Friday, November 2, 2012

Macro Update

The BLS released a moderately good jobs report this morning: payrolls rose by 171,000 in October.  The unemployment rate ticked up by 0.1 to 7.9%, but this was due to a large increase in the labor force. In the household survey (separate from the survey of firms where the headline jobs number comes from), the labor force grew by 578,000.  The number of people employed rose by 410,000, while the number unemployed rose by 170,000, hence the increase in the unemployment rate.  The increase in labor force participation may be a sign that some previously "discouraged" workers may now feel like it is at least worth looking for work (to be counted as "unemployed" one must be looking for work).
The payroll figures for the past two months were also revised upward, by 50,000 for August and 34,000 for September.  While this represents a pick up in the pace of job growth, unemployment remains very high - and some have been out of work for a long time - and the recovery is excruciatingly slow.  As Catherine Rampell notes:
Getting the economy to 5 percent unemployment within two years — a return to the rate that prevailed when the recession began — would require job growth of closer to 280,000 per month.
Calculated Risk provides a useful graph of the employment-population ratio for persons aged 25-54 (as a way of taking out the effect of demographic changes), which illustrates how far the labor market has to go:
Last week's GDP release was also consistent with the picture of a slightly improving but still way-too-slowly growing economy.  The BEA's advance estimate put third-quarter real GDP growth at a 2% annual rate, which is mediocre, but better than the 1.3% in the second quarter.
That is, the economy is growing, and so is employment, but still not fast enough to make up lost ground in the 2008-09 recession.  James Hamilton commented on the report at Econbrowser.

However, historically speaking, downturns caused by financial crises are larger and more persistent than typical recessions.  Moritz Schularick and Alan Taylor and Carmen Reinhardt and Kenneth Rogoff both argue that the US is actually doing a little better than might be expected based on evidence from the aftermaths of past financial crises. That is a useful perspective, particularly for evaluating economic policy (as one might right before an election..).  Arguably, US economic policy has been moderately successful if you grade on a curve compare to an appropriate counterfactual.  However, that is little comfort to the over 12 million who remain unemployed.

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