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August Job Numbers Really Are Bad
The folks who assured us that the problems in the subprime market would never spread to the rest of the housing market, and that the troubles in the housing market would not hurt an otherwise strong economy are now telling us not to be worried about the latest data showing the economy shedding jobs in August. For example, the NYT tells readers that in both the eighties and nineties expansions the number of jobs fell at least once before turning around and growing rapidly.
In fact, excluding periods at the beginning or end of recessions, there were three months in which employment fell in the eighties and nineties. In two of these three months, large nationwide strikes could be readily identified as the cause of the job loss. (Striking workers are not counted as holding jobs.) In short, it is an extremely unusual event for jobs to decline in the middle of a period of healthy growth.
The job situation is somewhat worse than the data show for two reasons. First, the Labor Department is imputing jobs into the data for new firms at the same rate as it did last year when the economy appeared to be considerably more healthy. This imputation is likely overstating the rate of job creation in new firms. (It may have overstated growth last year too -- we find out next month.) Second, the survey is for the pay period that included August 12th. Many mortgage companies announced large layoffs in August, but most of these workers would still have been on the payroll on the 10th.
--Dean Baker
COMMENTS (11)
Dean Baker, who, like me, will benefit from the Alzheimer drugs under development, forgot to mention that the unemployment rate is still 4.6% - one of the lowest in the pst 100 years.
If only I had a 4.6% unemployment rate when I was Prime Minister! 5 terms...
The drugs are coming Dean! Just old on.
They are coming.
Posted by: gldstone | September 8, 2007 9:43 AM
gldstone,
You forgot to mention that while the unemployment rate was unchanged, the household survey showed a decline in employment of 316,000 in August. The reason the unemployment rate remained the same is that the household survey showed the labor force fell by 340,000.
Posted by: Bob | September 8, 2007 10:35 AM
Is gldstone the same poster as gladstone? Or is the dropping of the 'a' a hint another poster is giving that the post is intended as parody?
Posted by: Ponzi Q. Globalization | September 8, 2007 11:01 AM
In my senility, I dropped the "a"
4.6 unemployment... same as in the Clinton years, but Dean will ramble on without mentioning this.
Posted by: gladstone | September 8, 2007 1:41 PM
In my senility, I dropped the "a"
Well, you are almost 200 years old!
Posted by: Ponzi Q. Globalization | September 8, 2007 3:40 PM
Actually, our 200 year-old friend makes a good point. The employment to population ratio, which many economists (including Ben Bernanke) consider a better measure of labor market slack than the unemployment rate, has fallen by 0.6 percentage points from its December peak (63.4 percent). This corresponds to more than 1.2 million people not being employed.
The dropoff in EPOPs has been largest among prime age workers (25-54), the old-timers are working in higher numbers than ever.
Posted by: Dean Baker | September 9, 2007 9:24 AM
Actually, our 200 year-old friend makes a good point. The employment to population ratio, which many economists (including Ben Bernanke) consider a better measure of labor market slack than the unemployment rate, has fallen by 0.6 percentage points from its December peak (63.4 percent). This corresponds to more than 1.2 million people not being employed.
The dropoff in EPOPs has been largest among prime age workers (25-54), the old-timers are working in higher numbers than ever.
Posted by: Dean Baker | September 9, 2007 9:24 AM
Dean,
I recommend you to look at the historical tables A from the Bureau of labor statistics.
http://www.bls.gov/webapps/legacy/cpsatab1.htm
From January 2007 until August 2007 the US economy added 2.131 million jobs ( seasonally unadjusted ) to the labor pool. This includes the normal seasonal acceleration in the job market, which seems to be in the range of 1.5 million over the year in the US. During the same period in the previous years employment grew by 2.396 million in 2000, 0.628 million in 2001, 3.118 million in 2002, 2.23 million in 2003, 3.302 million in 2004, 4.46 million in 2005 and 3.898 million in 2006.
With the exception of 2001, no other year since the start of the new millenium showed such a moderate performance in the job market. Labor force participation rate dropped to 66.1% ( seasonally adjusted 65.8% ), lower than in any year since 1997. A part of this can be explained by a growing number of people age 65 or over. The normal demographic effect, when more people are retiring than teenagers are entering the job market. But the decrease in the participation rate looks to serious to be only explainable by a change in the population structure. What we see, seems to be a clear turning point in the job market. And "real" unemployment ( even by the very restrictive US definition ) is probably higher than the official 4.6%.
In most countries the job market follows the economy with a delay between six month and one year. There are good reasons to believe that the worst is yet to come. Especially if the US economy slides into a recession in the second half of the year.
Posted by: german_reader | September 10, 2007 7:19 PM
German reader,
teh decline in EPOPs is actually due to lower EPOPs among prime age workers (25-54). Older people have actually been working in increasing numbers.
Posted by: Dean baker | September 10, 2007 11:48 PM
Dean,
thanks for the hint.
Posted by: german_reader | September 11, 2007 2:07 PM
The fall of the dollar was inevitable. It is the only way to get the trade deficit down to size. The real problem was allowing the dollar to rise to the point that it made such a painful adjutsment necessary. This was the Clinton-Rubin high dollar policy. It felt good in the short-term (except for manufacturing workers), but just like tax cuts that lead to big budget deficits, it could not be sustained.
Posted by: san | April 8, 2008 2:01 AM