A nice jobs report. A long way to go, as this chart from Calculated Risk shows:
A few thoughts, sports fans:
1) The drop in the U3 rate is welcome news for the WH, congressional Dems (and US workers, of course). But it is really just a smoothing out of last month’s weird pop from 9.8 percent to 10.2 percent. As Action Economics notes:
The jobless rate also fell by a welcome two-ticks, to 10%, though this just reversed half of the surprising four-tick October pop to leave intact the recent uptrend of roughly 0.1% per month for this measure. We now assume a flat payroll figure in December, with the resumption of positive payroll growth in Q1, but we still expect a modest up-trend to remain in place for the unemployment rate.
2) That being said, there was certainly good news in both temporary hires and hours worked — though if the labor force participation rate had stayed steady, U3 would have been 10.1 percent.
3) But economics is one thing and politics another. The U3 rate is an ugly indicator to Americans that the economy is still broken.
4) Still a quite good chance that on Election Day 2010, unemployment for over a year will have averaged in double digits. This is virgin territory for political forecasters, and the single biggest reason why 2010 may be more like 1994 (incumbent Ds lose 52 House seats) than 1982 (Rs lose 26 seats). Average the two and you get a loss of 39 House seats — not a bad guess for a U-shaped recovery.
From Marc Ambinder:
Really: the White House does not seem to believe that (a) anything sensible to meanginfully reduce the unemployment rate can be proposed, completed and paid for — and executed — by next November. Nothing, in any event, that wouldn’t jeopardize recovery in the long-term. This frustrates people in the party to no end, as well it might.
Let’s assume that the much-hyped White House “jobs summit” turns out to be a free-flowing exchange of ideas and views. Could happen. If that’s the case, then President Barack Obama shouldn’t be shocked if a few CEOs dare suggest that the sweeping-yet-stalled Obama agenda might … actually … you know … no offense, Mr. President … be contributing to the jobless recovery. (The union and academic invitees will protest mightily, natch.)
CEOs are saying as much amongst themselves. At a recent symposium, Intel boss Paul Otellini, a contributor to both parties, expressed concern about the “amount of variability in the system” created by the state of policy flux in healthcare, energy and tax policy. “It is very difficult to make a hiring decision,” he said. General Electric chief executive Jeffery Immelt, a strong supporter of Obama’s cap-and-trade proposal, added he would just like to “know what the rules are.”
All in all, a disturbing replay of the 1930s when FDR’s big changes left business reeling with uncertainty and confusion. The “devil you don’t know” and all that.
Small business is certainly with Big Business on this, particularly regarding the mercurial nature of healthcare reform. The substance of ObamaCare continues to morph daily — from the state of the public option to employer mandates to financing expanded coverage – as Senate leader Harry Reid scrounges for votes. On energy, the president will make big promises at Copenhagen even though cap-and-trade looks stillborn in the Senate.
As for financial reform, Senate banking committee chair Chris Dodd has proposed sweeping changes, while the Tim Geithner-Barney Frank version in the House seems beamed in from a universe where the credit crisis never happened. Compromise could prove elusive. Even Obama’s tax reform panel has delayed releasing its findings.
So Corporate America is about to enter 2010 – an election year – with the fate of the ambitious Obama agenda uncertain. Maybe the only thing for sure is that whatever job-creation package the White House and congressional Democrats eventually gin up, it will likely be a $300 billion or so combo of more transportation spending, more aid to cash-strapped state and local governments and some sort of hiring tax credit.
(And that gets at another critical flaw with the jobs summit. As any of the executives could tell Obama, brainstorming sessions are often the tool-of-choice of the highly ineffective manager. Such confabs are frequently used to give team members the illusion that they are contributing to the idea generation process. In fact, the manager has already made his decision. And that is, more or less, the case with Obama. At the very least, don’t expect any CEO suggestions of lowering personal, corporate or investment tax rates to get even a whiff of consideration from the White House.)
Of course, Obama could pivot and revamp healthcare reform into a more incremental, targeted bill that might actually pass with decent margins in both houses. And while cap-and-trade is gasping for air, a deficit-neutral carbon tax (offsetting payroll taxes) might actually pull in significant Republican support. Maybe even a fat payroll or corporate tax cut.
But the tendency toward election-year gridlock is fast approaching. And for frazzled Corporate America and a frozen job market, gridlock – and the uncertainty that goes with it – is not good.
This would be New Normal with extreme prejudice. Bad for Democratic incumbents in the 2010 congressional midterms, but it should make the White House political team nervous as well for 2012. If Goldman Sachs is right, of course. Here is the firm’s 2011 forecast:
The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011.
That said we see risks that could upset these markets. On the one hand, we might be underestimating the vigor of the economic recovery, and therefore the pressures for Fed tightening. In addition, surging asset prices and worries about a “bubble” could prompt Fed officials to tighten before such a move seems warranted on real-economy grounds. On the other hand, the economy (and the markets) could struggle under the weight of credit restraint for small businesses, weakness in commercial real estate markets, or fiscal tightening, especially by state and local governments.
The implications? I hardly know where to begin: a) with unemployment rising all next year, a GOP blowout in 2010; b) certainly more job creation packages; c) no capandtrade; d) increased anti-Wall Street/Fed sentiment; e) third party prez candidate in 2012; an Obama challenger in 2012 (Dean?). But who really knows. This would be like a technological singularity where seeing beyond the event is pretty much impossible. Such a Long Recession (essentially) would be so contrary to American expecatations — such a slow-mo, psychological shock — that it would be a full-out system perturbation equivalent to 9-11 or the Iraq War.
Wachovia’s John Silvia:
In recent years, permanent layoffs have surpassed temporary layoffs and this is reflected in the rapid rise in the mean duration of unemployment. In addition, the disparity of unemployment by education levels signals that the demand of employers for more highly educated workers does not fit well with the available supply of workers. Current policy initiatives have perverse economic effects. Health care mandates will likely raise the cost of labor and thereby discourage hiring.
Second, the increase in the minimum wage has clearly negatively impacted hiring teenage workers evident in the recent increase in teenage unemployment rates. Cap-and-trade will likely increase the cost of energy and transportation for employers and thereby reduce any funds left to hire workers. At present, the uncertainty about potential micro policies is more than offsetting any positive impact on jobs from the fiscal stimulus.
From Gary Becker:
My favorite approach it to try to stimulate the economy by cutting income taxes, especially corporate income taxes and other taxes on capital, both physical and human capital. Such tax cuts will stimulate investments in the economy, and in this way increase the demand for workers.
Of course, tax cuts at this moment would add to the deficit and increase the size of the government debt at a time when the debt has already grown rapidly. Tax cuts may also take time before they raise investments and jobs. On the other hand, tax cuts that add significantly to the growth rate of GDP will have only modest, and possibly even negative, effects on the ratio of the debt to GDP while they increase investments and the demand for workers. This seems to me to be an attractive way to approach solutions to the unemployment problem at the jobs summit this Thursday.
David Rosenberg of Gluskin Sheff doesn’t think so:
These attempts to stimulate consumption at a time when household spending relative to GDP is already at an all-time high are not going to carry much of a multiplier impact. There is a youth unemployment crisis, a skills crisis, a crisis among the ability of small businesses, who have been responsible for 65% of the new hiring in the U.S.A. over the past 15 years — to secure financing for working capital purposes, there is a crisis in terms of a declining manufacturing capital stock, and the programs we get are these old and tired Keynesian attempts at temporary boosts to consumer demand. It truly boggles the mind, and as we show below, American taxpayers are still a long, long way from paying for all these transitory fiscal policies out of Washington.
Me: When I hear folks start talking about new WPA and CCC programs, I know they’re out of ideas.
Trust me, these are not the kind of numbers that the White House and congressional Democrats want to see. Goldman Sachs is now forecasting unemployment to rise all next year, peaking at 10.5 percent. The firm expects the economy to grow at just 2.1 percent. Also, the budget deficit will be a few billion bigger at $1.6 trillion. If correct, these stats absolutely confirm the collective freakout happening right now among Ds on Capitol Hill, such as calling for Geithner to resign. Economist Jan Hatzius:
Until hiring resumes in earnest, the jobless rate is apt to keep drifting up. This is less tautological than it sounds, as net changes in unemployment mask significant flows into and out of the pool of unemployed workers. However, most research finds that stronger hiring rather than reduced layoffs is the key driver of changes in unemployment early in a recovery. Unfortunately, none of the indicators of labor demandjob vacancies, help-wanted indexes, and consumers perceptions of job availability shows any significant sign of life. The best that we can find is that respondents to the Michigan confidence survey, who have a decent track record for forecasting one-year changes in unemployment, are looking tentatively for stabilization.
I am writing a column on this for later today, but I wanted to toss out a few quick thoughts on the state of cap-and-trade. Other than the die-hard greenies, Dems don’t want this bill anymore than Republicans. It is too easy to frame cap-and-trade as both a jobs killer and a distraction from job creation. Actually, some Rs would love for Dems to push this bill since it makes such a great election issue.
But it’s not happening in 2010, which means it not happening during Obama’s term since even under the most optimistic scenario, the Ds will have less control of Congress in 2011 and 2012 than they do now. And under more dire scenarios for the Dems, they lose maybe 4 Senate seats. Do not underestimate the extent to which the Great Recession has affected the issues agenda and political situation in Washington. And an extended period of high unemployment will only exacerbate that. (Bernanke’s speech yesterday was another indication how this is now the new Washington consensus.) The New Normal in economics means a New Normal in politics, too.