Wonkbook: Why a rising unemployment rate could mean a real recovery
Imagine two jobs reports today: In one, we add 200,000 jobs, and unemployment falls to 8.2 percent. In another, we add 200,000 jobs and unemployment rises to 8.4 percent. The first jobs report will probably result in better headlines for the Obama administration. But it's the second jobs report that's more indicative of real recovery.
To see why, ask yourself this question: At 200,000 jobs a month, how long will it be till we return to full employment? It seems straightforward enough. You just take the number of jobs between here and full employment, divide by 200,000, and you're done. Sadly, no. First you need another piece of information: you need to know how many workers are going to enter the labor market each month.
Here’s the issue: Before the recession, the economy needed to produce 120,000 jobs a month just to keep up with new entrants into the labor market. Lately, that number has been closer to 90,000. Part of this is that immigration has fallen and many immigrants are leaving. Part of it is that some workers are leaving the labor force — either they can’t find a job and have given up, or they have decided to stay home with the kids or focus on other pursuits rather than take the sort of jobs they can get right now.
The differences can be big. If we’re adding 200,000 jobs a month, it will take almost 14 years to recover if we’re adding 125,000 workers a month, and about eight years if we're adding 90,000 workers a month. See here for a table comparing different rates of job growth with different rates of labor-force growth.
Perversely, this is a case where a longer recovery could mean a better recovery. If we continue growing at 90,000 jobs a month, it likely means that many of the long-term unemployed never made it back into the labor force, and that the economy is producing less than it otherwise could. It means, in other words, that the recovery is proving unable to reverse some of the deepest wounds inflicted by the recession. If we get catch-up growth in the labor market, that may push back the return of full employment, and it may even temporarily increase the unemployment rate, but it will mean we’re seeing a fuller recovery.
1) JOBS DAY! Economists are forecasting a gain of over 200,000 jobs. "Employers probably took on more than 200,000 workers in February for a third straight month, indicating an improving labor market will support the U.S. expansion, economists said before a report today. Payrolls increased by 210,000 after rising 243,000 in January, according to the median projection of 94 economists surveyed by Bloomberg News. Such a gain would cap the strongest six-month hiring stretch since 2006. The jobless rate probably held at an almost three-year low of 8.3 percent...The Labor Department’s report is due at 8:30 a.m. in Washington. Payroll estimates in the Bloomberg survey ranged from increases of 125,000 to 275,000. The January gain was the biggest since last April, when employers took on 251,000 more workers. The projected increase in February payrolls marks the best six-month stretch of job growth since the period ended June 2006, more than a year before the recession began." Alex Kowalski in Bloomberg.
Keep an eye on workers returning to the labor force. "How big should the American labor force be? It seems like an arcane academic question. But it is at the heart of whether the unemployment rate will fall in the February jobs report to be released Friday morning and, more important, whether it will keep on dropping throughout the year. Here is the issue: During the recession and the sluggish start to the recovery, companies laid off workers and froze hiring, driving the unemployment rate up. Hundreds of thousands of workers chose not to enter the job market or, discouraged, abandoned it...Thus, the labor force participation rate - the percentage of Americans working or looking to work - has declined to its lowest level since the 1980s. The strengthening recovery has reignited a long-running debate about how many of those workers will come back - making the participation rate and the overall number of people in the labor force interesting numbers to keep an eye on in the next few jobs reports." Annie Lowrey in New York Times.
@jbarro: Am I the only policy nerd who actually plans to be asleep when the jobs report comes out?
2) Greece wrapped up its debt swap, and everyone feels fine. "Just over 80% of Greece's private-sector creditors agreed to turn in their bonds for new ones with less than half the face value, touching off a massive debt swap that marks a seminal moment in Europe's long-frustrated efforts to rescue its most financially vulnerable nation. The Greek government announced the results of its proposed restructuring early Friday morning. It said 83% of bondholders had submitted to the deal. The government said it would invoke so-called collective-action clauses that will impose the exchange on the vast bulk of reluctant creditors, bringing participation up to 96%. The announcement that the restructuring will go ahead precipitates the largest-ever sovereign-debt default and the first for a Western European country in half a century." Charles Forelle, Stelios Bouras, Alkman Granitsas, and Costas Paris in The Wall Street Journal.
@TonyFratto: Greece is proving to be really, really good at getting people to give up old worthless paper for new worthless paper.
3) Republicans are trying to avoid an election year showdown over the budget. "For months, congressional Republicans have hammered Senate Democrats for failing to pass a budget. Now, with their majority position on the line in the November elections, GOP House members are having budget troubles of their own. Conservatives are pressing House Speaker John A. Boehner (Ohio) and other GOP leaders to slash 2013 agency budgets below levels set during last year’s debt-limit showdown, arguing that the deal did too little to curb spending. While that move might impress tea party voters, it would put them at odds with Democrats and even Republicans in the Senate, who are eager to get through the summer and fall without another nasty spending fight that could shut down the government five weeks before voters head to the polls. Congressional approval ratings plummeted after last year’s budget drama, and many House Republicans also aren’t keen to repeat the experience." Lori Montgomery in The Washington Post.
4) Obama is revisiting housing policies he previously rejected. "President Obama has begun embracing housing policies that administration officials earlier thought unwise or unworkable as he embarks on his most aggressive push to address the nation’s foreclosure crisis and depressed real estate market since the first months of his tenure. Obama has unveiled more than half a dozen plans in recent months to help millions more Americans refinance their mortgages at low rates, to reduce the debts owed by struggling homeowners and to expand existing programs to broaden the pool of borrowers eligible for government aid. The latest initiatives, announced this week, seek to help members of the military and Americans who have government-insured mortgages. The administration had previously rejected some of these efforts on the grounds that they were wrong on the merits, risky for taxpayers or could not be done." Zachary Goldfarb in The Washington Post.
5) Americans are ramping up their borrowing. "Americans ramped up their borrowing late last year for the first time since the depths of the recession, as households took out loans for education, cars and holiday gifts. Household debt, including mortgages, credit cards, auto loans and student debt, rose 0.25% on an annualized basis in the fourth quarter of 2011, the Federal Reserve said Thursday. It was the first increase since the second quarter of 2008, before Lehman Brothers' collapse and the ensuing financial panic and recession. Since then, Americans have focused on reducing their debt. That process strengthens an economy in the long run but crimps short-term growth by cutting off consumer spending--which fuels most economic activity. With the job market firming, Americans are borrowing more, the Fed data show, mostly through student loans but also auto loans and credit cards. That suggests households are in better shape than during the downturn." Neil Shah in The Wall Street Journal.
1) The American commitment to education is under attack. "One way in which Americans have always been exceptional has been in our support for education. First we took the lead in universal primary education; then the 'high school movement' made us the first nation to embrace widespread secondary education. And after World War II, public support, including the G.I. Bill and a huge expansion of public universities, helped large numbers of Americans to get college degrees. But now one of our two major political parties has taken a hard right turn against education, or at least against education that working Americans can afford. Remarkably, this new hostility to education is shared by the social conservative and economic conservative wings of the Republican coalition, now embodied in the persons of Rick Santorum and Mitt Romney. And this comes at a time when American education is already in deep trouble." Paul Krugman in The New York Times.
2) Republicans shouldn't bash education. "In his stump speech, Mr. Romney has been trying out a good line about seeing the success of others as a spur to 'ambition, not envy.' That formulation should apply to educational as well as economic success. After all, achievement in higher education correlates powerfully with performance in the workplace. Recent numbers indicate that only 4% of those with university degrees are unemployed, while the rate rises to 16% for those with no high school diploma...Mr. Santorum's family background shows the profound value of education in lifting the disadvantaged into the middle class and beyond. The campaign likes to leave the impression that he grew up in the coal fields of Pennsylvania, but young Rick actually came of age in a home where the father earned a doctorate and worked as a clinical psychologist while the mother toiled outside the house as a well-credentialed administrative nurse; it was his immigrant grandfather who worked the coal mines." Michael Medved in The Wall Street Journal.
3) The center must hold. "The recent retirement announcement by Sen. Olympia Snowe is a disappointment to the people of Maine and to me personally. Olympia has devoted her life to public service, and her decision to abandon a race that she surely would have won speaks volumes about the dysfunction in Congress. It has also prompted many people to ask me whether moderates have a future in the Senate...The change is particularly troubling in these perilous times. With a $15 trillion debt, 13 million people unemployed, oil near $110 per barrel and turmoil throughout the Middle East, there is an urgent need for leaders from the sensible center who realize that neither party has a monopoly on good ideas. The challenges we face will not be met by those who believe compromise is a dirty word. What has been lost in recent times is a commitment to Congress as an institution, a sense that we are collectively responsible for addressing the issues that confront our country, and that if the institution fails to perform each of us bears responsibility." Susan Collins in The Washington Post.
4) Density is more important than ever. "Housing costs are high and supply is scarce not because nobody wants to build, but because getting regulatory permission to do so is extremely difficult. Land near major cities is very expensive. The natural solution is to construct multifamily housing -- deploying the advanced technology of the elevator if necessary -- in order to fit a large quantity of people into scarce land...The bursting of the housing bubble presents us with a good opportunity to re-examine the proposition that expensive houses are a good thing. Expensive land is, of course, a benefit to those who own it. But scarce -- and therefore expensive -- houses are a barrier to opportunity. In an economy where tradeable production can take place overseas, or increasingly be done by machines, access to the high-wage, high-productivity labor markets of America’s richest cities is more important than ever. That means housing construction in the places where demand is highest and homes are most expensive." Matthew Yglesias in Bloomberg View.
@ryanavent: Urban density is like duct tape.
5) Technology is driving inequality. "It is worth contemplating the rise of this IBM supercomputer amid a fraught election season. Out on the campaign trail, Republicans promise to bring jobs back by reining in the government and bashing China. Barack Obama counters with a mirror-image populism, blaming the super-rich for the troubles of ordinary workers. Watson stands as a reminder that something more profound is happening. We are in the midst of a technological upheaval; and financial rewards are flowing to the elites who create and control the new machines...Small wonder, then, that inequality is rising. Innovators and programmers are earning more than ever, as are the entertainers and intellectual superstars who leverage the new technologies to create global brands. High-touch, high-skill professions that cannot be automated (think fancy divorce lawyers) are doing nicely, thank you. But for large swaths of the workforce, the outlook feels bleak." Sebastian Mallaby in The Financial Times.
Folk interlude: Sharon Von Etten plays "All I Can" live on Soul Kitchen.
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Still to come: The House passed a bundle of jobs bills; Medicare cuts are hurting small providers; a cybersecurity bill has become part of a debate over regulation; the Senate rejects an effort to boost Keystone XL; and elephants have fun in the sand.
Jobless claims rose unexpectedly. "First-time claims for jobless benefits in the US rose unexpectedly last week but the data failed to damp optimism about a labour market recovery. In the week to March 3, initial jobless claims rose by 8,000 to 362,000 from the previous week’s revised figure of 354,000, according to the US labour department. Analysts had expected claims to stand near 351,000. The four-week moving average was 355,000, an increase from the previous week’s revised figure of 354,750. The monthly average smoothes out seasonal quirks and provides a more accurate view of labour market trends...In spite of recent positive labour market data, there are concerns that long periods of unemployment are eroding the skills, confidence and the consumption habits of those out of work, possibly damaging the broader economy in the long term. While economists point to a pick-up in the labour market, income growth and consumption have yet to track the rise." Anjli Raval in The Financial Times.
Household wealth climbed. "Household wealth in the United States, from October through December, climbed for the first time in three quarters as an increase in stock prices outstripped a decline in home values, the Federal Reserve said Thursday. Net worth for households and nonprofit groups increased by $1.19 trillion in the fourth quarter, or 2.1 percent from the previous three months, to $58.5 trillion, the Federal Reserve said in its flow of funds report from Washington. Housing wealth decreased by the most in more than a year. The Standard & Poor’s 500-stock index, which rose 11 percent in the final three months of 2011, is again climbing this year as the improving job market builds confidence in the expansion. At the same time, the gain in wealth last quarter was less than half the previous period’s slump, indicating households may continue to repair balance sheets hurt by the recession." Shobhana Chandra in The New York Times.
The House passed a package of small jobs bills. "House lawmakers on Thursday swiftly passed a bundle of bills aimed at boosting the economy by making it easier for small businesses to hire workers - a Republican-led package that earned the backing of the White House earlier this week...The White House applauded the passage of the JOBS -- or Jumpstart Our Business Startups -- Act. President Barack Obama called on Congress to quickly send him a bill to aid small businesses, an administration spokeswoman said...It wouldn’t be Congress without some political rancor, and the JOBS Act had plenty of that in the run-up to its 390-23 passage on Thursday. Most of the controversy centered on a component that would exempt smaller banks from registering themselves with the Securities and Exchange Commission." Seung Min Kim and Scott Wong in Politico.
Bank of America will provide some with deep principal reductions. "More than 200,000 financially strapped households will have a chance to sharply reduce their mortgage balances under a side deal negotiated by Bank of America Corp. that could allow the bank to avoid as much as $850 million in penalties. Under the arrangement, part of the recent $25 billion settlement of alleged foreclosure abuses between government officials and five large lenders, Bank of America will make deeper and broader cuts in balances than other banks. The plan will offer qualifying borrowers a chance to cut their mortgage balances to their home's current market value. Other banks are required under the national settlement to cut principal to no more than 120% of the home's value. Borrowers who qualify are expected to receive principal reductions averaging more than $100,000, a Bank of America spokesman said. The pact's total value will depend on how many borrowers take up the offer." Ruth Simon and Nick Timiraos in The Wall Street Journal.
Stop motion interlude: In which everyday objects are transformed into fresh guacamole.
The White House is ramping up its campaign to defend health reform. "The White House has begun an aggressive campaign to use approaching Supreme Court arguments on the new health care law as a moment to build support for the measure seen as President Obama’s signature legislative achievement, hoping to shape public opinion on an issue at the center of the battle for the White House and Congress. On Wednesday, White House officials summoned dozens of leaders of nonprofit organizations that strongly back the health law to help them coordinate plans for a prayer vigil, press conferences and other events outside the court when justices hear arguments for three days beginning March 26. The advocates and officials mapped out a strategy to call attention to tangible benefits of the law, like increased insurance coverage for young adults. Sensitive to the idea that they were encouraging demonstrations, White House officials denied that they were trying to gin up support by encouraging rallies outside the Supreme Court." Robert Pear in The New York Times.
Medicare cuts are hitting smaller providers. "For House-Senate negotiators, it was just the last piece in a political jigsaw puzzle. For Annette Iacono, vice president and general manager of a community lab in the Philadelphia suburbs, it 'hit us in the solar plexus hard.' At issue was a 2 percent cut in Medicare reimbursements for clinical lab services, a $2.4 billion, 10-year savings to forestall even more ruinous reductions in payments to physicians caring for the elderly. Helped by powerful allies, medical equipment suppliers and for-profit hospitals had protected their hides in the final 'doc fix' talks -- all part of the payroll tax drama last month. And the lab cut became the classic, dial up, dial down filler that lawmakers turn to without anyone able to explain the consequences in the real world outside. Quest Diagnostics and LabCorp, the big national giants, can roll with the punches, but smaller independent labs -- an integral part of serving Medicare patients in nursing homes -- are in jeopardy, given their narrower profit margins." David Rogers in Politico.
Birth control should be more widely available. "Anyone -- a local teenager, a traveling businessman, a married mother of four, an illegal immigrant, even a student at a Jesuit university -- can walk into my neighborhood CVS any time, day or night, and, for less than $30, buy a 36-count 'value pack' of Trojan condoms. That’s enough to last most Americans at least three months, according to Kinsey Institute surveys...Contrary to widespread belief, there’s no good reason that oral contraceptives -- a far more effective form of birth control -- can’t be equally convenient...Partly because birth-control pills are available only by prescription, people tend to think they’re more dangerous and less well understood than they actually are. In fact, 'more is known about the safety of oral contraceptives than has been known about any other drug in the history of medicine,' declared an editorial in the American Journal of Public Health back in 1993. That editorial accompanied an article arguing for over-the-counter sales." Virginia Postrel in Bloomberg.
A cybersecurity bill is sparking a debate over regulation. "A bipartisan Senate bill to bolster cybersecurity has sparked a competing proposal from Republicans wary of new regulations for businesses, a signal that burgeoning anti-government fervor has begun shaping national-security measures. The White House-backed proposal would require companies that own computer networks integral to key critical infrastructure like electric-power systems and nuclear reactors to meet certain cybersecurity standards...The Republican alternative, unveiled last week, omits provisions for critical infrastructure security and instead focuses on creating better mechanisms for the sharing of cyberthreat information between the government and industry. The bills' future will likely depend on whether the debate is seen as one primarily about national security or economic growth, congressional and industry officials say." Siobhan Gorman in The Wall Street Journal.
Adorable animals being adorable interlude: Elephants at the Toledo Zoo play in the sand.
The Senate rejected speeding up Keystone XL. "In the wake of lobbying by President Obama and Senate Democratic leaders, the Senate Thursday defeated legislation to speed up construction of a U-S.-Canadian oil pipeline...GOP Sens. John Hoeven (N.D.), Richard G. Lugar (Ind.) and David Vitter (La.) offered an amendment Thursday that would have eliminated TransCanada’s need for a federal permit to cross the U.S.-Canadian border, while allowing Nebraska unlimited time to develop an alternative route through its territory. At the time Obama rejected the permit, he said he could not approve the pipeline until the firm hoping to build it developed a route circumventing the environmentally sensitive Sandhills area in Nebraska...Proponents needed 60 votes for a filibuster-proof majority; the final tally on the amendment was 56-42." Juliet Eilperin and Ed O'Keefe in The Washington Post.
Failure to agree on a highway bill would result in chaos. "In the beginning, House Republicans wanted a six-year transportation bill for highways, bridges and transit. Something long-term. Something to end Congress’s addiction to short-term spending bills that leave states unable to plan. (Congress has passed eight such stopgaps since 2009.) But that didn’t work out so well. The House GOP’s original six-year highway bill would have cut overall spending levels on roads -- in part because it relied solely on shrinking gas-tax revenue. That caused much unhappiness. So the GOP went back and expanded the bill using money from hypothetical future drilling exploits. That also caused much unhappiness. So now John Boehner is suggesting that the House may throw up its hands and vote on the two-year extension the Senate’s now considering. And if that doesn’t work, then Congress can always just pass yet another two-month extension before all highway funding runs out March 31. So how much chaos are these stopgap bills causing? Quite a bit." Brad Plumer in The Washington Post.
@JimPethokoukis: "The oil-price hikes already in place, unless reversed, will deliver $4/gallon gasoline nationally before Memorial Day."
Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.