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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.


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July 08, 2011


Is the employment report a game changer?

Well, that was an unpleasant surprise. Any way you cut it, the June employment report was a big disappointment. (If by chance you are inclined to doubt that, the Wall Street Journal's Real Time Economics blog rounds up representative commentary from the disappointed.) Last month's anemic pace of job creation will almost surely amplify growing concerns about the almost sure-to-be dour final count on gross domestic product (GDP) growth in the second quarter. More specifically, though expectations for June employment growth were pretty modest to begin with, the failure to yet see any sign of momentum in labor markets has to make you wonder about forecasts of a soon-to-be-seen pick-up in economic growth.

A pick-up in economic growth in the third quarter is important, as it would help to relieve the anxiety associated with this picture, a version of a chart I first saw in a Bloomberg Economics BRIEF by Richard Yamarone. (The full briefings, which are proprietary, can be accessed here.)

Real GDP Growth

The bottom line of this chart is that there has been a pretty reliable relationship between sustained bouts of sub-2 percent growth and U.S. recessions (indicated by the gray shaded areas). In fact, over the entire post-World War II era, periods in which year-over-year real GDP growth has been below 2 percent have been almost always associated with downturns in the economy.

A few notes to talk us back from the ledge. First, we unfortunately now have plenty of experience with advances in output that are accomplished without much progress on the jobs front. In other words, productivity-driven growth has been and may still be the story of the day:

U.S. Employment and Productivity

Second, it does seem that we have the misfortune to be attempting a steep climb from a deep trough precisely as demographic factors are conspiring to reduce the potential growth rate of the economy. From the summary of a new paper by David Bloom, David Canning, and Gunther Fink:

"If their population age structure between 1960 and 2005 had been what projections suggest it will be for the 2005 to 2050 period, the OECD countries would have grown by 2.1 percent per year rather than by 2.8 percent per year."

This is not to say that demographics give reason for expecting, and tacitly accepting, near 2 percent growth going forward. Bloom et al. are focusing on 45-year trends, which do not manifest themselves overnight. Furthermore, employment is so far below its prerecession level that it seems unreasonable to suppose that the economy can't or shouldn't be growing above its potential rate for some time to come. The point is, rather, that there are structural changes in play, which means that old rules of thumb—even those that appear as reliable as the "2 percent rule"—should be take with an even healthier dose of skepticism than usual.

Finally, in the end we are talking about a month's worth of data, yet to be revised. And though it is the latest in a persistent string of such disappointments, our own thinking here on the staff in Atlanta has been that real signs of improvement will only become apparent as the summer progresses—we have already conceded the second quarter. I was surprised by today's news but, in context, I would have been equally surprised with strong employment numbers that might have suggested strength in June.

Cold comfort, but better than no comfort at all.

David Altig By Dave Altig, senior vice president and research director at the Atlanta Fed

July 8, 2011 in Employment | Permalink

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Comments

Paul Krugman linked to an essay by George Orwell, which will ironically use to make a point opposite from what he intended (http://orwell.ru/library/articles/nose/english/e_nose)—

Lower employment by people of a more advanced age would mean lower GDP, if GDP were not already constrained by total consumption and through it unemployment. Supporting people who have reached the point where society agrees that they should no longer have to work is not the reason the Republican party is concerned with the present federal deficit; instead it is the people whom the government is supporting with spending who would be employed in a more efficient private sector job if it was available.

The only resource the US can possibly seen to be short on is energy (and the US already consumes far more than most other countries). Agreement on the efficient distribution of produced goods is the problem, which the free markets of the US are failing to address despite the belief that they should.

The reality is that these markets are distorted by the widespread misunderstanding of the effects of individual actions and the best way for the individual to benefit the nation. Signalling (http://zhongwe2.serverpros.com/cs/) of income and hours working causes an oversupply of labour and leads to clustering of correlated behavior regarding supply and demand of labour and goods, which prevents purchases by the rich from significantly affecting the level of unemployment. These problems can be addressed as described here: http://pastebin.com/Q86Zhgs9

Posted by: Misaki | July 09, 2011 at 12:28 AM

many commenters suggested that a healthy monthly increment in employment would be between 100,000 and 150,000. The current employment/population ratio is aproximately 58%. One should notice that only people of 16 years of age and over are counted in.
On avearge, this civilian population has been growing since January 2010 by 143,00 per month. With the rate of 0.58 one would expect 83,000 per month. Actually, the increment since January 2010 is 76,000 per month. This estimate is from the households employment data, i.e. the same source as for the civilian population. The difference of 6,000 can not be considered as a dramatic one

Posted by: kio | July 09, 2011 at 03:10 AM

Actually, we are talking about two month's worth of data, and May was revised down. The comments from the Street a month ago were exactly what you say here - just one month, supply disruptions from Japan, bad weather, rebound to come...

And here we are. The Fed has been revising down its forecast for 2011 all year. A skeptic might say that the Fed continues to tell a bullish forward-looking story because it doesn't want to face up to the political firestorm associated with any talk of QEIII. Wages fell last month and the unemployment rate reached to a new 2011 high. I dunno but from a risk-based approach are we more worried about the hyperinflation that will ensue if the balance sheet gets bigger or the prospects of an unemployment rate permanently above 8.5% if nothing is done? Seems like a no-brainer to me.

Posted by: Rich888 | July 09, 2011 at 10:28 AM

With all due respect, I think the Federal Reserve should be far more worried about this data than is conceded in this posting! ("Finally, in the end we are talking about a month's worth of data, yet to be revised.")

I'm afraid we are talking about at least two months' worth of very soft payrolls data, with the kicker being the 44,000 in downward revisions to the last two months, leaving May at +25,000 in particular. Including the -44,000 in April and May revisions, this month's +18,000 headline number really indicated negative payroll growth relative to the previously-reported baseline!

The household survey was even grimmer, and over a three-month timeframe, with this exact quote in the BLS report: "Since March, the number of unemployed persons has increased by 545,000, and the unemployment rate has risen by 0.4 percentage point."

That IS recessionary data, and while there's no reason to panic at any time, I think we shouldn't be downplaying it -- we should be pursuing appropriate policy changes! As the famous quote by Sun Tzu indicates, it's a far better doctor whose patients get better before their signs of illness are noticed, than those who go all the way to death's door before being cured. Though the latter may become more famous, the patient would prefer the former!

Posted by: Wisdom Seeker | July 11, 2011 at 12:53 AM

I'm past 60 and on a mission of sorts that 60 is the new 40. Idea that older is not as productive is ancient thinking. Quit trying to rebuild the old days. Not jobs but individual income streams. Quit trying to help get out of the way. We can identify and fill markets, think up cool stuff with lights and all really.
Seriously small business operation by what are reffered to as senior citizens could be very handy to G.N.P.Not just filling in either.

Posted by: Michael | July 12, 2011 at 04:37 PM

I think unemployment is definitely a gamechanger. But not in the way most people have thought about. It's the gamechanger that people need to see as an indication to take control of their income. Great post.

Posted by: George A. | September 09, 2011 at 01:33 AM

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