Friday, November 8, 2013

The fantasy metric of job creation continues its reign

The latest numbers are out on employment from the Bureau of Labor Statistics. The unemployment rate ticked up to 7.3%, but some 204,000 jobs were still added. This is being presented as good news by the typical pundit, as it is being viewed through the prism of expected bad news because of the October shutdown. The New York Times:
Defying predictions that the government shutdown would sap job growth, private employers added more than 200,000 positions in October, well above even the most optimistic estimates on Wall Street...

In addition to the healthier-than-expected number for job creation last month, the Labor Department also revised upward the number of hires in August and September by 60,000.
From WaPo:
The U.S. economy added 204,000 jobs in October, according to data released Friday morning, defying expectations of a weak labor market in the face of the federal government shutdown.

The Labor Department report showed strong hiring in industries such as retail and hospitality, manufacturing and health care. State governments added 8,000 jobs, but that was offset by declines in federal and local employment.
But the WaPo story does note the following, unlike the NYT piece:
The number of folks who have given up looking for work helped drive the labor force participation rate down to just 62.8 percent.
That number--the 62.8 percent--is the lowest one for the LFPT since 1978! It means, in context, that a lower percentage of Americans who could be working, who are a part of the "labor force," are working, as compared to any time in the past 35 years. Here's a graph of the LFPR since January of 2003:

That's pretty ugly, from the perspective of the current Administration. Because despite all of the supposed "job creation" under President Obama, the LFPR has basically been dropping since he took office. His policies have done nothing to arrest the fall. As Tyler Durden notes over at Zerohedge, the October numbers that caused the latest drop amount to nearly one million people moving out of the labor force in just October, alone:
But more importantly, the number of people not in the labor force exploded by nearly 1 million, or 932,000 to be exact, in just the month of October, to a record 91.5 million Americans! This was the third highest monthly increase in people falling out of the labor force in US history.

At this pace the people out of the labor force will surpass the working Americans in about 4 years.

The last is a sobering and deeply depressing thought. Yet, the October report is somehow supposed to be good news, a net positive for the overall economic picture. Why? Well, because of that mythical metric of "jobs created." Back in June of last year, I went in to some detail on this metric, on what it really means, in reference to Obama's claim about the private sector "doing fine":
After the official recession ended (the grey-shaded area), after many, many jobs were lost because of the economic crises from 2008-2009, private sector employment began increasing. But here's the thing: private sector employment--when there isn't a recession--is always increasing. Why? Because the population is always growing. New people enter (and exit) the workforce every day. But on balance, more enter than leave, because the net population growth is positive. And more people means more services, more homes, more cars, more of everything. In short, an increase in demand. In fact, even the people leaving the workforce--via retirement--can create more demand.  
Thus, some amount of "job creation" is a given (again, assuming no recession or economic crisis) as a matter of course. So, if we figure this in to Obama's impressive number of 4.3 million jobs created (assuming it's accurate), what do we have? Estimates vary on this, but generally it is assumed that somewhere between 100,000 and 150,000 jobs are needed each month to keep pace with population growth. Thus, on the low end we have (for Obama's cited 27 months) 2.7 million of those jobs amounting to, well, nothing. On the high end? 4.1 million of the jobs serving only to keep pace with population growth.
These latest numbers on "job creation" fall right into this pattern. The great majority of these jobs represent nothing more than an economy keeping pace with population growth, at a bare minimum. But with a caveat: what we have this month is a chunk of people leaving the labor force, as noted above. Even with this out-flux of workers, the unemployment still rose, thus the remainder of created jobs represent nothing, with regard to economic growth.

Yet job creation is now the dominate metric, when it comes to discussions of the economy and employment. And somehow, we are supposed to accept the idea that the government, first and foremost, is responsible for job creation. The mechanisms of this process are either never described or are wholly imagined. Certainly, government policy can and does impact the economy. But people who believe such policy is the controlling factor when it comes to job creation are fooling themselves, to say the least. Most jobs are "created" in response to market needs, to companies growing or coming into being because of market forces, which are themselves responses to changing demographics, technologies, and demands (in an economic sense). The impact of government policy in this regard is minimal, unless such policy represents an impediment to economic growth (like new taxes and new regulations).

The Administration likes the metric because it's generally always going to seem impressive to the uniformed, as several hundred thousand jobs created just has to be a good thing in the minds of such people. The fact that the supposedly informed punditry and journalists accept and promote the use of this metric is, however, another matter. It's troubling and reflects not only their lack of economic acumen, but also their willingness to be led around by the nose by people who are more interested in propaganda than in reality. For what we should really be hearing about these numbers--the "created jobs"--are questions about why they continue to be so low, especially since so many appear to be leaving the labor force.

Cheers, all.

1 comment:

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