Economics
Free exchange
America's recovery
The new new normal
Mar 4th 2011, 15:15 by G.I. | WASHINGTON
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THE phrase “new normal” is usually used to explain the persistence of underwhelming economic data, such as today’s employment numbers. Nonfarm employment rose 192,000 (or 0.1%) in February from January, but that was after a sluggish, weather-depressed 63,000 gain in January (which was revised up from 36,000). Over the two months employment advanced an average of 127,500, in line with the last five months.
Many economists will say that 127,500 is just a neutral number, only enough to keep up with population growth. This, then, is the new normal: an economy that grows only fast enough to keep unemployment from rising, not strong enough to create the jobs needed to bring unemployment down.
The only problem with this story is it’s not an accurate description of reality. The unemployment rate is falling: to 8.9% in February from 9.0% in January and 9.8% last November. For some reason, we seem to be able to get unemployment down with far lower rates of job creation than in the past. Why?
There are two possible explanations. First, blame the data. Nonfarm employment is derived from a big survey of employers, while the unemployment rate is derived from a much smaller survey of households. The two often diverge. Indeed, measured by the household survey (adjusted for population controls), employment has risen an average of 419,500 in each of the last two months, more than triple the rate of the payroll survey. That’s why the unemployment rate has fallen.
However, I’d be careful before chalking it up to the data. Such differences are common. Household employment is extremely volatile and big swings tend to cancel each other out over time. Since March of last year when the job market bottomed out, employment growth has averaged a little over 100,000 per month according to both surveys.
This suggests we need a second explanation for why such unimpressive job creation has succeeded in pulling down unemployment. The labour force, the share of the working-age population that either works or wants to work is growing at a strangely subdued rate. Participation (the share of the working age population in the labour force) is supposed to rise during recoveries as previously discouraged workers return to the job hunt. Instead, it’s fallen, to 64.2%, unchanged from January and down from 64.9% last March.
Perhaps employers are reluctant to hire given their ability to squeeze more out of their existing work force. After all, initial unemployment insurance claims continue to drop, evidence that layoff activity has slowed, and manufacturing overtime hours jumped to 3.3 hours in February, the highest since early 2008.
But if lack of hiring were the problem we should see it show up in either the actual or hidden unemployed. In fact, the U-6 unemployment rate fell to 15.9% in February from 16.1% in January and 17.1% in September. This figure includes everyone who is officially unemployed plus everyone who wants to work but either has given up looking, didn’t look that month, or is working part time but would prefer full-time work.
So if the new normal was slow growing employment, the new new normal is a slow growing labour force. Put the two together and the unemployment decouples from the overall health of the economy. Why? Perhaps the Great Recession has permanently diminished work opportunities for big swathes of the work force, in particular prime-age men. Perhaps America is now experiencing an echo of what older Europe and Japan already have: a demographically driven slowdown in potential growth. Or perhaps it’s one of those temporary statistical mysteries that will disappear soon.
Enough dreary long-term analysis. There were lots of good short-term signs in the report suggesting that the recovery, though hardly a barn-burner, is intact. Manufacturing employment continues to outperform, rising 33,000 or 0.3%. Total private employment was up 222,000; state and local payrolls dropped 33,000. The average workweek was unchanged at 34.2 hours.
Hourly earnings did not grow, so the yearly increase fell back to 1.7%. Even if gasoline is about to lift inflation, it’s hard to see a wage price spiral developing.
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Looking at the Seasonally Adjusted Household data, men fared
better than women in February - except in ages 20-24.
Household data (SA):
http://www.bls.gov/news.release/empsit.t09.htm
Topline data is +250,000
Breaking it down by age:
16 - 19: -41,000
20 - 24: +13,000
25 - 34: -26,000
35 - 44: +36,000
45 - 54: -3,000
55+ : +213,000
---------------------
total: +192,000
Men, by age:
topline data +322,000
16 - 19: +57,000
20 - 24: -69,000
25 - 34: +85,000
35 - 44: +83,000
45 - 54: +73,000
55+ : +148,000
---------------------
total: +377,000
Women, by age:
topline data -72,000
16 - 19: +2,000
20 - 24: +82,000
25 - 34: -112,000
35 - 44: -48,000
45 - 54: -77,000
55+ : +64,000
---------------------
total: -89,000
Full-time: +304,000
Part-time: -23,000
Multiple job holders: -76,000
Regards
Hedgie, having been a man aged 20-24 at one point, I'm pretty sure we're better off without them.
The blogger wrote:
Perhaps America is now experiencing an echo of what older Europe and Japan already have: a demographically driven slowdown in potential growth.
This sentence seems accurate to me, and sadly so.
Yeah, blame it on the old farts. Economic decline has nothing to do with socialism in Europe and state intervention in Japan. What the hell did Solow know about growth anyway? What an idiot he was!
So I take it the 'new normal' is just the old normal?
The old normal before everyone donned rose-tinted spectacles, and stampeded, herd like, for the illusion of profit sans risk.
Doug,
Yup-you are right, and you know your govmnt' is working hard to solve this problem; too bad that soo many tickets to Iraq and AfPak are two ways...
The simple reason is the exodus of Hispanic workers. From the Associated Press:
The number of migrants leaving Mexico dropped by more than two-thirds since peaking in the middle of the last decade, and more migrants are coming back than before, according to new census figures released Thursday.
The National Statistics and Geography Institute said the 2010 census shows a net outflow of about 145,000 Mexicans leaving the country per year from 2005 to 2010, the period covered by the count.
That is down from a peak of about 450,000 between 2000 and 2005, and about 240,000 per year between 1995 and 2000.
The census is held once every 10 years, but an intermediate count is held every five. The vast majority of Mexican migrants head to the United States.
Eduardo Sojo, the president of the institute's board, said the number of immigrants returning, while still a minority, had almost doubled over the decade.
"The migration phenomenon has undergone a drastic change in the last five years," Sojo said.
About 31 percent of migrants who left in the last five years had returned, compared to about 17 percent of migrants who left in 2000, Sojo said. He attributed the lower outflows to the economic downturn in the United States and the greater difficulty of crossing the border as a result of stepped-up U.S. border enforcement.
Hedgie, in looking at your data, it looks like there was a hiring binge on old dudes, followed by old women (meant lovingly, of course).
Any ideas why?
Thanks.
Faedrus,
I'm not sure why. Maybe it's because they are willing to show up for work each day, don't waste work time on a Social Network site or cell phone, or...
Doug,
I'm with you.
That leaves more 20-24 women for us old guys who have jobs and can afford to be a sugar-daddie.
Regards
@ Hedgie and Doug
I've been watching the US job and unemployment numbers now for ~6 months, and despite the steady improvement in the numbers, something just doesn't feel right to me about the jobs number and the market's reflection of the economy.
I know that's not really a quantifiable statement. But to me, when you have the Dow and S&P hitting 3 year highs, and see the charts basically going in a diagonal line up and to the right, with no real movement in employment, something strikes me as fishy. Or just 'off.'
My gut feeling is that the recovery is more of a recovery on paper one and that there are a lot more unemployed than the numbers are having us believe, as well as a lot of people who have just fallen off the new/continuing unemployment benefits numbers. To me, the numbers just aren't adding up.
This could just be my internal bias, though. Thoughts?
@ PKP801
- That one's easy...the megacorps in the Dow and S&P get significant revenues from outside the US, and there are many parts of the world growing dramatically. I believe the S&P figure is now close to 50% non-US revenue.
The monthly U-3 statistics from the Bureau of Labor Statistics tell us very little about the entire employment situation in the United States. More revealing are the Bureau’s statistics that show the number of monthly mass layoffs, while down from the peak of the Great Recession, are still up over 40 percent from pre-Recession levels as shown here:
http://viableopposition.blogspot.com/2011/03/layoffs-what-monthly-u3-dat...
I would hardly say that over 2550 layoffs of more than 50 people each in a single month should be considered a sign of a healing economy.
You know sometimes good numbers are just good numbers, and bad numbers are just bad numbers. Stats are unreliable in any absolute terms, but you take the system as being faulted into account see the readout and move on.
What's best is that manufacturing is doing well. Surprisingly, to myself, there really are a lot of cheap products made in the USA. From little pet things I have to buy to shelving I got for the house.... I think there has been some push in the passed 10 years or so to repatriate some of this stuff. And honestly it oil stays high, that just makes long distance imports from China more expensive, coupled with there modest inflation, is probably a good thing. We're not going to pop up huge factories overnight, but the trends are looking good.
As for the markets, a lot of US multinationals make outstanding products. We've put decades of top notch research into these things and now it is paying off.
Also, that viable opposition blog is quite hilarious :) It always gives me a good chuckle.
Especially when the data he cites from a small research firm don't make any sense in the first place.
PKP801,
Companies are doing more with less.
Productivity rose by 2.6% in Q3 and Q4 of 2010.
That's MUCH HIGHER than the 1.7% used by the Social Security Trust Fund that media uses to scare people on SS going bankrupt.
Earlier today I saw an article by WSJ or NYT that there were a bit of smoke & mirrors in some of the profits. I can't find it now.
Regards
"This figure includes everyone who is officially unemployed plus everyone who wants to work but either has given up looking, didn’t look that month, or is working part time but would prefer full-time work." I believe U-6 EXCLUDES anyone who hasn't looked for work in the last 12 months. It is possible a large number of unemployed have lost hope, and are not being counted in the official figures from either survey.
It is absolutely amazing how things stay the same until they change.
The unemployment rate of 8.9% is high using 1% or whatever 2% standard deviation. In the past 100 years, only the 1930's have a greater unemployment rate. Investment in WW II is one of the things that pulled us out of the Great Depression. Now in 2011 the unemployment rate is so high, the Democrats in Washington cave in and extended the W Bush tax cuts for two years. Hypocritically the Republicans are asking for spending cuts in the mitts of our Great Recession. Either reopen tax hikes, or be consistent with getting serious on the budget.
Just wait until July 1 of this year when the school district personnel cuts hit this data set in the US.
Having thrown many trillions of dollars at the exploding bubble, having bailed out the financial system, having zero interest rates for a prolonged period, having reserve unemployement pool of 10% and zero wage growth... how on earth can you rely on any economic figures or data? and even if things were improving significantly (in the data at least) it would not last long as the fed would soon raise rates to deal with the inflationary nightmare awaiting the capitalist system, should it somehow extracate itself from the present crisis of worldwide overproduction...
workers of the world unite!