Saturday, April 03, 2004

Making Sense of Economic Reports

Confused by the recent employment figures, I went to Brad DeLong's site to se what he had to say about the fact that over 3x105 jobs were created last month, but the unemployment rate grew from 5.6% to 5.7%.  Mr. DeLong points out  that the job growth is encouraging, but adds that it still is below what the President promised a few months ago.  A comment to that post led me to this one, on Rick Freedman's World on Fire.  This is an avowedly liberal site.  The author claims to present a moderate, balanced view.  (I don't know enough about economics to be able to tell if this is a correct portrayal, but it appears that it is.)  He acknowledges that the gains are good news, but tempers that presentation:

The figures show zero gains for factory employment. This is a critical number, because it's been these core manufacturing jobs that have been streaming overseas or drying up due to decreased consumer demand. For the swing industrial states like Ohio and Missouri, these new numbers will not translate into better employment conditions and so employment will remain a potent political issue for progressive candidates.

Some other data that indicate that any celebration by the Bush forces might be premature:

• The average duration of unemployment has been more than 20 weeks, a 20-year high.
• Jobless workers are increasingly accepting part-time work. The number of people who worked part time for economic reasons rose to 4.7 million in March, up from 4.4 million the previous month.
• The March rise in payrolls reflects the resolution of a labor dispute at grocery stores in southern California that had idled 72,000 workers. The department said the return of those workers helped fuel a 47,000 increase in retail employment last month, but it did not quantify the impact.
• 71,000 of the new jobs created were in construction, which is notoriously subject to weather conditions. Weather was unusually harsh in February, driving this number downward, and unusually mild in March, producing a potentially unsustainable spike in construction hiring.
• Average weekly earnings slipped 88 cents, or 0.2 percent, to $523.70. As any economist knows, wage growth is the ultimate engine of economic recovery, as increased consumer demand drives spending, which drives manufacturing and retail. Hourly wages have grown just 1.8 percent in the past year, near the lowest level since 1986.
• The average workweek also shrank by 0.1 hours to 33.7 hours, while the manufacturing workweek fell by 0.1 hours to 40.9 hours. Economists watch the length of the workweek as a leading indicator of employment.

Captain Ed, at Captain's Quarters, a conservative blog, cites some different numbers to reach a different conclusion:

Two stories in today's USA Today demonstrate the strength of the economic expansion. Manufacturing, which the Democrats have used to beat George Bush over the head, turns out to be expanding even faster than the overall economy:

The Institute for Supply Management said its manufacturing index registered 62.5 in March compared with 61.4 in February. The new reading beat the expectations of most analysts, who had forecast a figure of 59.5. ... It was the 10th consecutive month of expansion in the sector, which makes up less than a fifth of the U.S. economy.

The ISM said its monthly employment index climbed to 57.0 versus February's 56.3. February's reading was its highest level since December 1987 [emph mine]. [emphasis added by Captain Ed, not Corpus Callosum]

The ISM measures 20 manufacturing industries and reports expansion in all twenty. That may account for the dropping numbers of jobless claims, which indicate that companies have stopped trimming payrolls in the first quarter, which is traditional in retail markets especially, and are ramping up hiring to meet the needs of the expansion. In addition, inflation was non-existent during the same reporting period, which indicates a true expansion instead of simply wage and price puffery.

In short, while we are still waiting for extensive job creation, the stage has certainly been set for it. The economy is expanding at rates not seen in over fifteen years while keeping inflation under control, and the unemployment level still is below the average of the past two decades. John Kerry will have a tough time running against these numbers.

I must say that it still is not clear whether the economy is getting better or not.  My best guess is that the economy is changing, getting better in some ways and worse in others.  The declines in average weekly earnings, average workweek hours, and the increase in average duration of unemployment all suggest that one thing has not  changed: the rich are getting richer, and the poor are getting poorer.  The numbers do not indicate a clear success of the Bush economic plan, nor do they indicate a complete failure.  Whether the economic changes boost Republican or Democratic chances in the November election will depend upon who can get their economic message out most effectively.