By Caroline Baum
Bloomberg News
NEW YORK - What went wrong? The U.S. economy seemed to have finally reached a cruising altitude, albeit a low one, almost three years after the end of the 2007-2009 recession. Growth was hardly strong at 2 percent, and monthly payroll increases of 250,000 during the winter were nothing to get excited about. Still, the idea that the U.S. economy might finally be able to walk on its own got tripped up by anemic job growth of 69,000 in May.
The usual suspects — unseasonal weather, faulty seasonal- adjustment factors, Europe’s financial crisis, the year-end fiscal cliff and that staple, uncertainty - showed up on cue to explain why the early-year momentum in the labor market was petering out once again, as it had in 2010 and 2011. None was satisfying.
Economies are buffeted by external events all the time. Financial markets react; often they overreact. I’m reminded of this every time I get together with friends from other professions and trades and realize that what seemed like a critical piece of news in my day is a non-event for them. Spain’s troubled banks? An ocean away, both literally and figuratively. What resonates is the quarterly 401(k) statement.
Economic statistics sometimes give the impression that a $15.5 trillion economy shifts course from one quarter or one month to the next. Data revisions tend to smooth out what originally looked like a trend shift. I suspect that May’s alarming employment report, complete with downward revisions to March and April, will turn out to be part of the ebb and flow in an otherwise lousy recovery, not a prelude to a new recession.
For starters, the pattern of early-year strength tapering off “has been much clearer in the employment data than in other statistics for a variety of reasons,” says Steven Wieting, U.S. economist at Citigroup.
Last year, first-quarter job growth averaging almost 200,000 a month corresponded with growth in gross domestic product of 0.4 percent, the weakest since the recession ended.
This year, an unusually warm winter boosted employment in certain sectors, such as construction, other goods-producing industries and real estate, when the seasonal-adjustment factors anticipate softer hiring. The atypical weather and labor turnover at 80 percent of pre-crisis levels give “undue power to seasonal adjustment,” Wieting says.
A good way to eliminate the month-to-month volatility is to look at year-over-year changes. Using private payrolls to avoid the distortions from Census hiring in 2010, the year-over- year increase has fluctuated between 1.8 percent and 2 percent for 14 months. That was the range in 2005, as well, which was seen as a pretty good year. Compare these tepid figures with year-over-year employment growth of 5 percent to 6 percent in 1984, when a strong recovery followed a deep recession.
Remember, too, that the Bureau of Labor Statistics considers a monthly change in employment of plus or minus 100,000 statistically insignificant.
What else could explain the sudden shift in the pace of hiring?
High among the suspects are Europe, the year-end fiscal cliff and, when all else fails, uncertainty.
Ever since Greece’s debt problems came to light in October 2009, there have been many crises within a crisis, followed by a euro-zone summit and an array of Band-Aids to fix the inherent conflicts of 17 sovereign nations living with a single currency.
When Spain, the euro area’s fourth-largest economy, joined Greece on the very-troubled-country list, it sent stock markets plunging around the globe.
Europe’s crisis is neither new nor solved. With U.S. exports to the region amounting to less than 2 percent of GDP, it’s hard to understand why domestic employers would cut back all of a sudden, save for the fear that Europe’s problems would ricochet through the U.S. financial system.
That leaves the fiscal cliff and uncertainty. To the extent that “employment is a proxy for business confidence,” and business has no particular reason to have confidence in Washington, “it makes sense to sit on their hands until the November election,” says Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn. “It’s a crisis of confidence rather than a deterioration in the fundamentals.”
A lame-duck Congress will have to make decisions about the expiring Bush tax cuts and an array of tax-and-spending initiatives put in place under President Barack Obama. That was as true in February, when employment increased by 259,000, as it was in May. But it’s the best we’ve got: a fallback position, a default explanation.
Friday’s employment report sent the Dow Jones Industrial Average down 2.2 percent, its biggest decline in six months. It set off a PR storm in Washington, where Obama’s chances of re- election are directly tied to the state of the economy. And as far as the public is concerned, nothing reflects that state as succinctly as job growth and the unemployment rate, which has been above 8 percent for 40 months.
While economists are trying to understand what went wrong to reduce job growth in April and May, the president is faced with a more difficult task. Obama has to explain to voters what’s gone right these past four years to convince them he deserves another term.
Caroline Baum, author of “Just What I Said,” is a Bloomberg View columnist.
Comments (41)
Add commentno confidence in Washinto n o r O'Bama
Barry just told us that the private sector is “doing fine.” And it is as far as Barry’s concerned which he is not. “The private sector business has no particular reason to have confidence in Washington, “it makes sense to sit on their hands until the November election,” Employers can only guess at what their true employee costs would be if B. Hussein is reelected. A no confidence vote in November would send Barry back to Chicago where he could again become a neighborhood agitator working with grants and all sorts of other people’s money and never have to do a day’s work .Life is good in the hood. Love to all - Steve
Obama
".....has to explain to voters what’s gone right these past four years to convince them he deserves another term."
It won't work because Bill Clinton will make sure it won't.
Where is Congress?
People like Mr. Hansen are always bemoaning our economic troubles. But where were they when George Bush and the Republican Congress was racking up those big debts? Where were they when we started 2 unfunded wars, an unpaid Medicare Prescription Drug Part D and 2 massive tax cuts? Where were those jobs the Congress promised when Rep. Boehner and Co. took over?
We do not live with a dictatorship, nor a monarchy. No, we have a representative democracy. What do we get from the Republican Congress? Light bulb legislation, defund Planned Parenthood and NPR and a War on Women! And do not say that is made up - the most recent vote to deny women equal pay is the latest example. And where were they on the Lilly Ledbetter act?
You can blame Obama all you want but the Congress is the major problem - where is Harry Truman?
Lastly to you Mr. Busch. What are your solutions? Implement the Paul Ryan plan and create an even bigger debt? Or, I know, how about some more of those tax cuts? And, using Mr. Obama's middle name really does show your level of discourse and the reason we have such acrimony in this country. Who can take you seriously?
And where are House Republicans now?
Wasting time by passing 'political message' bills that have no chance of becoming law but satisfy the ideological desires of their tea-party constituency
Of course, they could take up the Transportation Bill (already passed by the Senate) but, if passed, that would mean a healthy increase in jobs. Can't have that.
Private sector is doing fine...
Soros is doing fine...
Koch Brothers are doing fine...
Austerity for everyone else...
http://www.guardian.co.uk/commentisfree/2012/jun/09/did-republicans-deli...
Snippet from article:
As Paul Krugman wrote earlier this week, in the New York Times, while a Democrat rests his head each night in the White House, the United States is currently operating with a Republican economy.
After winning the House of Representatives in 2010, the GOP brokered a deal to keep the Bush tax cuts in place, which has reduced the tax burden as a percentage of GDP to its lowest point since Harry Truman sat in the White House.
" Republicans are so intent
" Republicans are so intent on defeating President Obama for re-election that they are purposely sabotaging the country's economic recovery."
Boys, Boys, Boys,
Harry Reid and his minions are stalling most things so quit lieing.
Speaking of lying,
where's your proof fub? Yeah, it really makes a lot of sense that Reid would undermine the economy. The Senate has passed the Transportation Bill which would put thousands to work. Where is it in the House? Duuuuh.
How can you argue with that?
Mr. Fair n Balanced sure has a way with words, doesn't he? Was he on his high school debate team?
Nope, I was at work
and paying taxes while in high school. You should get a job somewhere secret agent man.
Chey,
I believe currently the transportation bill is a 47 (I think) bipartison committee and they are trying to tie the transportation and student loan thing together. Why they can't seperate the thing is anybody's guess. But I agree with you on this one, the House should have passed the bill that came out of the Senate but politics most definately got in the way of this one. You can follow the progress of the transportation stuff at www.thehill.com then click on the transportation link.
The best reason to vote for Romney...
...is that he will restore confidence to the business community because he isn't out to skewer them. I'm surprised no one wants to talk about the debt that is at nearly $16 trillion, and no, no one comes close to Obama in racking up so much debt with so little to show for it.
Maybe the Private Sector IS Doing Fine...
http://www.theatlantic.com/national/archive/2012/06/maybe-the-private-se...
Article snippet:
'Professorial' can be a feature, not a bug.
Thanks for the link LLR,
It'll be interesting to see if the House will pass the Transportation Bill which would create 'millions' of jobs according to The Hill.
muehlbau: it might remind people of the trillions Bush ran up which got us into this mess in the first place. Where is G. W? I would think the repubs would be hot to trot to get him out there as a fine example of fiscal and business acumen.
Speaking of G.W...
George W. Bush has a humorous side...
When his portrait was honored this past week, he mentioned to the current president and others...
Something to the effect...
You'll stroll by George W.
It was George Washington.
That was cool! Presidential Humor! Perhaps George W. Bush has become a cool dude outside of the political...
He's a nasty mountain biker in the out-lands of Texas...
HEY IT,
you need to clean up your mouth little Boy/Girl!
Bush didn't get us into this mess...
...the crazy leftists who wanted people who couldn't afford to buy a house to buy one anyway got us into this mess. I know your response is going to be but, but, but, the evil lenders! The truth is the evil lengers never would have lent a penny to these poor credit risks had it not been for the nutty CRA.
Romney is going to sell off America
to his rich friends, like he did with Bain capital.
Really? The GOP kicked on John Kerry for flip flopping.
Romney is far worse. Check out his early policy.
Duh.
I think most of the GOP and the Ron Paul delegation from MN will hold it's nose before they vote for Romney.
They know he's fake.
The more I hear about politics, and who is going to do what,
the less confidence I have in either party or candidate. We use to say that this party or that party was dumb, but now we've rolled out a level of vitriolic writing and talking that has reached new lows, going to a point where the main subject is washed to the side, and personal attacks become the new norm. Is it really any wonder our country seems to be in animated suspension, and bipartisanship is now considered a filthy word?
don't make simple complex
Ron Paul has most all the answers.. Cut spending, cut taxes, quit wasting money bombing arabs and their children, cut regulation and watch human ingenuity go to work. Small business would boom as corporations would no longer be gov't sponsored monopolies..
Bush was a liberal... Take away his name look at his policies and their identical to Obama, except Bush was a poser of a cowboy and an east coast elitist. They both are drunken sailors.. Read Milton Freedom economics.. this answer rocket science my friend, just restore individual liberty
don't make simple complex
Ron Paul has most all the answers.. Cut spending, cut taxes, quit wasting money bombing arabs and their children, cut regulation and watch human ingenuity go to work. Small business would boom as corporations would no longer be gov't sponsored monopolies..
Bush was a liberal... Take away his name look at his policies and their identical to Obama, except Bush was a poser of a cowboy and an east coast elitist. They both are drunken sailors.. Read Milton Freedom economics.. this answer rocket science my friend, just restore individual liberty
Let's make it real simple,
cut spending, cut jobs, shrink the economy and free-fall into depression.
Cryenne43
I agree. Like making goofy statements like Mitt Romney is going to sell of America to his rich friends. Those kinds of statements are simplistic, ill-informed and have no place in political discourse, right?
Are you better of than you were $5 Trillion ago?
In only 3 short years and a staggering $5 trillion dollars ... are you better off than when Barry Obama started??? It is a clear "NO"!
You can tell Obama has no experience in the real world except in class warfare and community organizing. He continues to divide our country instead of uniting the "100 percenters" of Americans that we are. This has been a critical time we need leadership to cut government, lower taxes and get our economy going and keep more of what we have worked hard to earn for our families. We must stop burdening our children and our future generations with our selfish shortsighted debt. We are stealing money from them that they will need for their futures.
Obama is an embarrassing disgrace.
I agree PD
I read a couple papers online everyday and so much is turned political, and thats why I don't comment much. What I see is a world right now filled with what scientists call "damned data". The information, facts and data that doesn't support ones idealogy. It turns into so much propaganda and misinformation its become funny and very entertaining for me.
I grew up in the 50's with a very large family with many opposing views. I don't need the comics page any more. Reading comments, I picture a comic strip, and most posters resemble a relative from back then and I put them in a frame having a disscusion with the comments in a little bubble above their head. This might be a "you had to be there" moment, but some thing withstand the tests of time.
For those who like the politics I'll leave you this thought for the day.
If the US had the same rules as Wi., would the president have been recalled yet??
Oops
What I meant to say is a world filled with ignoring the data...
tripwire, etc
I think that minnesnowda was referring to the 40 years of tax and fiscal policies which have favored the wealthy and promoted offshoring of jobs (and bank accounts). And which Romney took advantage of during his 'work' with Bain Capital.
Fact is, so one knows what policies Romney would pursue as president. He was quite 'liberal' as governor of Mass.
JJ: you're referring to the $5 trillion rung up under Bush with two unfunded wars and an unfunded medicare mandate?
In terms of the economy, Obama inherited a very difficult situation. We were bleeding 800,000 jobs a month when he assumed the presidency. Four million jobs have been created in the private sector over the last 27 mos. Government jobs at the state and local levels have plummeted, putting a brake on the recovery.
I know what snowda was referring to.
Problem is, we sit here and throw barbs at each other from extremist positions (mostly out of fun, I suspect). My guess is that many, perhaps even most, Repubs disliked GB at the end. We voted for him but soon we began to feel a little uneasy. Eventually we experienced buyers remorse.
Likewise, many Dems are feeling the same way about Obama. The MSM wants us to believe that the DFL is a united front, but, thanks to the internet, we know that's a bunch of crap. Even the Obama Girl won't say who she's voting for (you know, the hot looking one in the bikini that the woman-respecting Obama trotted out).
Twenty years from now, we'll be feeling the same way about Iraq that we did about Vietnam, a war propagated by your man, Johnson. A lot of honorable men went to fight a dishonorable war. Hence the Tea Party and Occupy movements. We seem to never learn.
Do I like Romney? not by a long shot. But what are the options? I think a lot of people are hoping that his VP choice will help matters. Heck, people are already talking about 2016. Our problems are far larger than one or two elections can ever solve. As long as we continue to believe that politics can solve everything, were screwed. I hope your garden is doing well.
Pay no attention to the billionaire with his hand in your pocket
I think it's pretty revealing that the cons focus on amatuer home buyers who took loans that they shouldn't have but are completely silent on the professional bankers who wrote those loans.
It reminds of when the cons blamed the 10 yr olds for starting to smoke but completely ignored the 50 yr tobacco executive who told his marketing department to target those 10 yr olds.
There hasn't been room in anyones' pocket, for
a billionaire's hand, since the Democrat party was founded. And it was Barney Frank and the DFL mobsters that forced those bankers to accept those loans.
You need a new sound track, fishhead!