Here's the simple truth of the matter. We really don't have a good handle on the monthly numbers even though they're reported as if they are accurate.
Things like seasonal adjustment factors which add or subtract jobs to the monthly sample numbers, and using different surveys for the jobs created and the unemployment percentages, combined with the inevitable later revisions or adjustments to the initially reported numbers, are all factors which should give us pause before reading too much into any monthly report.
As an example, in June each year we adjust (exclude them for purposes of the calculation) by guesstimating the number of teachers and such that left for summer vacation and in July we adjust (exclude again) for annual historical auto industry factory shutdowns.
These "plugged" numbers increase the reported numbers of people employed by the seasonal adjustment factor, which guesstimate of course is off by varying amounts from the actual situation each year. And lest we forget, the preceding month's reported number comes on the first Friday of the new month, so it's a first glance guesstimate at best.
That's why I label this entire government knows best reporting process "feigned precision." It's not even a credible guesstimate, but that doesn't keep our politicians and media pundits from declaring it the "truth" of the matter. Here's a current example of feigned precision at work.
Number of the Week: Did U.S. Actually Shed 195,000 Jobs in July? has a different take on the 163,000 new jobs number announced by the government last week:
"195,000: How many fewer people were working in July than June, according to a key measure of employment.
The economy added 163,000 jobs last month, but 195,000 fewer people were working, according to two separate Labor Department reports. How is that possible?
Though they are reported at the same time, the two data points are derived from different places. The number of jobs added comes from a poll of businesses, called the establishment survey, while the unemployment rate and the number of people working comes from a survey of U.S. households. (Read more about the unemployment rate increase here.)
Over time the two reports generally follow the same pattern, but they can move in opposite directions from month to month. The two surveys count people in different ways. The establishment survey counts jobs, not people. So one person holding two jobs is counted twice. But the household survey also counts people — such as the unincorporated self-employed, family employees who aren’t paid, farm workers and those who consider themselves employed but aren’t being paid — who aren’t picked up in the establishment survey.
The Labor Department produces a separate measure of the number of people working that aims to match the establishment concept. To create that number, they subtract the types of workers not counted in the survey of businesses, and then add multiple jobholders. By that measure, the economy added 108,000 jobs — not quite as bright as the 163,000 in the establishment survey, but much closer.
The adjustment closes the discrepancy, but doesn’t exactly explain why it exists. On first blush, it seems like it could be farm workers suffering from a severe drought in the middle of the country who aren’t counted in the establishment survey, but the Labor Department says that the number of people who say they work in agriculture and related industries rose last month.
The drought may be playing a role if people who work as unincorporated independent contractors, such as freelance construction, maintenance or day laborers, are having more difficulty finding work because of the restrictions on water use. There also were more people working multiple jobs last month, which means more jobs reported than people employed.
Whatever the reason, the gap between the two figures highlights an important point about looking at data: don’t place too much emphasis on one month. The only way to understand what’s going on with the economy is to look at the trend, and whichever line you look at over the last few months, it’s too flat to fill the deep hole left by the recession."
Summing Up
The preceding paragraph contains good advice and words to live by when looking at the unemployment numbers each month. Don't put too much emphasis on any one monthly report.
What we all do know for certain, however, is that there has been an extensive track record of disappointing jobs growth the past few years. And disappointing economic growth as well. The two conditions are tightly connected. In simple language, greater than 3% real economic growth necessarily comes before meaningful jobs growth can be realized.
With real GDP growing at ~2% or less, here's the bottom line --- productivity gains of 2% or more and population increases of 1% or so mean that fewer people working will be the likely future scenario until the growth curve accelerates. It's just arithmetic. 2 + 1 = 3 which is more than 2.
Accordingly, it's obvious that we have a very long way to go to get out of this "jobs needed" ditch that we've dug for ourselves.
And more government "stimulus" will only make the task even more difficult over time. There's a whole lot of B.S. in those government claims about additional "stimulus."
Printing more money, hiring more government workers, and the government "investing" or spending more money in other areas will only add to the nation's debts and deficits.
Politics sucks. The idea of more government stimulus spending does as well.
So does relying too much on the accuracy of basically unreliable numbers reported by government.
Thanks. Bob.
This was a nice article up till the very end.
ReplyDeleteFederal spending on infrastructure, such as roads, is essential. Spending on education is essential. Those are two of the areas in which investment pays off down the line. A dumb, untrained labor force, and dilapidated highways do us harm, besides being embarrassing for America.
So, should the government spend in boom times or during this recession?
The government should spend now for at least two reasons.
One, we can borrow at interest rates that are just about zero. It is better to borrow cheap, as if it needs to be said.
Two, when people have income to spend, they spend it. Government spending, that is hiring workers particularly, increases aggregate demand. We need this spending now, so we can shorten this recession. Not years down the line.
Finally, governments have tried austerity in recent and past crises. In all cases the only thing we've learned is that austerity doesn't work. It has an incredible contractionary effect. Yet, somehow, it still finds its advocates.
Our debts and deficit are serviceable. We're not in the red. Those are a concern, but they should not be the primary concern, right now.
Finally, the devaluation of currency has helped ease recessions. It did so in Poland (which I mention specifically only because of Romney's ironic praise of it). And it's done so in the US recently. This weeks Economist writes the wise devaluation of the dollar has tremendously helped U.S. exports. The Economist isn't some leftist big government rag, as we know, yet it has recommended another round of QE, as Paul Krugman and Joseph Stiglitz—Nobel winning economists—have, as well.
So, to sum up:
a) borrowing is best done when it's cheap
b) it's better to spend when it will help stimulate aggregate demand, during a recession, and to practice austerity when it hurts no one, during boom times
c) we have projects that need the investment, which will pay off in their own way down the line
d) the deficit and debt is not a major primary concern
e) austerity has signally failed
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DeleteI'll try to address government "austerity" versus "investment" and educational choice for individual parents and students versus subidizing schools and institutions in an upcoming post.
ReplyDeleteRegarding government "investment," suffice it to say that I side with Milton Friedman rather than Krugman and Stiglitz. And that I don't believe government can spend money on someone or something unless it first takes the money from somebody else. My vote is to leave it with the person that has it to start with, and let him decide what to do with it--- spend/consume or save/invest. Hasn't government done enough already?
In any case, thanks for your serious and thoughtful comments, even though I disagree with much of what you said. Bob.