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August 06, 2004

Terrible News: Job-Growth Sputters Out

This is just awful news:

WASHINGTON (Reuters) - U.S. employers added a paltry 32,000 workers to payrolls last month, the government said on Friday in a startlingly weak report that led Wall Street to forecast a slower pace of Federal Reserve (news - web sites) interest-rate rises.

...

The Labor Department (news - web sites) also cut its tally of job growth in May and June by a combined 61,000, adding to the weak tenor of a report that came as unwelcome news for an election-bound President Bush (news - web sites).

...

Wall Street economists polled last week had looked for a payroll gain of 228,000, although a weak employment reading from a service sector survey on Wednesday had some bracing for a weaker number.

Still, they were stunned by July's lackluster figure.

"It's a huge disappointment, a big surprise," said Scott Brown, chief economist at Raymond James in St. Petersburg, Fla. "It implies a very sharp revision to the overall outlook for the economy."

...
While the Bush administration could point to the creation of 1.5 million jobs in 11 straight months of hiring gains, Democratic White House hopeful John Kerry could accurately claim the economy is still down 1.1 million jobs since the president took office.

Manufacturers added a meager 10,000 workers in July, after cutting a revised 1,000 from their payrolls in June. The department noted a loss of 21,000 jobs in the transport equipment industry, which it pinned on larger-than-usual retooling shutdowns at auto plants.

This is obviously not cowbell news. Exactly the opposite.

What is the opposite of cowbell? Well, this is, unfortunately:

0804.jpg

This jobs report just made it 15% more likely that Terezzzzza will be your first lady.

Pic from The Country Store.

Too Gloomy? The short answer is "No."

Although I understand the impulse to seek media bias, the fact is that this is bad news and can't be spun. The media is biased in favor of news that hurts Republicans, but in this case, their bias happens to overlap with objective reality. This is bad news that hurts Republicans.

Does this mean that there won't be any additional jobs created? No, of course not. Economies naturally go through peaks and stalls. There may be another peak coming, but the latest reports say we're in a stall. It's better to be in a peak.

And it's especially harmful that these two months of anemic job-growth come right before the Republican convention. Bush will have to be rather careful about trumpeting the economy at the moment -- the facts, alas, are not on his side. At this moment. Longer-term, yes, we've had very good job growth. But even as he notes the job growth over the past ten months, Democrats will respond by noting the weak job growth for the past two months. And their facts will be quite right, although their interpretation ("the expansion is over") is highly debatable.

The skyrocketing price of oil has taken its toll on the economy.

Others note the fact that the household employment survey shows much better job growth than the wider payroll survey. This is true, but it's been true for a long time, and the fact of the matter is that economists have much greater faith in the latter indicator-- the one that's not so cheery. Even if some on the right are correct that the household survey is, for some reason, now the more accurate guage, perceptions matter, and there will be no point in the foreseeable future at which time the perception becomes that the household survey is more important.

It should be noted that consumer confidence is now at a six month high. But I take little solace in this. The public is very skittish about the economy; it's taken them a long time to appreciate that the economy is, in fact, growing, and growing at a fast rate. I don't think it will take much bad news at all to shake their newborn optimism before it can get steady on its own two legs. And I think this latest news is more than enough to reverse the painstaking gains in public optimism about the economy made, bit by bit, over the past year.

I think the public is very slow to credit good news and overly quick to react to bad news. Their general inclination is sourness as regards the economy; this news reinforces that inclination, and suggests to them that their previous cautious optimism was actually wrong.

But this isn't disasterous news; it's just bad news. The economy may begin churning out jobs again before the election, now that it's had its summer swoon; despite problems (chiefly energy costs), the indicators remain strong. And even without another round of gangbusters job growth, it remains a fact that the economy is growing, albeit much slower than we might like at the moment.

As you all know, I had been hoping for a Perfect Economic Storm going into the fall. An expansion of such dimensions that not even the liberals could deny it. Obviously, we don't have that at the moment, and the projection isn't looking terribly good. It might be the case that I've been overly optimistic and hence my reaction is unrealistically gloomy, but based on the remarks of economic analysts -- tossing around words like "huge disappointment" -- I don't think this is a big factor.

June had anemic job growth; optimists called it an aberration, a fluke. Well, July has truly weak job growth. That doesn't necessarily prove a trend, but it does make that "fluke" argument ring somewhat hollow.

And no one's talking about Bush completely erasing his jobs-deficit by November anymore. Unless the economy creates 400,000+ jobs in August (possible, but right now unlikely), no one will bandy around such talk again. Personally, I've gone from hoping that the economy will be a net positive for Bush in November to hoping it will be neutral to mildly negative.

I'd like to be surprised, of course. The Amish surprised me. Why not the economy?

Does Talking Down the Economy Work? Have the Democrats and their Liberal Spirit Squad in the media managed to slow growth?

I ask because this is my gestalt take on what's been happening with the economy:

Indicators rise like gangbusters. Businesses grow confident, begin hiring.

But the public take on the economy remains sour.

Eventually, this public sourness causes businesses to stop being so confident, and they slow their hiring and investment.

The public finally seems to realize we're in a strong recovery-- but they reach this conclusion just as businesses are moving in the other direction. Soon, the public realizes that the economy isn't as good as they had just imagined it was, and they sour again.

This has happened a few times.

A booming economy needs a virtuous cycle to sustain itself. Business confidence feeds consumer confidence which feeds business confidence which in turn feeds consumer confidence, and etcetera and etcetera.

But I've been frustrated for the past year that we never seem to actually get into this cycle; the pistons are always misfiring, out of sync with the others. Eventually one spluttering piston slows down the others. They're never firing in good timing with each other, which is what our economic engine needs.

I know that when Clinton had good economic news in February 1996, the media made damn sure the public knew it, and public sentiment (which had been gloomy for four years) quickly matched the basic underlying economic indicators. The economy then moved in good sync, firing on all cylinders.

But it hasn't been quite that way this time 'round, has it?


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posted by Ace at 12:19 PM

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