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.