Commentators are taking note of the five-year anniversary of the fiscal stimulus that President Obama enacted during his first month in office. Those who don’t like Obama are still asking “if the fiscal stimulus was so great, why didn’t it work?” What is the appropriate response?
Those who think that the spending increases and tax cuts were the right thing to do have given a number of responses, which sound a bit weak to me. The first is that the stimulus wasn’t big enough. The second was that the Great Recession would have been much worse in the absence of the stimulus, perhaps a replay of the Great Depression of the 1930s. (The media are fond of this line of reasoning because it allows them to escape making a judgment. They can just say “nobody knows what would have happened otherwise.”) The third response is that the fiscal stimulus was short-lived, and in fact was reversed by the Congress by 2010.
This morning’s US employment report shows that July was the 34th consecutive month of job increases. Earlier in the week, the Commerce Department report showed that the 2nd quarter was the 16th consecutive quarter of positive GDP growth. Of course, the growth rates in employment and income have not been anywhere near as strong as we would like, nor as strong as they could be if we had a more intelligent fiscal policy in Washington. But the US economy is doing much better than what most other industrialized countries have been experiencing. Many European countries haven’t even recovered from the Great Recession, with GDPs currently still below their peaks of six years ago.
Once again this morning, the BLS employment release tells conflicting stories depending on whether one looks at the unemployment rate or job growth. The U.S. unemployment rate fell from 8.3% in July to 8.1% in August, continuing the gradual three-year downward trend (from its 2009 peak at 10 %). Political economy equations often say that the direction of movement of the unemployment rate in the period preceding a presidential election is the main economic determinant of whether the incumbent is re-elected.
The BLS this morning reported U.S. job gains of 163,000 in July, which is good news in the eyes of the financial markets. The jobs data had been disappointing over the preceding three spring months. Before that, during the winter months, employment growth was strong.
In terms of perceptions and politics, pundits will say that today’s report is good news for Obama’s re-election prospects, just as they said the spring jobs numbers were bad news for the President. But my interest is in economics and reality, rather than perceptions and politics. From a longer-term perspective, a few important facts have not been adequately discussed.
The NBER‘s Business Cycle Dating Committee, of which I am a member, announced this morning that June 2009 was the trough of the recession that began in December 2007. It was the longest recession since the 1930s.
It is the fate of the Committee to be teased mercilessly every time we make one of our formal declarations of a turning point in the economy. We get it from both directions: We waited too late to call the end of the recession, or we did it too early. (Occasionally someone makes both criticisms simultaneously!) Even The Daily Show got in on the fun this time.
The recession is over. The last piece has fallen into place, with the BLSannouncement that employment rose in March.
Identifying the beginnings and ends of recessions has been difficult in recent decades because the two most important indicators, output and employment, have sometimes behaved differently from each other. Most notoriously, in the recovery that began in November 2001, employment lagged far behind economic growth. If one had gone by the labor market, one might have called it a three year recession. But if one had gone by GDP, one might have wondered whether there was a recession at all.
At first glance, the job numbers of the last week seem to offer a mixed and confusing picture. On the one hand, today’s headline from the Bureau of Labor Statistics certainly sounds like good news: the unemployment rate finally dropped below 10.0% — to 9.7%. On the other hand, today’s establishment survey of employment, which most of the time is a more reliable measure than the unemployment rate, still shows job change numbers that are negative. Furthermore, recent numbers on claims for unemployment benefits have been discouraging.
The economy has been on a roller coaster ride since the cyclical peak of December 2007. (See illustration.) The gradual slide of early 2008 turned into a terrifying freefall in the last quarter of 2008 (after the Lehman Brothers bankruptcy) and the first quarter of 2009. Now the train is probably at the bottom of the roller coaster valley.
The Index of Leading Economic Indicators, represented by the first car in the train, was this morning reported to have risen for the seventh consecutive month in October. Similarly, consumer confidence is substantially improved relative to February (though it, like all economic statistics, has experienced some bumps in the ride). The important middle cars, which represent measures of aggregate output, probably reached bottom in the early summer, and then started back up. The BEA’s advanced estimate for GDP growth in the third quarter was 3 ½ % .
In the July employment report released by the BLS this morning, August 7, the labor market shows its first encouraging signs. Most commentators will focus on the jobs numbers, which show a decline of less than half the rate that the economy experienced in the “freefall period” of late 2008 and early 2009.
Employment tends to lag behind production. For this reason, as readers of this blog will know, my preferred indicator is total hours worked. The latest numbers show that the length of the workweek has begun to rebound from its record low of two months ago. As a result, the BLS reports that total hours worked in the economy did not decline at all in July, for the first time since the financial meltdown of last September.
The quip “There are three kinds of lies:lies, damn lies, and statistics” is variously attributed to Benjamin Disraeli or Mark Twain.What should the public make of government statistics, such as the monthly employment report released today, Thursday, July 2, by the U.S. Bureau of Labor Statistics (BLS)?
There is no lying in US government statistics.But there are always commentators who will use the numbers to make whatever point they want.One should learn enough to be able to interpret the numbers for oneself.That is the only way to prevent being misled.