The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
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.)
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:
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.
By Dave Altig, senior vice president and research director at the Atlanta Fed
TrackBack URL for this entry:
Listed below are links to blogs that reference Is the employment report a game changer? :
- Part-Time Workers Are Less Likely to Get a Pay Raise
- Learning about an ML-Driven Economy
- Hitting a Cyclical High: The Wage Growth Premium from Changing Jobs
- Thoughts on a Long-Run Monetary Policy Framework, Part 4: Flexible Price-Level Targeting in the Big Picture
- Thoughts on a Long-Run Monetary Policy Framework, Part 3: An Example of Flexible Price-Level Targeting
- Thoughts on a Long-Run Monetary Policy Framework, Part 2: The Principle of Bounded Nominal Uncertainty
- Thoughts on a Long-Run Monetary Policy Framework: Framing the Question
- What Are Businesses Saying about Tax Reform Now?
- A First Look at Employment
- Weighting the Wage Growth Tracker
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- November 2017
- October 2017
- September 2017
- August 2017
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth