Monday, January 12, 2004
America's employment puzzle
Posted by David Smith at 09:30 AM
Category: Thoughts and responses

Is the US economy enjoying a rip-roaring recovery or not? After annualised GDP growth of more than 8% in the third quarter, it would have been reasonable to expect some very impressive job creation in the fourth. Instead, non-farm payroll employment rose by only 1,000 in December, shocking the markets, and the combined gain for the previous two months was revised down by 51,000 to 143,000. America is generally thought to "need" monthly job growth of 150,000 to keep pace with workforce increases.

That wasn't the case in December, because of a surprising drop of 309,000 in the number of people working or looking for work. Thus, George Bush was able to point to a drop in the unemployment rate from 5.9% to 5.7%. For once, however, a drop in unemployment was a sign of labour market weakness, not strength. So what's happening?

A few possibilities:
1. The normal lags between growth and employment. The US economy was subdued as a recently as the first half of 2003. Recent employment trends may still be reflecting that. If the weak dollar is going to provide any kind of employment boost - and US manufacturing certainly needs that - it is too early for that to show.
2. The seasonal adjustments are wrong. Holiday times are always fraught for statisticians. These latest figures show that hiring by retailers was weak in December. That may be true, or it may merely reflect comparisons with the boom years. December's job growth in retailing, in other words, may not have been as weak as it looks in the figures (there was a net fall).
3. There is a lack of confidence in the recovery. The third quarter number, in other words, did not fool employers. Some may see Bush's pre-election recovery as a flash in the pan.

We should not get too worried. The great upturn of the 1990s started life as a jobless recovery, and was characterised in its early stages by massive corporate downsizing. That, in turn, paved the way for an outbreak of entrepreneurial activity. George Bush may, however, see things rather differently. It was that early-stage jobless recovery that, along with broken promises on tax, did for his father's second-term hopes.



Another thought on this issue. The employment report you quote is one of two reports on employment. The non-farm employment solicits information from existing employers. This has usually been the standard for reports on the economy. It is based on a monthly survey of net job changes at 400,000 companies, called the establishment survey. The Bureau of Labor Statistics also counts monthly job changes through a less sweeping survey, one based on interviews with 60,000 households.

Based on the January 12th New York Times, "The household survey has employment rising by 689,000 jobs in the Bush years". Maybe the US is seeing more people create their own jobs through startups and self employment.

Posted by: Gary Bezowsky at January 12, 2004 09:51 PM
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