The infamous Bernstein-Romer chart, now updated for political freshness:
WH economic adviser Austan Goolsbee:
The 0.9 percentage point drop in the unemployment rate over the past three months is the largest such decline since 1983, and it has been driven primarily by increased employment, rather than falling labor force participation.
Though unemployment remains elevated, we are seeing signs that the initiatives put in place by this Administration – such as the payroll tax cut and business tax incentives for investment – are creating the conditions for sustained growth and job creation. The steep decline in the unemployment rate and the overall trend of economic data in recent months has been encouraging,
The overall trajectory of the economy has improved dramatically over the past two years, but there will surely be bumps in the road ahead.
A now, a chart (via Calculated Risk):
Great context from the Heritage Foundation:
Since the Obama recovery began 20 months ago, the national unemployment rate has fallen only half a point, from 9.4 percent in July 2009 to 8.9 percent today. Contrast those anemic results with the robust job growth that occurred during the Reagan recovery in the ’80s. By the 20-month mark of the Reagan recovery, unemployment had dropped from 10.8 percent to 7.5 percent – a 3.3-point drop.
So why was the Reagan recovery so strong and why is the Obama recovery so weak? Just look at the best job markets in 2010 according to Gallup: “More than half of the 10 best job markets in 2010 were in energy- and commodity-producing states.” And what has President Obama done to help this job growth spread? Nothing. In fact, his cancellation of drilling permits across the West and his offshore drilling slowdown have undoubtedly slowed job creation in this sector. So what have been the hot job markets in the Obama Recovery? Gallup explains: “Reflecting the growth of the federal government, the District of Columbia was not only the second-best job market but also the second-most improved job market in 2010.” The Department of Labor Statistics confirms Gallup’s analysis: Since President Barack Obama was sworn into office, the private sector workforce has shrunk by 2.6 percent while shedding 2.9 million jobs, but the federal workforce (excluding Census and Postal workers) has grown by 7 percent while adding more than 144,000 jobs.
Drilling a bit deeper and moving beyond the 8.9 percent unemployment rate and 192,000 jobs created, here is what I found:
As it is, the broader unemployment rate, which includes those who are underemployed and discouraged workers, is still an agonizing 15.9 percent. What’s more, the Federal Reserve believes that the high number of people out of work for 27 weeks or longer is creating structural unemployment. (The longer you are out of work, the harder it is to get that next job.) No wonder the Fed now believes the economy’s natural rate of unemployment has increased from a bit under 5 percent to a bit more than 7 percent.
In short, you may have a much larger pool of the long-term unemployed than is historically typical in America, something more akin of what is seen in Old Europe.
This is why it is critical to deal comprehensively with the Axis of Economic Evil: Big deficits, high taxes and onerous regulation. America must get more competitive and productive. I find the below chart from McKinsey particularly scary since it shows how much job growth is happening in unproductive areas of the US economy.
This bit on the January jobs report from Bankofamericamerrilllynch worries me:
In the Household Survey, the unemployment rate plunged 0.4ppt for the second month in a row bringing it to 9.0% – the lowest since April 2009. The unemployment rate has not dropped this far, this fast since the 1950s. So, we question whether this decline will be sustained. The household measure of employment rose just 117,000 while the labor force participation rate dropped 0.1 ppt to a fresh cycle low of 64.2%. Never before has such a sharp decline in the unemployment rate been predicated on an ongoing drop in the labor force. The participation rate has crumbled 1.5ppts since the recovery began.
This labor force detachment tell us two things that should give even the most bullish of market participants room for pause: (1) structural unemployment is rising and (2) the potential rate of growth in the U.S. is slowing. Perhaps this is one reason why the Treasury market is selling off sharply in the aftermath of today’s report. More structural unemployment and weak potential growth imply less slack in the economy and raise an inflation risk.
And this chart from ITG Investment Research does not make me feel any better:
Until this lump moves through the python (full of workers growing less employable by the day), unemployment may stay unusually high for years. From the Economic Policy Institute:
Big WSJ story on how the Great Recession has reduced wage growth. When the unemployed do return to work, it is often with markedly lower salaries. Here is the money graf:
Between 2007 and 2009, more than half the full-time workers who lost jobs that they had held for at least three years and then found new full-time work by early last year reported wage declines, according to the Labor Department. Thirty-six percent reported the new job paid at least 20% less than the one they lost The severity of the latest downturn makes it likely that many of the unemployed who get rehired will take wage cuts, and that it will be years, if ever, before many of their wages return to pre-recession levels, says Columbia University labor economist Till von Wachter. “The deeper the recession, the lower the wage you’re going to get in the next job and the lower the quality of your next job,” he said.
And here is the money chart:
I am always a bit dubious of these sorts of charts since they depend on accurately measuring inflation. Some liberal economists, for instance, claim wages have been falling since the Golden Era of the 1970s. More likely that they actually went up by at leasts 20 percent in real terms, according to researchers at the Fed. But I have no doubt that wage growth slowed during the downturn and many folks have suffered a real and permanent loss of income. I think you will hear Democrats talk more and more about wage insurance — having government temporarily make up the shortfall between old and new jobs — especially with Gene Sperling back in the White House. He is a big proponent of the policy. And we shouldn’t forget that John McCain proposed something like this back in 2008 during the campaign. Here is what I said back then:
This is an idea that Democrats have been inching toward: a move to a Danish-style “flexicurity” system. In that country, workers who lose their jobs have almost their entire salary replaced by the government but are also required by the government to aggressively look for new employment or accept retraining in a new field.
It’s very expensive. For the United States, completely copying the Danish model—lauded by many as a response to globalization-inspired worker angst—could cost some $400 billion to $500 billion a year if it is as expensive for us as it is for the Danes.
Now what McCain seems to be proposing is a more modest “wage insurance” idea. Under a plan originally put forward by Brookings Institution economist Robert Litan and University of California-Santa Cruz economics Prof. Lori Kletzer, a laid-off worker who once earned $40,000 and found a new job paying just $30,000 would receive $5,000 a year–broken down into quarterly payments–for two years after the initial layoff. Such a plan might cost $4 billion a year.
Yale political scientist Jacob Hacker would up the ante considerably with a $34 billion-a-year “universal insurance” program. If a family experienced catastrophic medical costs or a large drop in income—say, more than 20 percent—owing to a variety of common risks (unemployment, loss of wages because of sickness or childbirth, temporary disability, or the death of a spouse), Hacker’s universal insurance plan would make up a portion of the loss ranging from 20 percent to 50 percent of all losses or costs in excess of a fifth of that family’s income. And House Ways and Means Chairman Charles Rangel has a $1 billion-a-year plan to expand Trade Adjustment Assistance, a benefit and training program for manufacturing workers who lose jobs to trade, to include service workers.
Of course, there are downsides here. First, it could make U.S. labor markets less mobile and dynamic as there would be less incentive for workers to get back into the workforce or start a new business because of Uncle Sam’s largess—especially if the carrot isn’t accompanied by a stick. Second, the program might grow ever bigger, becoming a massive new entitlement.
How bad was the September jobs report? Even the White House had trouble spinning it. As economic adviser Austan Goolsbee wrote on his WH blog: “Given the volatility in the monthly employment and unemployment data, it is important not to read too much into any one monthly report.” But this chart sort of says it all: