Jobs Data Heightens Risk of Major Policy Error
Posted by Michael A. Kamperman on December 5, 2009
Many people believe major government policy errors such as attempts to balance the budget in 1937 worsened the effects of the Great Depression. The reported drop in the November unemployment rate from 10.2% to 10% comes at a critical juncture and significantly raises the risk the Obama Administration and the Fed will repeat the past and fail to provide the additional stimulus and quantitative easing the economy desperately needs. The mistake they will make is to believe the headlines in the November unemployment report which showed a loss of only 11,000 jobs, a .2% improvement in the U-3 rate, and an upward revision for September and October is a sure sign the economy and the jobs picture are on the verge of rapidly improving. What they will miss is the November unemployment report is an outlier and its conclusion that the jobs picture and the economy are rapidly improving are not supported by all of the other measurements of the November unemployment picture. For starters, the unemployment report’s own measurement of those unemployed 27 weeks or longer rose by 293,000. Additionally, the Labor Department dropped another 100,000 discouraged people out of the workforce and failed to add any workers for population growth. How did we only lose 11,000 jobs when so many people joined the ranks of the long-term unemployed and so many others simply dropped out of the workforce? ADP measured a loss of 169,000 private sector jobs and TrimTabs measured a loss of 255,000 jobs. While the four week moving average of weekly jobless claims did improve to 481,250, it is still a number that normally portends 6 figure job losses. The November ISM Services number weakened and reported continued softness in employment. Plus, November retail sales were soft and gasoline usage remains moribund in the U.S.
The Christmas season is a time of big swings in employment as temps are added in October and November and big layoffs occur in January. The Department of Labor statisticians use seasonal adjustments to smooth out these wide up and down swings in employment. One of the big factors in the adjustment is recent trends in the same month in the preceding years. November is always a big hiring month. But last year the economy lost 610,000 jobs in November in the post Lehman collapse. This data-point lowered the normally expected November hiring trends in the seasonal adjustment factor and gave an artificial boost to the seasonally adjusted jobs number. Hence the report showed the biggest adjusted gain in temporary workers in 5 years even though retailers were preparing for and getting a lean Christmas selling season. The November jobs report has given a false positive reading on the economy.
The Obama Administration and the deficit hawks in Congress will now proclaim the policies put in place to date have been sufficient to revive the economy. Never mind those policies were supposed to keep unemployment from rising past 8% and it is now 10%. The same wonks that missed the severity of the economic downturn are missing it again. Similarly, the inflation hawks on the Fed will now eschew further quantitative easing measures and will crowd out weaker private borrowers in 2010. Because these leaders saw a mirage of hope they will ignore data indicating all is not well and will wait for the next mirage. Hooverism reigns in the Whitehouse and minimalist ideas like cash for caulkers is all we can expect from here on out.
