December 4, 2021

Economix Blog: Handicapping May’s Job Numbers

6:30 p.m. | Updated to include new data from a New York Times/CBS News poll.



Dollars to doughnuts.

The much-anticipated May jobs report comes out Friday morning at 8:30, and economists are expecting more of the same: a gain of about 165,000 jobs — the same number added in April — and a flat unemployment rate of 7.5 percent.

Many economists have warned that there may be risks to the downside, though, given a steady stream of disappointing economic data over the last few weeks. The construction spending numbers, the Institute for Supply Management’s nonmanufacturing index and the ADP employment report all came in below expectations. Talk of a “spring swoon” is resurfacing.

“In general, the economy is just puttering along,” said Joshua Shapiro, chief United States economist with MFR Inc. “Companies can get by without hiring people, so they do. I don’t see any reason to break out of the pattern this month.”

Consumers themselves have been pretty upbeat nonetheless, according to recent polling data.

In a New York Times/CBS News poll conducted May 31-June 4, 39 percent of respondents said that the condition of the economy these days was very or fairly good, the highest share saying this both since President Obama took office and even since the recession officially began in December 2007. About a third of respondents said that the economy is getting better, similar to what the trend had been in the previous six months. (Another 24 percent saying it’s getting worse and 42 percent say it is staying about the same.)

Nearly half of respondents – 46 percent — rated the job market in their area as very or fairly good these days, with a third saying that they think their local job markets will improve over the next year. (The poll has a margin of sampling error of plus or minus 3 percentage points.)

Some of this optimism likely has to do with rising home and stock market values, which makes consumers feel wealthier. Given the positive outlook among consumers, it’s not clear what’s dragging on the economy and the job market, particularly given how well the housing market seems to be doing.

One explanation has to do with weird weather.

Usually a lot of economic activity slows down during the winter — when frigid, snowy weather makes it difficult to build, for example — then picks up in the spring, when the weather is more accommodating. (The organizations and agencies that release economic data usually adjust the numbers with these predictable patterns in mind.) This year, though, the country had a mild winter and a cold spring, which means some of the economic activity usually tied to spring-temperature weather happened earlier than usual, and some of it may occur later than usual. In addition, there was a lot of rebuilding over the winter as a result of Hurricane Sandy, which put construction workers to work earlier than usual.

“There’s hiring that took place when it wouldn’t normally take place,” Mr. Shapiro said. “There are all these construction workers who were already hired, and maybe they’re moving on to something different now, but that’s not being counted as a new job.”

All of this could make recent job numbers look weaker than they might otherwise be.

The across-the-board federal spending cuts that officially began on March 1 — known as the sequester — may also be hurting the private sector, although it is hard to tell how much.

“Any negative news is going to be blamed on the sequester, which I think is becoming a bit of an excuse at this point,” said Joseph A. LaVorgna, chief United States economist at Deutsche Bank. “It’s a factor, but it’s not as big as people believe it is.”

All the same, when the jobs report comes out on Friday, economists will be looking at changes in the federal employment numbers, as well as sectors like manufacturing and professional services, to see if they are being obviously affected by the spending cuts. Much of the effect will be hard to detect, particularly if people directly harmed by the sequester are furloughed rather than laid off.

Another explanation for the weak string of economic data is that the numbers may be misleading — that they’re understating the “true” strength of the economy. That’s based on a pattern of revisions in recent months, particularly to the jobs report.

The first release of a month’s employment numbers, put out by the Bureau of Labor Statistics typically on the first Friday of the subsequent month, is an initial guess at what happened with hiring and firing, based on incomplete data. It gets the most attention, even though revisions to that initial estimate in the following two months, based on more complete data, can be significant.

For whatever reason, recent revisions have been very pro-cyclical: That is, when there were job losses, they turned out to be worse than initially estimated, and when there were job gains, they turned out to be much better than initially estimated. Whatever happened with employment, the initial release underestimated the change.

Here is a chart showing the difference between the third estimate (for example, the job change from February, as shown in a jobs report released in May) and the first estimate (the job change from February, as shown in a jobs report released in March):

Source: Bureau of Labor Statistics, via Haver Analytics Source: Bureau of Labor Statistics, via Haver Analytics

And here’s that same data series (the revisions) shown alongside what the change in payrolls was ultimately determined to be once all the data were in:

Source: Bureau of Labor Statistics, via Haver Analytics Source: Bureau of Labor Statistics, via Haver Analytics

Economists are hopeful that the job changes from the last couple of months will likewise be revised upward, and that even if Friday’s number disappoints, that it will understate the real job growth in the economy.

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U.S. Households’ Finances Regain Lost Ground

Without adjusting for inflation, the net worth of American households is now higher than before the recession struck five and a half years ago, the Federal Reserve said on Thursday.

Household net worth jumped by just over $3 trillion, or 4.5 percent, to $70.3 trillion in the first quarter of 2013, surpassing the $68.1 trillion reached in 2007.

After adjustment for inflation, total net worth still stands below the peak reached in mid-2007, said Dean Maki, chief United States economist at Barclays.

The encouraging report from the Fed comes amid other signs that Americans are feeling slightly better about the economy.

In a New York Times/CBS News poll conducted May 31 to June 4, 39 percent of respondents said that the recent condition of the economy was very or fairly good, the highest share saying this not only since President Obama took office but also since the recession officially began in December 2007.

About a third of respondents said that the economy was getting better, similar to what the trend had been in the previous six months. (Another 24 percent said that it was getting worse and 42 percent said the economy was staying about the same.)

Nearly half of respondents — 46 percent — rated the job market in their areas as very good or fairly good, with a third saying that they thought their local job markets would improve over the next year.

The poll has a margin of sampling error of plus or minus three percentage points.

Despite newfound optimism in some quarters, the economy continues to send mixed signals. Even as consumer spending remains healthy and the housing market rebounds, the labor market has been much slower to recover and many Americans at middle and lower income levels remain worse off than before the downturn.

The latest report on jobs will come Friday morning, when the Labor Department reports employment data for May. Month-to-month numbers have been bumpy this year, with the economy adding a robust 332,000 jobs in February, then slowing to a pace of 138,000 new positions in March and 165,000 in April.

Economists are looking for the report to estimate that the economy created roughly 165,000 jobs in May, with the unemployment rate holding steady at 7.5 percent. On Thursday, the government reported that initial claims for unemployment benefits fell by 11,000, to 346,000, just under the four-week moving average of 352,500.

Trading on financial markets was volatile as investors readied positions ahead of the Labor Department report.

After spending much of the day in negative territory, the stock market staged a late-day rally. The Dow Jones industrial average rose 80.03 points to 15,040.62 and the Standard Poor’s 500-stock index inched up 13.66, to 1,622.56. The Nasdaq composite index increased by 22.58, to 3,424.05.

The bond market rose modestly, with the yield on 10-year Treasury bonds falling slightly to 2.08 percent.

In the currency markets, the dollar fell sharply against the yen and the euro on Thursday, and continued to fall Friday morning. Currency traders will be watching the jobs data on Friday for signs about the economy’s underlying strength and the Fed’s next move on monetary policy.

The lackluster gains in jobs and income for most Americans stand in contrast to the rally on Wall Street and increase in home prices so far this year.

In the first quarter of 2013, real estate holdings accounted for a $784 billion gain in household net worth, while the value of corporate shares and mutual funds increased by nearly $1.5 trillion, the Fed said.

The stock market gains primarily benefit a fairly narrow stratum of American society, Mr. Maki noted, with the top 20 percent of earners holding 80 percent of stocks.

“That group always accrues the bulk of the benefits from a rising stock market,” he said.

The Federal Reserve report also showed that Americans remained cautious, continuing to reduce debt levels and strengthen their personal balance sheets. Household borrowing sank at an annual rate of 0.6 percent in the first quarter, with mortgage debt declining by $53.2 billion.

The implosion of the housing sector, and the stock market tumble in 2008 and early 2009 took a huge toll on the net worth of American families. Between 2007 and 2008, household net worth dropped by nearly $13 trillion, a decline of nearly 20 percent.

While unemployment remains high by historical standards at 7.5 percent, the economy has shown signs of life lately. Consumer spending has held up this year, despite fears that an increase in payroll taxes and cutbacks in government spending might cool the economy.

The stock market has surged in 2013 in anticipation of better economic growth and expectations that the Federal Reserve will not pull back on its efforts to stimulate the economy until evidence is much stronger that jobs are more plentiful and living standards are improving. But stocks have wavered in recent days on worries that the central bank will not keep pumping as much money into the financial system.

Catherine Rampell contributed reporting.

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Economix: Unemployment? Who Cares?


Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

High unemployment has become the new normal. Two years after the official end of the recession, the monthly refrain of poor jobs reports showing an unemployment rate stalled at about 9 percent does little to increase any sense of political urgency.

The monthly employment numbers, released Friday, were more bad news, showing that for the second month in a row, employers added barely any jobs in June.

Today’s Economist

Perspectives from expert contributors.

The sound of indignation can be heard outside of Washington. Twenty-six percent of Americans surveyed in the latest New York Times/CBS News Poll named unemployment the most important problem facing the country (27 percent cited the economy in general).

The A.F.L.-C.I.O. and other unions keep demanding “Good jobs now!” Progressive think tanks like the Economic Policy Institute carefully monitor employment trends. Many economists, including the professionally prominent members of the Employment Policy Research Network, insist on the need for more attention to the issue. As Till von Wachter of Columbia University put it, “Unemployment is the No. 1 economic problem facing the country today.”

Some business leaders have spoken up. Last summer, Andrew Grove, the former chief executive of Intel, wrote a passionate commentary for Bloomberg BusinessWeek calling for a “job-centric” economy.

But this is not something the country can achieve with jobs-oblivious politicians. Why isn’t unemployment reduction front and center on the policy agenda? More specifically, why has the debate over deficit reduction shoved it aside?

Here are three possible reasons.

First, unemployment is concentrated among the less educated, blacks and Hispanics who lack political or economic clout.

Second, high unemployment is not hurting overall business profits, which have soared to historic heights. In the 1930s, joblessness reduced the demand for consumer goods, idling many businesses as well as workers, creating economic incentives to support public job-creation efforts.

Today, our largest corporations and richest investors are well positioned to take advantage of growing demand in emerging markets far from our shores, whether in the form of increased exports or new investment opportunities.

As a small-business owner explained in a recent Wall Street Journal article, he only sells domestically and does not have the opportunity to “exploit foreign markets that are growing faster.”

Third, the jobless individuals, public employees and small-business owners who could, in theory, form a strong political coalition to support more active job creation are constantly subjected to a barrage of arguments that we should do nothing but cut government spending and hope for the best.

A recent Bloomberg BusinessWeek article, for example, asserted, “There’s vanishingly little that policy makers can do to create jobs for their citizens.” Yet solid research based on analysis of differences in state and county spending shows that some components of President Obama’s initial fiscal stimulus were quite effective at creating jobs. Unemployment would have soared higher without them.

A conspicuously large repertoire of more targeted job-creation proposals could significantly lower unemployment, including public investments in energy-saving projects and cheap credit for small businesses (both developed by economists at the Political Economy Research Institute at the University of Massachusetts, my academic home) and increased investment in infrastructure (advocated by the Economix blogger Laura D’Andrea Tyson, among others).

But political interest is low among most Democrats, and Republican governors and Republicans in Congress are pushing to cut unemployment insurance benefits, proclaiming that this would help the economic recovery. I’ve tackled this argument before, and a detailed critique can be found in this article by David R. Howell, an economist at The New School, and Bert M. Azizoglu, a graduate student there, forthcoming in the Oxford Review of Economic Policy.

On the state level, many efforts to expand employment involve attempts to woo businesses from other states with tax breaks, hardly a process that is likely to increase jobs for the nation as a whole. A fascinating “This American Life” episode on public radio, “How to Create a Job,” describes a special government office in Arizona that does nothing but try to persuade California businesses to relocate.

How can advocates for public job creation reach a wider audience? We need to keep making the case wherever and whenever we can.

If you or someone else you know (employed or not) needs some fun summer reading, I recommend the new graphic novel, “The Adventures of Unemployed Man.” It describes a heroic search for work that requires an epic battle against the Just Us League.

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