Since none of you responded to my first post, let me try another one. It is an analogy. Suppose you gained 40 unwanted unsightly pounds. You decided to reverse course and lost 10 pounds over the last several weeks. Today you get on the scale and you gained back 2. What do you know? What should you do? The 2 pounds could signal that you are on course to start gaining weight again. It could be the signal of a bad trend starting.It could also be the result of weighing at a different time of day. It might have been caused by the extra water you drank after a vigorous exercise session. Your spouse might have sneaked behind you and stuck her cute little toe on the scale without you knowing. Truth is, just from the single reading you don't know much and you shouldn't get all wacky about it. You probably shouldn't change your behavior.
So what? This seems quite relevant to the way we think about monthly employment and unemployment announcements. Everyone knows the economy is performing a little better than it was a year ago. Everyone knows that firms who were burned by sales and profit declines and who have responded with major cuts and restructuring are NOT about to start hiring at the first signs of recovery. Everyone knows there is still a lot of uncertainty and lack of confidence. So what real relevance is one month's employment number in the middle of all this? When it comes to what really matters -- the real future course of employment and the economy -- what happened in February never was going to be much of a factor. Suppose they say they made a mistake and the true number was really much worse than reported? Would that really warrant a lot of consternation? I think not. It is just like the 2 pounds. We need to watch for at least a few more months before we make a judgment.
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To me this looks like the classic dilemma of "are you gonna fish or cut bait". The monthly unemployment rate numbers are subject to all types of problems. First off there are a significant number of illegal aliens (I know I am not PC) who don't show up in the numbers. The number of discouraged or under employed workers is also hard to quantify. I have seen figures of two million fewer workers in the labor market than a year ago.
ReplyDeleteBut what ever the real unemployment figure is there is no dispute that jobs were lost; and for quite a while every month jobs have been lost. Projections I have seen are that we need to create something on the level of 500,000 jobs a month for a couple of three years just to get back to where we were. I don't see anything that leads me to believe any where near that number of jobs will be created (absent a big war); so the employment outlook looks grim to me what ever the monthly unemployment numbers are.
Mike,
ReplyDeleteAs to your first point -- please know that there are actually two major surveys reporting employment. One is the payroll report and the other is the household survey. They differ significantly and often offer different views of what is happening --from the respective sides of the household and the firm. For example, illegal aliens might be caught in the payroll survey if they lied to their employers about immigration status. They probably would not be part of the household survey, however.
As to your second point -- it all depends on what "grim" means. The doctor tells you that you have months of rehab to do after your operation. Is that grim or realistic? Most of us know that after a major recession it could take a while to reach a strong employment situation. We can wish it weren't so, but wishing and hoping may not be the best thing. I prefer realism to the kind of hype and super analysis we get from some of the pundits...My main points so far -- the unemployment release of last week did not really have much content or implication.