By Andrew Kliman, Author of Reclaiming Marx’s “Capital“: A refutation of the myth of inconsistency.
Is the worst over?
A couple of hours ago, the U.S. Bureau of Labor Statistics reported that the number of nonfarm payroll jobs fell in April by an estimated 539 thousand, and that the unemployment rate increased to an estimated 8.9%, from 8.5% in March. So since employment peaked (and the recession officially began) in December 2007, payroll employment has fallen by 5.7 million. Keeping in mind that the U.S. economy would need to have about 150 thousand additional jobs per month in order for employment to keep up with the growing population, or 150 thousand x 16 months = 2.4 million since December 2007, that makes for a shortfall of over 8 million jobs since the peak.
Now, this is being spun as some kind of good news-principally, it seems, by the stock sellers (brokers) and their employees, and by business media reporters and writers (who don’t know much, frankly). Why? Well, April’s job losses are the smallest since the 380 thousand drop in October. Monthly job losses during the December-March period were all close to 700 thousand. And-more important-the fall in job losses is consistent with the other economic data (especially the stock market indexes and stuff driven by them, like the Consumer Confidence Index), which are pointing toward a “moderation of the contraction.”
But … (1) a rise from -700 thousand to -539 thousand isn’t all that big; (2) the government’s initial estimates have been consistently underestimating job losses, so there’s good reason to suspect that April’s figure will be revised a show a bigger decline in payroll employment as well; and (3) the numbers are “seasonally adjusted,” tweaked to remove the influence of seasonal factors, but I have my doubts.
Let’s look at the Case-Shiller Home Price Index.
We see home prices falling at an accelerating rate, then there’s a “moderation of the contraction”-less of a monthly decline, then the decline accelerates once more. So first, “moderation of the contraction” is no guarantee of future performance, as they say, and second, look at when the “moderation of the contraction” comes-late winter through the spring. If the seasonal adjustment to the jobless figures is less-than-complete, and if there’s a similar seasonal variation to them (e.g., much slower job creation after Christmas and until hiring of students begins in late spring and early summer), the moderating pace of job losses might well be just a temporary lull.
And (4): “moderation of the contraction” gets spun by the stock sellers and the biz media into claims or at least suggestions that the worst is over, i.e., that things have hit bottom and are about to turn around. This is not-IS NOT-what it means. It means that things are continuing to get worse, but they’re getting worse more slowly than they were getting worse before. For instance, if your income was $50K, then it fell to $30K, then it fell again to $25K, the second fall is a “moderation of the contraction.” The first fall from 50 to 30 is a fall of 40%, the second fall from 30 to 25 is a fall of 17%.
I like the way Ian Shepherdson, a forecaster/analyst, put it yesterday, commenting on the 491 thousand decline in ADP’s estimate of April’s job losses: “”By any measure except the past few months, a 491,000 drop in private payrolls is disastrous, but at least it is less disastrous than before” (http://www.marketwatch.com/news/story/private-sector-jobs-fall-491000-april/story.aspx?guid={13600D45-3E89-4C21-821B-1CD9A2C860A3}&dist=msr_5). So when you hear stuff about the “moderation of the contraction,” think “less disastrous than before.”
One Comment on “April Unemployment & Employment Stats: “less disastrous than before””
1Andrew Kliman said at 4:59 am on May 9th, 2009:I see that Nate Silver over at FiveThirtyEight.com has much the same reaction as I have about the “moderation of the contraction” stuff:http://www.fivethirtyeight.com/2009/05/horray-second-derivative-of.htmlI’m glad to be in such good company.
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