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The New Employment Numbers: Things are Worsening More Slowly
The economy is getting worse more slowly. That's just about the only clear reading that's coming from the economic reports, including this morning's important one on employment. The pace of job losses slowed -- payrolls fell by 247,000, after a 443,000 loss in June, and the official jobless rate dropped from 9.5 to 9.4 percent.
Be careful with these figures, though. They don't include the increasing numbers of people working part-time who'd rather have full-time jobs. Nor do they include a large number who have given up looking for work. They don't reflect the many millions who have found new jobs that pay less than the old ones they lost. And they don't include one of the shortest typical workweeks on record, for those who still have full-time jobs. (On this score, though, another indication that things are worsening more slowly -- the workweek went up very slightly from 33 hours.) Nor, for that matter, do the numbers reflect the 130,000 people who are coming into the labor force each month ready and willing to work, who can't find jobs. If all these people are included, my estimate is that one out of five Americans who would otherwise be working full time are now underemployed. We are still experiencing the biggest decline of any post-World War II economic slump.
The overall economy continues to contract but more slowly than before. Consumers are not buying, exports are still dropping, and business investment is still in the doldrums, so the only clear reason is that the stimulus is beginning to kick in. Yet -- here's another important thing to watch -- job losses continue to outpace that contraction. In other words, employers are using this downdraft to lay off more workers, proportionately, than they have since the Great Depression. The late economist Arthur Okun, after reviewing economic history, once pronounced a rule of thumb that every two percent drop in economic growth generates a one percent rise in unemployment. This time, that rule has been broken: The fall in growth has resulted in a much greater rise in unemployment. And if underemployment is figured in, a truly astonishing rise.
So let's be grateful that the economy is getting worse more slowly than it was. But don't be lured into thinking we're ever going back to where we were. Most of the jobs that have been lost are never coming back. New ones will replace some of them, eventually, but hardly all of them. The structure of the American economy is changing. We will emerge from all this with an economy that looks strikingly different from the one we had in 2007. More on this to come.
Be careful with these figures, though. They don't include the increasing numbers of people working part-time who'd rather have full-time jobs. Nor do they include a large number who have given up looking for work. They don't reflect the many millions who have found new jobs that pay less than the old ones they lost. And they don't include one of the shortest typical workweeks on record, for those who still have full-time jobs. (On this score, though, another indication that things are worsening more slowly -- the workweek went up very slightly from 33 hours.) Nor, for that matter, do the numbers reflect the 130,000 people who are coming into the labor force each month ready and willing to work, who can't find jobs. If all these people are included, my estimate is that one out of five Americans who would otherwise be working full time are now underemployed. We are still experiencing the biggest decline of any post-World War II economic slump.
The overall economy continues to contract but more slowly than before. Consumers are not buying, exports are still dropping, and business investment is still in the doldrums, so the only clear reason is that the stimulus is beginning to kick in. Yet -- here's another important thing to watch -- job losses continue to outpace that contraction. In other words, employers are using this downdraft to lay off more workers, proportionately, than they have since the Great Depression. The late economist Arthur Okun, after reviewing economic history, once pronounced a rule of thumb that every two percent drop in economic growth generates a one percent rise in unemployment. This time, that rule has been broken: The fall in growth has resulted in a much greater rise in unemployment. And if underemployment is figured in, a truly astonishing rise.
So let's be grateful that the economy is getting worse more slowly than it was. But don't be lured into thinking we're ever going back to where we were. Most of the jobs that have been lost are never coming back. New ones will replace some of them, eventually, but hardly all of them. The structure of the American economy is changing. We will emerge from all this with an economy that looks strikingly different from the one we had in 2007. More on this to come.
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Has anyone seen the birth-death numbers?
August 7, 2009 11:42 AM | Reply | Permalink
Nevermind.
"The birth/death model added 32k, 7k more than July ‘08."
Presumably, that's because the government believes we're expanding faster than we were a year ago.
August 7, 2009 11:46 AM | Reply | Permalink
And the numbers don't include 2.6 million former workers nearing the end of their extended UE benefits:
http://tpmcafe.talkingpointsmemo.com/talk/blogs/donal_fagan/2009/08/friends-with-extended-benefits.php
August 7, 2009 11:59 AM | Reply | Permalink
The media pundits for the most part are desperate to find any sign that the economy is getting better, and they are competing with each other to be the first one to trumpet the turn-around to the public. So we get a lot of what I call "economic happy talk" by media figures who can't read economics statistics.
I can't see any other source of increased consumption besides the stimulus money currently being pumped into the economy. The only parts of the economy that actually show even the slightest increase are those sensitive to interest rate or money supply.
My guess on the breaking of Okun's Law is that employers have been socialized in recent years to shed workers a lot sooner when revenue drops. Employers generally have less concern for worker's welfare than they used to. Milton Friedman rules. So they are, I suspect, anticipating the worst and restructuring to deal with the worst case they can see.
That might mean they will also refill the vacant jobs more quickly when they see a market they serve turning around, but I doubt it. Instead they are going to try to build in more productivity for the existing workforce.
August 7, 2009 4:45 PM | Reply | Permalink
Companies are laying workers off because many, probably most, companies are losing money. The government recently released that business income tax receipts are down 57% this year. I was told that last years receips were down also and the combined diference between 2007 and 2009 is a staggering 74%.
Company income taxes are paid in advance of the year end, usually quarterly. These taxes are computed by the individual company accountants who want to be accurate, because if the company doesn't pay enough then penalties and interest will be added. There is no better guage for what companies expect to make in profit.
If business taxes are down 74% since 2007, then, on average, companies are making 26% what they did 2 years ago. Some companies' profits are not down, defense contractors, utilities, etc., thefore average profits to have fallen so far means most companies are losing money.
Makes sense doesn't it? About 1/6 of our economy is automobile related, and how can any automobile dealer or supplier be making money? Another 1/6 is construction related and everything around construction, commercial and residential, is losing money.
Manufacturing in general is down about 40%, as can be noticed by the huge decrease in truck traffic. Few companies can break even at 60% revenues.
I don't see how all this can hang on. If most companies lose money, they will lay workers off, and cities and states will lose revenues. Governments will lay off more workers. Banks will foreclose and lose money. ETC.
I think we are witnessing a snow ball that has began rolling down a mountain.
August 8, 2009 8:22 AM | Reply | Permalink
even though the situation, to pardon the vernacular, SUCKS, couldn't a major second stimulus package, including ALL of the money cut from the original stimulus (to win over a key handful of "moderate" GOP votes in the Senate) and much more, together with substantial funding for a (serious this time) policy to stave off continuing massive foreclosures, and aid to students/public higher ed, etc -- couldn't this kind of a stimulus package radically blunt the negative effects? surely at the level of state & local government alone, tax increases and budget cuts are dragging the economy backwards almost as much or maybe even more than the stimulus is moving the economy forward. It seems to this NONpro in economics a no-brainer, and something that has a better chance of passing before the end of this calendar year than anything like the kind of energy bill we need (for that we'll need national hearings focusing on the kinds of concerns raised by Jim Hansen as extensive as the flap over gays in the miilitary was back in 93-4).
At the knife edge present, the talk is "upbeat, but progressives should be getting that 2d stimulus model ready for a few months when public anger over high unemployment etc has reached a boiling point
(in my arrogant opinion)
August 8, 2009 2:55 AM | Reply | Permalink
So if the economy will NEVER return to its previous state, my question is what does the stimulus accomplish in the long term? Sure it slows the current decline and reduces the suffering of some, but is it just delaying the inevitable? Ultimately, we may have to deal with the fact that we will not ever again have enough high-paying jobs to maintain the standard of living that most people have become accustomed to. If oil becomes even more expensive over time, many people will no longer be able afford personal automobiles. It may be necessary to produce much more food locally. Many Americans may have to do some part-time farming (at least in the form of community or backyard gardens) to ensure adequate supplies. Bartering of services may replace parts of the current cash economy. (It already has for many.)
Perhaps the government should be focused on how support such a transition (i.e., a truly long term investment) rather than using what little cash it has to try to ride out a storm that may never end (READ: Kunstler's Long Emergency). In other words, support the development of local food production, bartering, and the necessary mass transit upgrades we will need (not fancy high-speed rail, mind you, just fix the existing lines). There are aspects of the current stimulus plan that are worthwhile, of course. Promoting green technology and weatherproofing homes are prime examples. Those have long term benefits. Cash for clunkers, OTOH, is a perfect example of a short term priming of the pump for which the end result is lot of people with car loans they may not be able to service over the long term. And while I do understand that our highway infrastructure is crumbling, what if the era of happy motoring is about to end. Now, I am not saying this scenario is the only possible one, but it is one that no one in power seems to be considering publicly.
August 8, 2009 5:32 PM | Reply | Permalink
Heretic, think about it. There is no real reason that the economy can't get back to where it was. The reason we are in the dolldrums is because the super rich have gotten filthy rich. They are doing it by controlling the so-called "FIRE Economy" We are like a monopoly game where one player owns most of the property, and charges everybody else just to go around the board. Insurance is killing our economy. Pharmacutecals are killing us (in more ways than one). Real estate rents are an indirect killer. Who owns those parts of our country? Super wealthy who do not contribute to the REAL economy. We are turning into another Mexico. Give this country another generation and there will be no middle class.
August 8, 2009 9:53 PM | Reply | Permalink