Macroeconomics – Page 13

8 Million Jobs Lost

Kudos to Floyd Norris over at the New York Times for characterizing total job losses to date as 8 million jobs, not “just” 7.2 million. As I discussed on Friday, the Bureau of Labor Statistics estimates that the number of jobs in March 2009 was 824,000 lower than it previously thought. But BLS won’t include this adjustment in its official data until early February.

The official, as-yet-unadjusted data indicate that 7.2 million jobs have been lost since the recession started in December 2007. The future revision to March figures, however, implies that a better estimate would be 8 million.

We can now expect several months in which commentators use different figures for total job losses. Those steeped in the details, like Norris, will use the 8 million figure. Those less-attuned to the details, like the authors of the NYT’s lead editorial (just four pages after Norris’s article), will use the 7.2 million figure.

Norris also addresses the obvious question: Why did BLS miss the March level of jobs by such a large amount? The answer is that BLS has to estimate jobs gained and lost at certain employers, and their model is not doing as well as we (or it) would hope:

The official job numbers are based on a monthly survey of employers, augmented by something called the “birth-death model,” which factors in jobs assumed to have been created by employers who are too new to have been included in the survey, and subtracts jobs from employers assumed to have failed and therefore not responded to the latest survey.

Victoria Battista, an economist at the Bureau of Labor Statistics, said the bureau was looking at whether that model needed to be changed, as well as at other possible issues, such as changing response rates to the questionnaire sent out to employers each month.

The newest revision is called a “benchmark revision.” Such revisions are disclosed each October, and led to reductions in job totals in both 2007 and 2008. But the changes those years were tiny when compared with the changes this year.

For the 12 months through last March, the birth-death model added 717,000 jobs to what the bureau would have reported had it relied solely on its survey.

While the government uses the survey of employers to estimate the number of jobs, the benchmark revisions are based on reports from states on the number of employees for whom unemployment insurance premiums are paid. Those numbers take longer to be available, but are considered to be more reliable.

1.1 Million More Jobs Lost

Today’s jobs report was weak across the board: September payrolls fell by 263,000, the unemployment rate rose to 9.8%, the underemployment rate (U-6) rose to 17.0%, and average weekly hours fell to 33.0, tying the record low set in June.

The Bureau of Labor Statistics also reported that payrolls declined by 13,000 more in July and August than it had previously estimated.

And if that weren’t enough, BLS also estimates the number of jobs back in March was actually 824,000 lower than previously reported (this is an estimate of the “benchmark revision” that BLS will make to the data early next year).

Putting these figures together, we find that the number of jobs has now declined by 1.1 million (263,000 + 13,000 + 824,000) more than we previously knew.

I have always found it frustrating that the BLS reports an estimate of the benchmark revision each October, but doesn’t incorporate that revision until the following February. That means that many analysts will be using incorrect data over the next few months.

If you want to know the number of jobs lost during the recession, for example, you might think you could get that number by clicking over to the BLS and comparing the number of jobs in September 2009 to the number of jobs in December 2007. That comparison would show total job losses of 7.2 million. Based on today’s estimate of the benchmark revision, however, it’s likely that the actual figure is more than 8.0 million.

Update: The original post had a typo for the average weekly hours; as noted above, the correct figure is 33.0, not 30.0.

Still Broad Weakness in Q2 GDP

Earlier today, the Bureau of Economic Analysis released updated GDP figures, estimating that the economy contracted at a 0.7% pace in the second quarter. The BEA’s well-named “third estimate” thus indicated that the decline in the second quarter was somewhat slower than the 1.0% BEA had previously estimated.

As I mentioned a couple of months ago, whenever the GDP data come out, the first thing I look at is Table 2, which shows how much different sectors of the economy contributed to the growth (or, in this case, the decline). Even with the small upward revision, the most striking thing about Q2 continues to be how broad the weakness was:

Broad Weakness in Q2 GDP (Third)

As the chart shows, Q2 witnessed declines in every major category of private demand: consumer spending, residential investment, business investment in equipment and software (E&S), business investment in structures, and exports. Wow. To find the last time that happened, you have to go all the way back to … the fourth quarter of last year, when it was even more severe. But before that, you have to go back five decades to the sharp downturn of the late 1950s.

Not surprisingly, government spending helped offset the declines in private spending. Most of the boost came from defense spending (a contribution of 0.7 percentage points), but state and local investment also helped (adding 0.48 percentage points, presumably at least in part due to stimulus spending).

A sharp decline in imports, finally, was the biggest contributor to growth in Q2, at least in an accounting sense. As I’ve noted before, it’s important to choose your words carefully here, since declining imports are clearly not the path to prosperity. In a GDP accounting sense, however, import declines do boost measured growth. Why? Well consider the fall in consumer spending. That decline affected both domestic production and imports. GDP measures domestic production, so we need a way to net out the decline in consumer spending that was attributable to imports. That’s one of the factors being captured in the imports figure.

Note: If the idea of contributions to GDP growth is new to you, here’s a quick primer on how to understand these figures. Consumer spending makes up about 70% of the economy. Consumer spending fell at a 0.9% pace in the second quarter. Putting those figures together, we say that consumer spending contributed about -0.6 percentage points (70% x -0.9%, allowing for some rounding) to second quarter growth.

IMF: The Lasting Effects of Financial Crises

Earlier this week, the IMF released a key chapter from the upcoming World Economic Outlook: Chapter 4: What’s the Damage? Medium-Term Output Dynamics After Financial Crises. As noted in the much pithier summary, the report concludes that:

The global financial crisis is likely to leave long-lasting scars on the world economy, but governments can act to stimulate a quicker revival and counter output losses … . The study finds that banking crises typically have a long-lasting impact on the level of output, although growth eventually recovers. Lower employment, investment, and productivity all contribute to sustained output losses.

Those conclusions are based on their review of financial crises around the world since the early 1970s. As shown in the following graph, the key finding is that after a financial crisis economic output remains below trend for years:

The blue line shows, for example, that in the average country, output seven years after the crisis was about 10% below what would it would have been if the pre-crisis growth rate had continued.

The dotted red lines, however, highlight the enormous range of outcomes. At least one-quarter of the countries eventually had output that was above the level implied by the earlier trend; while another quarter eventually fell at least 25% below the prior trend.

The study slices and dices this result in numerous ways, trying to identify the factors that lead to better or worse outcomes. Some are bad news for the United States.

Continue reading “IMF: The Lasting Effects of Financial Crises”

Lessons from the Fall of Lehman

As you have undoubtedly noticed, this week marks the one-year anniversary of the fall of Lehman Brothers–the moment at which the financial crisis became a severe economic crisis.

I did an interview on Fox Business on Tuesday to discuss some of the lessons learned. (My wife’s comment on the interview: “You need to straighten your collar next time.”)

Going in, I had two basic points I wanted to make:

First, the fall of Lehman Brothers was the moment that the abstract threat of “systemic risk” became tangible to many policy makers and the public. As we progressed from propping up Bear Stearns to taking over Fannie Mae and Freddie Mac, many observers began to suffer from policy fatigue, and, in some circles, there was concern that the scale of the government actions might be disproportionate to the alleged, but little-seen, risk of a systemic crisis. That changed when Lehman fell, and the dominoes started toppling.

Second, we still have our work cut out for us. The major items on our to do list include:

(1) Taking steps to avoid such enormous shocks in the future (e.g., by increasing capital requirements and reducing allowed leverage for financial firms).

(2) Fixing the problem of too-big-to-fail (or, if you prefer, too-interconnected-to-fail). Unfortunately, this problem has worsened, in many ways, since the crisis began. Some gigantic firms have grown even larger. And the necessary interventions to prop up the financial sector have reinforced the idea that the government will prevent these firms from failing in the future.

(3) Disentangling the government from private firms, so that it can again act as a referee, not as a player. That will take time given the enormous investment portfolio that the government has amassed in financial firms and the auto companies. It is heartening, however, that even Citigroup is beginning to ponder how to raise outside capital and reduce the government stake.

Insight on Google and Unemployment

In a series of posts (here, here, and here), I have expressed concern that Google directs its users to what I think is the “wrong” measure of unemployment. For example, if you search for “unemployment rate United States” today, it will tell you that the U.S. unemployment rate in August was 9.6%, when the actual figure is 9.7%.

This discrepancy arises because Google directs users to data that haven’t been adjusted for seasonal variations. Almost all discussions of the national economy, however, use data that have been seasonally-adjusted. Why? Because seasonally-adjusted data (usually) make it easier to figure out what’s actually happening in the economy. The unemployment rate always spikes up in January, for example, because retailers lay off their Christmas help. But that doesn’t mean that we should get concerned about the economy every January. Instead, we should ask how the January increase in the unemployment rate compares to a typical year. That’s what seasonal adjustment does.

My concern about Google’s approach is that many (if not most) data users know nothing about seasonal adjustment. They simply want to know what the unemployment rate is and how it has changed over time. Directing those users to the non-seasonally-adjusted data thus seems like a form of search malpractice.

I’ve wondered why Google has chosen this approach, and thus was thrilled when reader Jonathan Biggar provided the answer in a recent comment. Jonathan writes:

Continue reading “Insight on Google and Unemployment”

How Much Did Cash-for-Clunkers Boost Auto Sales?

The busy folks at the Council of Economic Advisers (CEA) released a quartet of studies today, covering the economic impacts of:

I suspect that other bloggers (not to mention the regular media) will have lots to say on the stimulus analyses, so I started my reading with the clunkers piece, which I found quite interesting.

News accounts often describe the program as a success because almost 700,000 people participated in it in just a few weeks. But, as CEA emphasizes in their new study, the fact that someone participated in the program does not necessarily mean that they bought a car because of it. Indeed, CEA estimates that the 690,000 auto sales under the program boosted 2009 auto sales by only 330,000:

What about the other 360,000?

Continue reading “How Much Did Cash-for-Clunkers Boost Auto Sales?”

Unemployment Still Rising

Today’s jobs report didn’t deliver any real surprises. The number of payroll jobs fell by 216,000 in August, slightly less than expectations, but revisions to earlier months subtracted an additional 49,000 jobs. The unemployment rate rose to 9.7%, more than expected and consistent with the consensus view that unemployment will exceed 10% in coming months.

In short, we are still losing jobs, but at a much slower pace than earlier in the year.

Looking further into the details, there are two things I’d highlight. First, the U-6 measure of unemployment, which includes workers who are discouraged or working part-time for economic reasons, increased even more than the regular unemployment rate, rising from 16.3% to 16.8%:

Second, unemployment among teenagers in August was the highest ever recorded. More than 25% of teenage workers were unemployed in August, topping the previous peak of 24.1% set in late 1982:

Teenage unemployment jumped sharply from July to August, rising from 23.8% to 25.5%, an increase of 1.7 percentage points. In comparison, unemployment among adult men increased by “only” 0.3 percentage points and among adult women by 0.1 percentage point.

I predict that the econo-blogosphere will feature some healthy debate about whether the sharp increase among teenagers has anything to do with the most recent increase in the minimum wage that went into effect toward the end of July (and, therefore, after the July unemployment data were collected). As you would expect, teenagers are more likely to earn the minimum wage than are adult workers. If the latest minimum wage increase had immediate, negative effects on employment, you might therefore expect to see it among teenagers.

On the other hand, the chart shows that teenage unemployment can be quite volatile from month to month; as a result, analysts should be humble about what they can infer from the changes observed during a single month. Moreover, teenage unemployment has been rising rapidly throughout the downturn, which may reflect the intensity of the economic weakness rather than a series of increases in the minimum wage.

My advice: Before accepting or rejecting the idea that the recent minimum wage hike has hurt teen employment, wait to see whether any enterprising economists come up with compelling data that go beyond the month-to-month pattern. For example, it would be interesting to see comparisons among states. Some states had minimum wages above the federal level, and thus were unaffected by the recent increase.

Tracking the Stimulus: Update

Good news: The Recovery.gov website now includes information about the tax components of the stimulus, not just the spending components:

According to the chart, an estimated $62.5 billion made its way out the door in tax reductions through the end of August. The corresponding spending data indicate that $88.8 billion in federal spending made its way out the door by August 28.

Putting these together, you get an estimated $151.3 billion in combined tax reductions and spending increases through the end of August.

Continue reading “Tracking the Stimulus: Update”

More Stimulus Spending Than Originally Projected

Lots of budget news this morning, with the release of the newest projections from the Office of Management and Budget and the Congressional Budget Office.

One headline is that spending on the stimulus will be higher than expected. As reported by Lori Montgomery at the Washington Post (ht EconomistMom):

The $787 billion economic stimulus package President Obama signed earlier this year is likely to cost “tens of billions of dollars” more than expected, helping to drive projections for next year’s budget deficit to $1.5 trillion, White House budget director Peter Orszag told reporters.

With unemployment climbing, costs for a variety of stimulus programs are running higher than anticipated, Orszag said, including expanded unemployment benefits, food stamps and energy grants. In an interview embargoed for release Tuesday morning, Orszag said he could not estimate the overall cost of the package, but he called Republican estimates of $900 billion “slightly high.”

The $900 billion estimate that Peter mentions is reported in this letter from former CBO Director Doug Holtz-Eakin to Republican House Leader John Boehner.

The CBO also addresses this issue in its report (box on pp. 10-11). The box discusses lots of pesky nuances about budget accounting and the timing of payments. Perhaps the most interesting observation, consistent with the OMB quote above, is that:

The higher-than-expected unemployment rate has led CBO to raise its estimates of spending in 2009 for ARRA [i.e., stimulus] provisions that affect unemployment compensation (by $7 billion) and Medicaid (by $1 billion).

In other words, the weaker economy has added $8 billion to stimulus spending in fiscal 2009 alone with, presumably, more to come in fiscal 2010.

These developments further complicate the challenging task of tracking the stimulus.