That the U.S. would experience a top-line unemployment rate of over 10 percent before the end of 2009 was something most observers of the economy could see coming six months ago, if not earlier. Which makes the somewhat overwrought response to today's admittedly bad numbers a little unexpected.
Megan McArdle titles her post "America and the Terrible, Horrible, No Good, Very Bad Jobs Numbers." Felix Salmon ponders "A Global Problem with No Solution." Paul Krugman has "got a sick feeling about the whole situation."
I don't want to sugarcoat anything. Calculated Risk and The Big Picture have oodles of "butt ugly" charts and graphs that make it abundantly clear that the current labor picture is as bad as anything Americans have seen since the Great Depression. I myself was moaning about the lack of jobs as recently as last Thursday. It's miserable out there.
But as readers were quick to remind me last week, unemployment is a lagging indicator. We have known all year that the unemployment rate would likely rise steadily throughout the year. Let's remind ourselves again that the rate at which the economy is shedding jobs is slowing. That's a good thing. The point at which it would be time to cry out in despair that the world is ending would be if the rate of job loss started growing again -- a sign of the dreaded double dip recession.
Paul Krugman is repeating his usual refrain: Obama should have pushed for a bigger stimulus at the beginning. Perhaps, in the most Rooseveltian of all possible worlds, he could have come into office and immediately orchestrated a massive WPA-like jobs program. But even if one accepts the rather unlikely possibility that Obama could have pushed through a budget deficit even larger than the $1.4 trillion we are currently looking at, I think there's good reason to believe that it would have been very difficult to materially alter the shape of the unemployment curve in the first nine months of the presidency. Remember, Obama came into office at the absolute height of the crisis -- the shock to the economy that hit a year ago had barely begun to work its way through its system.
There are definitely some bad future scenarios lying in wait. One possibility is that high unemployment next year leads to a Republican takeover of the House, and complete government paralysis ensues. Then we might find out for sure what happens when the government does not stimulate an economy as sick as ours. That is an experiment I am not looking forward to. But for the moment, we do have a White House committed to fiscal stimulus, even if it is operating under budgetary constraints -- not of its own making -- that severely reduce its freedom of action.
The numbers are bad, sure. But they could be worse, and they might get better. For the sake of all our animal spirits, let's not despair.
Brad DeLong and FireDogLake are both highlighting an exchange between Robert Kuttner and President Obama yesterday that is worth echoing far and wide... but only if you are interested in a thoughtful and nuanced look at the economic policy challenges faced by the United States right now.
ROBERT KUTTNER: You know, most of the things that have been proposed today cost money, and there is this concern about the federal deficit. I hope that your administration will recognize, as I know you will, that it's possible, first of all, to reduce the deficit over time and sometimes in the short run realize that you need to increase the deficit. And I hope the concern about the deficit in the long run doesn't crowd out the need for additional spending in the short run. And I also think that some of these programs that increase jobs and increase GDP are probably the fastest way to get the economy back on a track that will reduce the deficit over time. It's certainly a better way to reduce the deficit than putting ourselves into a -- into a debtor's prison and assume we can deflate our way to recovery.
BARACK OBAMA: Well, I think this is an important point. You know, we've been talking a lot about specific initiatives. There is a macroeconomic element to this whole thing. And so let me just amplify what was just said.
We have a structural deficit that is real and growing, apart from the financial crisis. We inherited it. We're spending about 23 percent of GDP and we take in 18 percent of GDP and that gap is growing because health care costs, Medicare and Medicaid in particular, are growing. And we've got to do something about that.
You then layer on top of that the huge loss of tax revenue as a consequence of the financial crisis and the greater demands for unemployment insurance and so forth. That's another layer. Probably the smallest layer is actually what we did in terms of the Recovery Act. I mean, I think there's a misperception out there that somehow the Recovery Act caused these deficits.
No, I mean, we had -- we've got a 9-point-something trillion-dollar deficit, maybe a trillion dollars of it can be attributed to both the Recovery Act as well as the cleanup work that we had to do in terms of the banks. In turns out actually TARP, as wildly unpopular as it has been, has been much cheaper than any of us anticipated.
So that's not what's contributing to the deficit. We've got a long-term structural deficit that is primarily being driven by health care costs, and our long-term entitlement programs. All right? So that's the baseline.
Now, if we can't grow our economy, then it is going to be that much harder for us to reduce the deficit. The single most important thing we could do right now for deficit reduction is to spark strong economic growth, which means that people who've got jobs are paying taxes and businesses that are making profits have taxes -- are paying taxes. That's the most important thing we can do.
We understand that in this administration. That's not always the dialogue that's going on out there in public and we're going to have to do a better job of educating the public on that.
The last thing we would want to do in the midst of what is a weak recovery is us to essentially take more money out of the system either by raising taxes or by drastically slashing spending. And frankly, because state and local governments generally don't have the capacity to engage in deficit spending, some of that obligation falls on the federal government.
Having said that, what is also true is that unless businesses and global capital markets have some sense that we've got a plan, medium and long term, to get the deficit down, it's hard for us to be credible, and that also could be counterproductive. So we've got about as difficult a economic play as is possible, which is to press the accelerator in terms of job growth, but then know when to apply the brakes in the out-years and do that credibly. And you know, we are trying to strike that balance, but we're going to need help from all of you who oftentimes are more credible than politicians in delivering that message.
Because we want to leverage whatever public dollars are spent, and we are under no illusion that somehow the federal government can spend its way out of this recession. But it is absolutely true that any of the ideas that have been -- been mentioned here are still going to require some public dollars, and those are actually good investments to make right now.
Like many Salon readers, I feel a great deal of anxiety about where the U.S. is headed, and there have been many disappointments in this first year of the Obama presidency. But I really can't think of anything I'd rather have confronting our challenges than the guy who spoke the words above yesterday.
Before the Bureau of Labor Statistics released the non-farm payroll report for November this morning, you didn't have to look hard to find headlines like "Jobs Report Has Market On Edge." In part this was due to a not very encouraging private sector labor report released on Wednesday, but the anxiety also had its roots in a mysterious comment made by White House Press Secretary Robert Gibbs on Thursday.
"One payroll estimate came out ... yesterday and it seemed to suggest that [the unemployment rate] might tick upward."
At Capital Gains and Games Pete Davis offered some context for this remark.
Every year or so, at the request of clients, I talk to Administration officials about when they receive advance economic data. The uniform answer is that the Fed Chair and the Chair of the Council of Economic Advisers receive the data at 5 p.m. the night before and that the CEA Chair writes a short memo to the President and a few senior officials, which is conveyed between 5:30 p.m. and 7 p.m. depending upon what else is going on. A few key congressional staff get briefed a few minutes ahead of the 8:30 a.m. release, but they are sequestered with no means of communication until then.
Gibbs is far too professional a communicator to make an off-hand comment like that without being prompted. My guess is that White House National Economic Council Director Larry Summers put him up to it with the President's assent and that this was done without knowing the unemployment number in advance. They suspect tomorrow morning's number will be higher, and they want to diminish the political impact. If they're wrong, it won't hurt them.
I'm not sure that I fully understand Davis' post. On the one hand he suggests the president had been given a heads up on the new numbers, but on the other he says that the directive to Gibbs was made "without knowing the unemployment number in advance." But whichever is true, the White House ended up seeming just as flat-footed as the consensus expectation of Wall Street analysts.
But back to the report. The top-line numbers, 10 percent unemployment, only 11,000 jobs lost, immediately goosed the stock market. But inside the numbers the news was also pretty good. The U-6 number, which measures workers who have stopped looking for work or are involuntarily part-time, dropped from 17.5 to 17.2 percent. Hours worked per week rose, suggesting that employers may soon feel pressure to hire new workers. Temp work took a big jump upward, another very positive sign suggesting economic recovery.
The main reason for caution? The monthly non-farm labor report is subject to extreme revisions in the months ahead. In this report, the BLS trimmed job losses for September and October by a significant margin: September's 263,000 number dropped to 139,000 and October's 190,000 fell to 111,000. So it is altogether possible that this month's 11,000 drop could turn out to be much worse later on.
Optimistic labor market analysts were predicting that the U.S. economy would shed at least another 100,000 jobs in November. The actual number, according to the Bureau of Labor statistics? A mere 11,000. The unemployment rate even fell, from 10.2 to 10 percent.
The numbers are a big surprise. As the BLS notes, "in the prior 3 months, payroll job losses had averaged 135,000 a month." But even such a negligible loss represents the 23 straight month in which the labor market contracted, which hasn't happened since the 1930s, so the champagne should stay in the fridge. I'll have much more analysis in a follow-up post. But for now, this is by far the best news on unemployment we've seen all year, and it raises the very real possibility that the economy could start to add jobs in December.
Just in time for President Obama's jobs summit, Reuters columnist James Pethoukoukis gives us a glimpse at Goldman Sachs' economic outlook, compiled by ace forecaster Jan Hatzius. (Found via Calculated Risk.)
The key line:
...(2) a peaking in unemployment in mid-2011 at about 10 3/4 percent.
The unemployment rate sits at 10.2 percent right now. The prospect that it might remain above 10 percent for another year and a half is, as Pethokoukis rightly points out, a massive political disaster in the making for Democrats.
Other forecasts have predicted that unemployment would peak in the first quarter of 2010 and then start to slowly fall, but an article published today in Bloomberg News ranks Hatzius as the most accurate economic forecaster on Wall Street, so his doom-and-gloom cannot lightly be ignored.
On a happier note, there appears to be real momentum on the weekly jobless claims front, with new filings for benefits falling for the fifth straight week to the lowest point in more than a year, and with the four-week moving average dropping like a rock. But that's a slender thread upon which to hang, when faced with the scenario foretold by Hatzius.
Most ideas for creating more jobs assume jobs will return when the economy recovers. So the immediate goal is to accelerate the process. A second stimulus would be helpful, especially directed at state governments that are now mounting an anti-stimulus package (tax increases, job cuts, service cuts) of over $200 billion this year and next. If the deficit hawks threaten to take flight, the administration should use the remaining TARP funds.
Other less expensive ideas include a new jobs tax credit for any firm creating net new jobs. Lending directed at small businesses, which are having a hard time getting credit but are responsible for most new jobs. A one-year payroll tax holiday on the first, say, $20,000 of income -- which would quickly put money into people's pockets and simultaneously make it cheaper for businesses to hire because they pay half the payroll tax. And a WPA style program that hires jobless workers directly to, say, insulate homes.
Most of this would be helpful. Together, they might take the official unemployment rate down a notch or two.
But here's the real worry. The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that's been going on for years but which the Great Recession has dramatically accelerated.
Under the pressure of this awful recession, many companies have found ways to cut their payrolls for good. They’ve discovered that new software and computer technologies have made workers in Asia and Latin America just about as productive as Americans, and that the Internet allows far more work to be efficiently outsourced abroad.
This means many Americans won’t be rehired unless they’re willing to settle for much lower wages and benefits. Today's official unemployment numbers hide the extent to which Americans are already on this path. Among those with jobs, a large and growing number have had to accept lower pay as a condition for keeping them. Or they've lost higher-paying jobs and are now in new ones that pays less.
Yet reducing unemployment by cutting wages merely exchanges one problem for another. We'll get jobs back but have more people working for pay they consider inadequate, more working families at or near poverty, and widening inequality. The nation will also have a harder time restarting the economy because so many more Americans lack the money they need to buy all the goods and services the economy can produce.
So let's be clear: The goal isn’t just more jobs. It's more jobs with good wages. Which means the fix isn’t just temporary measures to accelerate a jobs recovery, but permanent new investments in the productivity of Americans.
What sort of investments? Big ones that span many years: early childhood education for every young child, excellent K-12, fully funded public higher education, more generous aid for kids from middle-class and poor families to attend college, good healthcare, more basic research and development that's done here in the U.S., better and more efficient public transit like light rail, a power grid that's up to the task and so on.
Without these sorts of productivity-enhancing investments, a steadily increasing number of Americans will be priced out of competition in the world economy. More and more Americans will face a Hobson's choice of no job or a job with lousy wages. It's already happening.
Along with about 400 to 450 other streaming-video-via-Facebook attendees, I just watched the Republican Minority Whip, Rep. Eric Cantor, deliver what was billed as a "major address" outlining the GOP plan to boost U.S. job creation.
Speaking at the Heritage Foundation in Washington the day before President Obama's "jobs summit," Cantor outlined what he called "a no-cost jobs plan."
Let's pause, for a second, to appreciate the brilliant rhetorical framing. A no-cost jobs plan! Without adding a single dime to the deficit, the Republican's plan will ameliorate the worst unemployment crisis in 30 years. One wonders how a political party capable of such innovative thinking ever lost its hold of power.
No one will ever accuse Cantor of being the most mellifluous of speakers, but one could only be impressed at the decisive manner in which he listed the seven planks of his plan. These included stopping "the deluge of detrimental rules and regulations," putting a halt to any new taxes, cutting some taxes, freezing discretionary government spending, approving free trade agreements, and removing obstacles to domestic energy production.
He also recommended that recipients of unemployment benefits be required to participate in job training or education programs and urged a forceful approach to addressing the oncoming commercial real estate meltdown, including tweaking depreciation rules, to allow corporations to more quickly claim related tax advantages.
Oh, and, as if it even requires mentioning: Don't even think of passing healthcare reform or a climate bill.
To recap: Cut regulations. Freeze spending. Cut taxes. No new taxes. That's the plan.
I would really, really love to have access to an alternative universe in which Cantor's plan could have been applied this past year, in parallel with our world, in which the economy was injected with a massive stimulus, so we could compare the efficacy of the two approaches in real time. What would have happened if instead of spending money, the government had sat on its hands?
Cantor says the Obama stimulus has failed. Just two days ago, the Congressional Budget Office (which Cantor approvingly referred to a "neutral" in his speech) declared that the stimulus had worked -- that it had added 1.2-3.2 points of GDP growth that would otherwise have not occurred and added 600,000 to 1.6 million jobs.
So without the stimulus, judging from the CBO report, one can assume that the economy would still be contracting, and unemployment would be higher than it is now. But in Eric Cantor's world, with Republicans in control, slashing regulations and freezing spending, we'd be better off. Why not? In a world where "no cost" solutions are possible, anything can happen.
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