Tag Archives: employment

Where the Stock Market Goes, Jobs Follow

By Marc Seltzer; originally published on May 10, 2010, at care2.com.

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Right on schedule, 2010 jobs numbers are improving dramatically, following in the footsteps of the U.S. stock market’s impressive, year-plus climb back from 2008-2009 financial-crisis lows.  “The best job growth in [the] manufacturing sector since 1998” as Senator Dodd described it on Face the Nation.  However, in the past week, the market has fallen 5%.  Does this indicate a problem for the recovery or signal that employment gains will not continue?

The stock market, which reflects a willingness to invest in companies on the prediction of future profits, gained 23% in the last twelve months.  However, many called this a “jobless recovery” because unemployment numbers were poor during much of this period.  Job growth typically follows many months after the stock market gains, as businesses turn increased prospects, sales and planning activity into action on the hiring front.

Look at the recent employment numbers:  290,000 new jobs in April; 230,000 new jobs in March, after 39,000 in February; and 14,000 in January.  While it will take a few years for the 8+ million unemployed Americans to find new work even if the economy creates three- or four-hundred thousand new jobs a month as the recovery continues, the strong stock market of the past year would suggest continued strength.

Following the same reasoning, does this past month’s stock market downturn foretell a loss of jobs in 2011?  That depends on whether the stock market slide reflects only a “correction” — temporary profit taking and selling in light of how extraordinarily fast the market rebounded over the past year — or a more negative economic prediction in light of financial instability in Europe.

On the bright side, the trouble in Greece, which has shaken Europe, is still small in proportion to the size of the U.S. economy — the entire Greek bailout package, somewhere above 100 billion dollars, is in the ballpark of what the U.S. government spent to bailout insurer A.I.G.  On the other hand, the European Union is not the United States, politically speaking (although public disapproval of the bailout is reminiscent), and if the rescue is not performed as well as it was in the US, instability could spread to larger EU nations.  As an important trading partner, what happens in Europe will impact the United States (More coverage of Greek financial issues in the New York Times).

Even with EU weakness, however, the North American and Asian economies are poised for growth.  After a severe recession, U.S. growth will be driven by pent-up demand and new innovation, as well as continuing stimulus spending.  The bubble and bust of the 2000s was very destructive, but there should be no doubt of the underlying demand for U.S. goods and services.  The need for quality health care, environmentally sound products, better energy solutions and cutting-edge technologies has never been greater.  Even the U.S.’s greatest liabilities, such as its over-dependence on fossil fuels, will force research, development and significant economic activity.

It remains to be seen how European economies will cope with the current crisis, but the United States is now beginning a significant economic recovery.  With plans for better regulation of financial markets working their way through Congress, a new period of sustainable economic growth, while by no means guaranteed, is within reach.  It will take more than a minor setback to derail the U.S. economy now, and that’s good for workers waiting to get aboard.

Marc Seltzer also podcasts about the Supreme Court at SupremePodcast.com

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Questioning Conventional Wisdom — “Jobless Recovery”

By Marc Seltzer; originally published January 6, 2010

Don’t be too sure

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“Jobless Recovery”

No adjective characterizes political and media discussions of the recovery from the 2008 recession more than the word “jobless.”

Is it true?  Have the stars aligned to deny us a bright future?  Should we be worried?

LIBERAL EXPRESSIONS OF CONCERN

One way to evaluate what people are saying is to look at their motivation.  In this case, liberals and conservatives are both motivated to characterize the job prospects as worse than they likely are.  Many liberals, such as outspoken Nobel Laureate Economist Paul Krugman, want the government to take action in support of job creation so they focus on the high unemployment rate.  Ten percent is certainly higher than a more ideal 5 or 6 percent that would be a healthy level for the economy, if it were not in either an excessive boom or bust cycle.  But the current high unemployment reflects the depth of the recession, not a “jobless” recovery.

In 2009, the growth rate only turned positive in the third quarter.  Jobs are a lagging indicator and always follow the business turn-around and improvement in growth rate by many months.

Thus, the 2009 recovery is not “jobless” because unemployment has not yet come down.  Every recession involves the loss of jobs and every recovery involves the improvement in business conditions and higher growth rate long before jobs return.

Professor Krugman is worried about a weak recovery and thus wants to see additional stimulus aimed at creating jobs.  He is particularly concerned that the slow return of jobs creates great suffering and harms employment prospects for the long-term unemployed.  His proposals could help alleviate high unemployment and move the economy more quickly towards full employment, but they do not indicate that this is a jobless recovery whereas other recoveries were not.  Rather they reflect the fact that the severity of the recession led to millions of layoffs and that it will take time for millions of workers to be rehired into the labor market.

HOW ABOUT THOSE REPUBLICANS?

On the other side of the isle, the Republicans are constantly saying that the Obama administration actions such as stimulus spending and health care reform are bad for the economy and that we are headed for a jobless recovery.  However, it serves the Republican political goals if the Obama administration can be described as failing to lead an economy out of recession.  Millions of people are unemployed and many who are employed face job insecurity.  The Republicans exploit this to political advantage by claiming that current policies are wrong and pointing to a “jobless” recovery as evidence of failure.  The Republicans will continue to have every incentive to claim that Democratic policies are causing a jobless recovery until the 2010 elections.

But that doesn’t make it so.  Remember that it is far quicker to lay off employees than it is to rehire them.  Layoffs can be done by thousands on a single day, while rehiring takes substantial human resource department efforts, paperwork and staffing in itself.  Unless employees were simply furloughed, a thousand employees laid off in a single afternoon could take months to rehire in ordinary conditions.  For this reason, and because the recession of 2007-2008 involved a spectacular financial crisis with fast and deep layoffs, reaching a peak 750,000 a month in January of 2009, unemployment may only decrease by 750,000 to two million new jobs a year in coming years.  Remember, we lost more than seven million jobs.

Nonetheless, six to eighteen months after the growth rate becomes strong, we should expect to see substantial gains in employment.  It will be correct to say during the recovery that jobs are not created as fast as they were lost, but that is a hardly the standard for a “jobless” recovery.  The real key is the growth rate.  It reached more than 2% in the third quarter of 2008.  Six months from now it should be higher still.   The activity is reflected in increased hours and temp job hires for now, but inevitably job creation will follow.

The real question is whether innovative action in the public and private sector can increase the speed of job creation without distorting the marketplace and creating waste.  Nations such as Germany subsidized jobs during the crisis to limit layoffs.  Many nations, including ours, supported public and private sectors with stimulus spending, preventing layoffs from getting worse than they did.  Now, the question is whether means will be found to efficiently return to higher employment more quickly than in other deep recessions.

May 6, 2010 UPDATE:  Recent jobs data finally confirming predictions:  Denver Post

Employment Poised to Turn Positive

Job losses Reported Through November 2009

By Marc Seltzer; originally published on December 4, 2009, at  care2.com.

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Despite doom and gloom in Republican talking circles, the overall jobs data is right on track in reflecting a rebound in economic activity.  Just released unemployment numbers show the lowest number of monthly job losses in two years, down to 11,000.

When Republicans handed over the Presidency to Barack Obama in January 2009, the monthly losses were 741,000.  If the automobile companies had folded, as they would have in the Spring without government support, another  million-plus people would have been thrown out of work, sending the monthly number over 1,000,000 for several months in a row.

It would have been preferable if private business activity had caused employment to improve.  But the financial freeze robbed businesses of their confidence and their financial capital, so businesses have shedded jobs, delayed plans, and closed down.

The government rescue gave money to states to stop layoffs at schools and police departments.  In other ways, from the Fed’s low interest rates to funds for infrastructure, education grants, promoting green technology and the like, the government injected money into the economy.  Job losses in September of this year were down to 139,000 and in October, 111,000.  The stimulus is working, despite Representative Boehner’s (R-Oh) claims of failure.

Jobs are a lagging indicator, which means that new business planning, funding and activity happens first, and then the hiring of employees occurs many months later after confidence improves, and opportunities require new staffing.  The growth rate for the economy as a whole was around three percent for the quarter ending in September, in line with the positive growth rates that the U.S. hopes to sustain for long-range growth, although more is desired now to make up for negative growth during the recession.

The goal is for employment to come roaring back and for private business to take over for public support of the economy. However, businesses large and small are still shell-shocked by the financial freeze and destruction of wealth that it wrought.  They must also adjust to lower spending as consumers behave more responsibly and unemployment remains significantly elevated. Fortunately, there is still a lot of stimulus money left to power infrastructure projects before the handoff to the private sector takes place.

The government has done the lion’s share.  It still needs to implement sound financial reform legislation, giving the public and financial industries confidence in a sound and fair system.  In addition, health care reform in the public and private sectors could free up wasted money for productivity in other areas that serve American business, such as exports.

Insurance regulation and universal coverage, already contained in proposed legislation, will spread the burden of costs more equally.  However, systemic overspending in health care robs families of wages and businesses of profits that could be put to better use.  Following evidence-based medicine rather than custom and practice and market-driven medicine could go a long way to giving us more for our money.  Malpractice reform, consistent with evidence-based medicine, would also eliminate waste.

Look for December or January employment numbers to finally turn positive and fourth quarter growth to remain healthy.  This will be welcome news to the unemployed and businesses, and should give the country more confidence that we are, in fact, on the road to recovery.

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December 8, 2009 UPDATEBloomberg Economics podcast of Dec. 7, 2009.  Tom Keen’s interview with Steven Wieting, Managing Director of Economics and Market Analysis reflects on the jobs data and recovery.   It’s technical, but provides some thoughtful observations.

(The original publication of this story contained an older employment graphic; this version has been updated).