—it takes time to make new plans and hire new people. Jobs, after all, are a lagging indicator of conditions in the economy. So if jobs growth doesn't pick up in the next several months, then it will be time to worry that something is amiss.


Frozen in the North said...

Actually, the employment numbers were good, since they are an improvement on last month's number. although once you remove the Birth/Death adjustment it is not exactly inspiring. It remains that the job creation engine appears to be broken. Not sure how "rich people" will lead to job creation, maybe they will re-hire their gardeners?

Less helpful is statement that now that fiscal uncertainty has been removed... if you live in Florida, California, Texas NY, and Nevada you still have plenty of fiscal uncertainty.

Frankly, if you are honest with yourself you know that unless the Federal government makes massive cuts there budget deficit in 2011 will exceed 8% of GDP. I was very disappointed with Boehner over the past few days who seems to have backed off from substantive cuts -- that will create uncertainty

Benjamin Cole said...

I was also disappointed by this jobs report, but it is positive, not negative.

According to Citigroup, we live in a "modern-day plutonomy."

That means the very wealthy control a very large share of wealth and income--much more than in the 1960-1980s. Until the very wealthy start shaking, the economy may be lackluster.

The last round of tax cuts is somewhat recent. It make take a few more months before we start to see real traction.

I hate to say we have to pander to the top 2 percent, but we may have to pander to the top 2 percent to get this economy going.

George Jr. said...

As a CEO of a small biz, the continuation of the existing tax rate for 2 years is just avoidance of another bad thing. Regulations are increasingly onerous, gasoline is shooting up, and consumer food prices are rising. I think it's going to continue to be a tough environment for employment growth.

Scott Grannis said...

grmjunior: Thanks for your comment, it's always nice to hear from those on the front line. I do think you are right--there is a lot of room for improvement. I'm hopeful that we are moving in the right direction, but obviously it's going to take a long time before the economy can again be called robust and healthy. As an investor, though, what's important is the change on the margin, and that is positive.

Public Library said...

Junior is right.

While I believe we got the bounce and marginal improvements, structurally the incentive for mal-investment healthily lives on.

The tough still lies ahead of us, not behind us.

Did anyone really believe the Repubs were going to cut their pork? It's January 7th and the Leader of the House is already backtracking while shedding tears.

Is this the type of leadership we were hoping to provide us with BIG, BOLD, and out of the BOX thinking?

The same reason I think we will revisit the problem but in a different manifestation on the next go-around.

Happy sailing!

Benjamin Cole said...

Remember, we had onerous regs and tax rates 1990-2010, and in that period our economy grew by 150 percent.

I agree with the sentiment that both taxes and regs should be cut back. I wish the federal government was capped at no more than 16 percent of GDP, as opposed to the 20-21 percent range it is now.

I run a small biz too. I'll hire more when I get more orders. Who wouldn't? Really that simple.

Benjamin Cole said...

BTW, Krugman has a nice chart showing labor participation rates down about 5 percent, from 63 percent to 58 percent, due to recession.

One in 20 people in the US wants to work, but is not. Sure, some are lazy, some are getting unemployment insurance. Still--the Fed could be a lot more aggressive. Lots of room for growth.

Unit labor costs have been trending down by about 2 percent annually, btw.

Bill said...

So when do we declare uncle and stop trying to predict the BLS job numbers before they come out? This is the second month in a row when the ADP number turned out better than the BLS. Which do you think is more accurate?