The unemployment rate fell from 7.9 percent in October to 7.7 percent in November which might appear to be good news. However, this change was driven mostly by a contraction in the labor force of 350 thousand persons. So this is more a function of discouraged job-seekers leaving the labor force than any other factor.

Job growth was 146 thousand jobs, essentially the same as our forecast of 145 thousand jobs. The September jobs number was revised, from a gain of 148 thousand jobs down to a gain of 132 thousand jobs. The October number was also revised, from a gain of 171 thousand jobs down to a gain of 138 thousand jobs. These revisions accumulate to almost 50 thousand jobs less than what was previously thought.

On December 12, the United States Federal Reserve Open Market Committee announced a monetary policy that plans to keep the federal funds rate low until the unemployment rate falls to 6.5 percent.

Curious about how long it would take to get to an unemployment rate of 6.5 percent at current job growth rates, I did a simple calculation. I used the 146 thousand payroll survey jobs to drive a proportionate change in the household survey employment level, which ends up being monthly employment increases of 156 thousand persons. I set civilian labor force on a gradual growth path that maintained the current labor force participation rate at 63.6 percent. These assumptions imply that the United States unemployment rate would subside to 6.5 percent by June of 2017.

June of 2017 is a long way off. I hope job growth will exceed 146 thousand in months to come.

The post Jobs and the 6.5 Percent Unemployment Rate appeared first on Center for Economic Research and Forecasting.

While the increase in jobs is good news, the Employment Situation also contains a separate survey of households. This is where the unemployment rate data come from. (Note the terminology here: “jobs” come from the employer survey and “employment” comes from the household survey). From this survey, we see that both the July labor force and employment contracted, but the employment contracted a bit more, resulting in a slight unemployment rate rise from 8.22 percent to 8.25 percent. While the 8.25 rounds to 8.3 it was not a rise in the unemployment rate of a tenth, but rather only three hundreths.

For many months now, the employer survey and the household survey have been disentangled, which is not the historical norm. For a few months now the household survey has indicated an employment gain greater than the job gain. For July, the relation switched … employment fell almost 200 thousand jobs while jobs gained 136 thousand jobs!

What might the reasons for the discrepancy between the jobs and employment data, which are each trying to measure essentially the same thing? The jobs data might miss people who are working part-time and or on their own (in their garage). Employers might report only full-time positions. Households might say they are working, if they are doing part-time or under the table work from their home or from an office shared with someone else, that would not get picked up by the Employer survey.

The July result is harder to explain. But it indicates that people are responding to the question: “are you working” with a “no” more than in June. If they had been doing part-time work or under the table work perhaps that has ended, and they are back to looking for that elusive full-time job.

Whatever the reason, todays Employment Situation has more good news than bad.

The post U.S. July Jobs Report appeared first on Center for Economic Research and Forecasting.

Improving human capital is a reasonable response to long-term unemployment, but college may not be the best way.  Technical schools should also be considered.

But, that is not the purpose of this post.

When people leave the labor force, they are no longer relevant to the unemployment rate.  When they complete their education, or retraining, they will start looking for a job.  At that moment, they become part of the labor force again.  This will drive up the unemployment rate.

How big of an impact will this be?  Based on the numbers from the article, it could be a big impact.  The United States Labor force has declined by 3.4 percent since December 2007, from 66 percent to 63.8 percent.  If 80 percent of the missing workers are increasing their human capital somewhere, as the article would imply, the impact would be huge.

I don’t think the article reflects a representative sample, though.  So, let’s assume only 30 percent are increasing their human capital.

If we had the same labor force today that we had in December 2007, we would have 5.4 million more in the labor force than we do have today.  We’ll call the difference missing workers.  Some missing workers will reenter the labor force and some will not.  To be conservative, we’ll assume the only people who will be reentering the labor force are the ones increasing their human capital.

If 30 percent of those missing workers are increasing their human capital, then 1.62 million will be again entering the workforce.  That’s enough to significantly increase the unemployment rate.  If it happened today, the unemployment rate would rise from 8.2 percent to 9.1 percent.

The post Unemployment Increase Looming? appeared first on Center for Economic Research and Forecasting.

The March Employment Situation also indicates that the establishment and household surveys continued to provide inconsistent signals, a phenomenon that has been in place for about a year now. While the establishment survey indicates a rise of 120 thousand jobs, the household survey indicates a fall of 31 thousand jobs.

The number of unemployed fell by 133 thousand, which is good. However, much of the decline was a result of a decline in the workforce. The long-term unemployed did not change, remaining at 5.3 million persons. This is about 3.4 percent of the labor force.

With the March data undercutting our forecast of an average monthly change of 237 thousand for the first quarter, our second quarter forecast of 187 thousand may be revised down as well.

The post The U.S. Jobs Report: March 2012 appeared first on Center for Economic Research and Forecasting.

Taylor’s trying to supply principles to guide policy makers as they try to put our economy on track again. He has five of them:

• Predictable policy framework
• Rule of law
• Strong incentives
• Reliance on markets
• Clearly limited role for government

Taylor provides lots of evidence that our current problems are a result of not following these principles. I believe him. However, I’m not sure his arguments are strong enough to convince someone not predisposed to believe him. He was clearly trying to write something for non-technical people, and that probably weakened his case. It won’t change any hard-Keynesian minds.

It’s not surprising that when it comes to monetary policy, Taylor recommends a policy rule. He created the Taylor Rule after all. I’ve never been sympathetic to policy rules. Constraints usually don’t improve outcomes. Still, Taylor makes a good argument that the short-term demands of modern politics provide irresistible incentives for action at the expense of long-term prosperity.

Once you decide to use a rule, you have to decide which rule. Again, it is not surprising that Taylor recommends a Taylor Rule. That presents a couple of problems.

There are lots of Taylor Rules. They’ve become a class of rules. Probably every monetary economist at a top-ten department has his or her own version.

The various Taylor Rules can come up with rather different policy prescriptions. So, the selection of the proper Taylor Rule is a real issue. However, probably none of them would have the devastating impacts of some of the worst mistakes the Fed has made in its almost 100 year history.

I have a bigger problem with Taylor Rules though, and it the zero bound on interest rates. Sometimes some Taylor rules recommend negative nominal interest rates, and we just haven’t figure out how to do that. I think Taylor’s response would be that if you followed a Taylor Rule in the first place, you would never have reached the problem of a zero lower bound. That’s probably true.

There is a rule that competes with the Taylor Rules, a Nominal GDP Target Rule. Scott Sumner has been a key proponent of NGDP targeting. Sumner argues that the Fed has the power to create any nominal GDP it wants.

Here’s an example: Suppose the Fed creates a target of five percent nominal GDP growth. If nominal GDP is shrinking at, say, two percent, then all the Fed has to do is generate seven percent inflation. If it can create the seven percent inflation, it will create the five percent NGDP growth.

I have a problem with this too. I don’t believe that the Fed can always create inflation. The Fed controls the monetary base, but turning the base into money, which is what is required to generate inflation, requires the cooperation of banks and borrowers. The past few years provide strong evidence that banks and borrowers can’t be counted on to cooperate. That is, banks may not lend and borrowers may not borrow, at exactly the time we need them to if monetary policy is to be effective.

I think Sumner would have two responses. First, he would argue that if the Fed had followed this policy in the first place, we would never have reached the problem of banks and borrowers not cooperating in creating money. That’s probably true.

A second response would be that the Fed just hasn’t tried hard enough. Like the Keynesian response that true fiscal stimulus was never tried, this argument can always be made, and I think they are both wrong. At over 35 percent of gross product, total government spending (including federal, state, and local) exceeds that at the peak of WWII, and no one would argue that we are seeing a vigorous recovery. Similarly, QEs 1 and 2 were unprecedented efforts to increase the money supply. They failed, because banks weren’t lending and borrowers weren’t borrowing.

These are second order problems, though. If either Taylor or Sumner were in charge of our monetary policy over the past decade, we’d probably be a lot better off than we are today. If policy makers had followed Taylor’s principles, we’d probably be a lot better off than we are today.

It’s a shame that Taylor’s principles are controversial. It is a shame that millions of Americans are unemployed, in part because we’ve moved so far away from those principles. Taylor has written an excellent guide for policy going forward. I highly recommend First Principles.

The post First Principles, by John Taylor appeared first on Center for Economic Research and Forecasting.

Productivity used to have a cyclical component. It fell early in a recession, and it rose early in the recovery. The early-recession fall resulted from falling sales and no employment change. The idea is that businesses see the sales decline, but don’t know if it is temporary. So, they don’t layoff for a while and productivity falls.

The early-recovery productivity growth is similar. A business sees increasing sales, but is unsure if it is permanent. So, they avoid adding to payroll until they are confident that the higher sales will be maintained.

All that went away with the past two recessions. In these recessions, productivity growth was relentless, increasing quarter after quarter. Consequently, our models cannot effectively use the new productivity information. (Don’t ask why. It is a statistical answer.)

Some, very few actually, are discounting the new jobs data, because it included the Verizon strike. We note that it also included the return of Minnesota’s government workers, significantly reducing the Verizon impact.

There are other reasons to be concerned about the new jobs data. A big one is that the previous two months were revised down. June was revised down 26,000 jobs (56 percent) to only 20,000, while July was revised down a whopping 32,000 jobs (27 percent) to 85,000. These revisions imply that the initial estimate is currently biased high, implying in turn that we actually lost jobs in August.

The combination of falling productivity and job losses is a powerful indicator that the second dip may be here or coming very soon.

The post Is the Second Dip Here? appeared first on Center for Economic Research and Forecasting.

Downward revisions to United States gross domestic product (GDP) have driven most of the revisions. For about two years, we had trouble with the original GDP estimates. Our jobs forecasts were pretty accurate, but we forecasted productivity growth and consumer spending growth below the initial estimates. This caused us enough grief that we’ve been reviewing our models. Well, the revised numbers are entirely consistent with our original models.

Downward revisions to productivity growth and consumer spending are what drove the downward GDP revisions.

Enough bragging. What is happening to the economy? We’re seeing a weak recovery.
Increasing numbers of forecasters, spooked by weak numbers and downward revisions, are now forecasting a double-dip in the near future. We don’t think that is the most likely case.

We’ve said all along that this would be a weak and inconsistent recession, and that appears to be what we are seeing. Some encouraging data might come in this week. The next week could see weak data. This is exactly what we expect to see in a recovery where financial institutions are wounded, real estate is weak, and consumers over extended.

So, we don’t expect a double-dip recession. We expect continued slow growth, accompanied by weak real estate markets, weak consumer spending, slow job growth, and persistent high unemployment.

That would be the good news and the bad news.

Another recession is in our future though, and not just because the business cycle has not been repealed. However, the timing of the next recession is really difficult to forecast, because in part, the timing will probably be politically driven.

I have become convinced that the culmination of Europe’s problems will be a partial breakup of the Eurozone. Perhaps it will be complete breakup. It really doesn’t matter.

Any breakup will almost surely be accompanied by financial and political crises. These crises will initiate a new recession, one that will be impacting an already weakened economy. It’s likely to be very painful.

The post Thoughts on the U.S. Economy appeared first on Center for Economic Research and Forecasting.

The BLS’s July Employment Situation was released today. Non-farm jobs grew by 117,000, highly focused on healthcare, (31,000), retail, (26,000), manufacturing, (24,000), and mining (9,000). Despite the increase in jobs, the measured employment level, an alternate measure of workers, decreased. That decrease was met by a larger decrease to the civilian labor force, causing the unemployment rate to fall from 9.2% to 9.1%. The unemployment rate has hovered in the 9.0 to 9.2 percent range for four months.

Government jobs continue to trend downward, (-37,000). This reflects state governments’ attempting to balance their budget and is also impacted by the partial shut-down of Minnesota’s government.

There were revisions to May and June’s non-farm jobs numbers; May’s jobs increase was revised up from +25,000 to +53,000 and June’s jobs increase was revised up from +18,000 to +46,000.

The long-term unemployment situation still has 6 million persons unemployed for 27 weeks or more, with 1 million discouraged workers, 1 million marginally employed, and 8 million persons on part-time employment due to economic reasons. This presents a clear lack of supply for jobs, a very weak job market. Many workers are choosing part time jobs rather than face unemployment. This illustrates that 10% of the civilian labor force is not the optimum or preferred employment situation.

Private non-farm job growth has been positive while public sector job losses have offset those gains for three months in a row. Companies not optimistic about a vigorous recovery have found little harm in simply waiting. State, local, and even now federal governments have all come under budget scrutiny, greatly hampering their ability to directly affect unemployment. With many of their tools and policies tied up in the banking crisis, there seem to be few initiatives on addressing the needs of the labor market.

The post The July Jobs Report appeared first on Center for Economic Research and Forecasting.

Non-farm jobs increased 54 thousand over April, consisting of a gain of 83 thousand in the private sector (I forecasted 240 thousand), and a 29 thousand job loss in the public sector (I forecasted a loss of 18 thousand).

What sectors drove the the slowdown? There was a 30 thousand job slowdown in manufacturing jobs, a 70 thousand slowdown in retail jobs, a 40 thousand job slowdown in leisure and hospitality, and a 20 thousand job slowdown in education and healthcare.

The decline in Retail is interesting.  The sector is experiencing a secularly growing share of online sales, which overall, will reduce the demand for workers. Also, there are technology adoptions that have yet to fully play-out. For example, self-check stations are now at major grocery stores, but they are probably not yet responsible for half the check-out volume. But, we can expect they will eventually be responsible for much more than half the check-out volume. Another thing that I worry about is that consumption growth is now under trend and could stay that way due to high consumer debt levels. These, and relatively high unemployment levels, could imply weak Retail job growth in the near term.

The other part of this jobs report contains results from the household survey, which indicates changes in labor force and unemployment. The labor force jumped substantially in May, by 272 thousand people. This was only slightly offset by a rise in 100 thousand people reporting themselves as employed. As a result, the unemployment rate rose from 9.0 to 9.1 percent, much different than my forecast of a fall in the unemployment rate.

This month’s Employment Situation highlights the fragility of the economy. Manufacturing has been one of the few bright spots in the economy since the Great Recession. If a global slowdown is taking hold as some are predicting, this will have a cooling impact on manufacturing jobs and the economy that will last beyond May.

The post The May United States Jobs Report appeared first on Center for Economic Research and Forecasting.

From the April results, the broad measure of unemployment (including under-employed & marginally attached to labor force) was still 15.9 percent and there were still almost 6 million persons who had been unemployed more than 27 weeks.

The data for May comes out this Friday, June 3.

We do not think the oil price impact is huge, but overall it is a bit negative. There are positives in the Extraction sector, but those are more than offset by negatives in transport and durables manufacturing sectors.

Since February, nonfarm payrolls have increased by more than 220 thousand each month, and we forecast that about 220 thousand occured in May. This forecast reflects a slight slowing in both goods producing industries and in service producing industries. Government sector hiring will be down, dominated by declines in state and local government, which more than offset increases in hiring by Federal government.

The gap between the establishment (payroll) jobs measure and the household survey employment last month was probably an anomoly, and will be corrected at some point. I assume that correction began in May.

Regarding labor force, we project an increase of 99 thousand, a moderate increase. This follows March and April increases of 160 thousand and 15 thousand respectively. The combination of the labor force and the employed persons increase imply that the unemployment rate falls by three tenths: from 9.0 percent in April to 8.7 percent in May.

The post The May Jobs Forecast appeared first on Center for Economic Research and Forecasting.