Will American workers ever catch a break?

Last Fri­day saw the release of the lat­est jobs data and mar­kets seemed to be in love with the results, given a stock mar­ket rally of bet­ter than 200 points for the Dow Jones Indus­trial Aver­age. What were the spe­cific results that prompted this sense of ela­tion? The Labor Depart­ment reported that employ­ment lev­els rose. They also reported that employ­ment lev­els fell. Oh, and then there was the rise in the unem­ploy­ment rate from 8.2 per­cent in June to 8.3 per­cent in July.

How do these fig­ures fit together in a way that sug­gests some­thing other than total insan­ity by both data col­lec­tors and stock mar­ket participants?

Keep in mind that the gov­ern­ment con­ducts two dif­fer­ent sur­veys each month. The first is the “pay­roll sur­vey” which asks the nation’s non-farm employ­ers how many jobs they presently pro­vide to Amer­i­cans. It was this sur­vey that posted an accel­er­a­tion in the pace of hir­ing, with June’s mediocre 69,000 net job cre­ation ris­ing to a respectable 163,000 in July. This fig­ure was well above mar­ket expec­ta­tions of about 100,000 net new jobs and was thus met with a sigh of relief within finan­cial mar­kets. Also encour­ag­ing was the per­for­mance for indi­vid­ual sec­tors of the econ­omy, with only the gov­ern­ment and con­struc­tion sec­tors post­ing very small employ­ment reductions.

Then there was the other report, the “house­hold sur­vey,” which moved in a totally dif­fer­ent direc­tion. This ran­dom sam­ple of U.S. house­holds sug­gested the eupho­ria pro­duced by the pay­roll sur­vey may be unwar­ranted. After cre­at­ing 128,000 jobs in June, the July house­hold sur­vey posted a huge loss of 195,000 jobs in July. Since only 45,000 of this lower employ­ment fig­ure showed up in the ranks of the newly unem­ployed, the U.S. saw the labor force shrink by a size­able 150,000. Hardly a cause for cel­e­bra­tion. As well, the long-term unem­ployed (27 weeks or more) remained above 40 per­cent of all unem­ployed indi­vid­u­als, and aver­age weekly earn­ings rose a mea­ger 2 per­cent over the past year, barely above the most recent infla­tion fig­ures (1.7 per­cent for June).

So, which set of fig­ures is more rep­re­sen­ta­tive of the true strength of U.S. labor mar­kets? Your guess is prob­a­bly about as good as mine. In part, the dif­fer­ences could be a reflec­tion of what the house­hold sur­vey counts that the pay­roll sur­vey does not. The pay­roll sur­vey only includes estab­lished non-agricultural busi­nesses and thus may miss job losses by farm work­ers, the self-employed, and start-up busi­nesses counted in the house­hold sur­vey. It seems unlikely, how­ever, that these dif­fer­ences alone could account for the con­flict­ing sig­nals being given off by these two sets of num­bers. As such, it likely means that we will have to wait until next month — and per­haps even a month or two after that — to get a more accu­rate pic­ture of just how well or poorly job cre­ation is going. And in a pres­i­den­tial elec­tion year, it means the results could be highly uncer­tain right up until elec­tion day, with three more reports com­ing out before Nov. 6; the last just four days before the election.

And speak­ing of elec­tions and jobs, last week we were treated to a promise by one of the pres­i­den­tial can­di­dates as to how many jobs would be cre­ated — pre­sum­ably using the pay­roll sur­vey results — if he is elected pres­i­dent. Specif­i­cally, Mitt Rom­ney indi­cated that if he becomes pres­i­dent, some 12 mil­lion jobs will be cre­ated over four years if his poli­cies are adopted. That would amount to an aver­age of 250,000 jobs each month; a job cre­ation per­for­mance that cer­tainly has not been present dur­ing the Obama years.

Is such an employ­ment cre­ation promise pos­si­ble to keep? Yes. Is it likely? No.

The last time I rhetor­i­cally asked such ques­tions was back in 2008/2009 when can­di­date (and later Pres­i­dent) Obama promised that if his stim­u­lus pack­age of $800 bil­lion were passed, it would rel­a­tively quickly cre­ate (or save) some 3–4 mil­lion jobs. Pre­pos­ter­ous! As it turns out, there was no “Key­ne­sian mul­ti­plier,” no good rea­son for busi­nesses to expand employ­ment oppor­tu­ni­ties so exten­sively, and no unem­ploy­ment rate remain­ing below a promised 8 percent.

While such polit­i­cal promises are easy to make, they are vir­tu­ally impos­si­ble to keep. So long as the U.S. remains a nation oper­at­ing under a largely free mar­ket econ­omy, politi­cians should tell vot­ers and busi­nesses in detail what their eco­nomic plans entail, and then real­ize mar­kets will, over time, tell the politi­cians what the job cre­ation out­come will be.

Dr. James New­ton serves as Chief Eco­nomic Advi­sor to Com­merce National Bank and is an aux­il­iary fac­ulty mem­ber in eco­nom­ics and sta­tis­tics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not nec­es­sar­ily reflect those of Com­merce National Bank or OSU-Marion/Newark.

Posted by Jim Newton on Aug 7 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.