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The Big March Job Report Celebration Print
Saturday, 02 April 2011 07:54

Okay, this celebration around the jobs report is really getting out of hand. Both the Post and Times had front page pieces touting the good news. The Post gets the award for being the more breathless of the two:

"The jobs numbers come amid other promising signs that the recovery is building momentum. The stock market wrapped up the first quarter this week with a 6.4 percent gain in the Dow Jones industrial average and continued to tack upward Friday, adding another 0.5 percent. Investors were pleased that the job growth was continuing — but not so fast that the Federal Reserve might want to apply the brakes by raising interest rates anytime soon.

"Also contributing to the buoyant markets were reports from automakers Friday showing that auto sales rose in March. Sales of new vehicles were up 11 percent over a year before at General Motors, 16 percent at Ford and 23 percent at Honda.

"A separate report Friday also showed continued strong growth in the manufacturing sector, with the Institute for Supply Management’s index of activity at the nation’s factories edging down to 61.2 from 61.4. Numbers above 50 indicate expansion."

First off, no one should include the stock market as indicator of the economy's well-being. Rich people are happy -- that's nice -- it has little to do with the economy. The car buying is positive, but with so many of the cars now imported or largely comprised of imported parts the impact of this surge in sales is much less than would have been the case 30 years ago. The drop in the Institute for Supply Management's index suggests that manufacturing is likely to make a marginally smaller contribution to growth in the months ahead, not good news. (The Bureau of Labor Statistics employment diffusion index for manufacturing, a measure of the percent of sectors that expect to add workers, fell from 66.0 in February to 63.0 in March, it had been 73.5 in January.)

As noted above, 216,000 jobs is not especially impressive, especially given the depth of the hole that our economic policymakers put us in. In only 15 of the 52 months from February 1996 to May of 2000 did the economy create fewer than 216,000 jobs. In most cases the weakness was caused by bad weather. And this was at a time when the working-age population was more than 10 percent less than today.

It is also striking that neither paper seems to have mentioned the Commerce Department's report on construction in February, which showed a 1.4 percent decline in February, following even larger declines in December and January. (The big news in this report was the 2.6 percent downward revision to the data originally reported for January.) Much of the story here is in non-residential construction as the building boom that resulted from the bubble in that sector is leading to a bust. The largest declines are in manufacturing construction where bio-fuel subsidies had led to a boom in ethanol plants in 2009-2010.

Anyhow, construction is certain to be a big drag on growth in the first quarter. It should knock at least a percentage point off GDP growth for the quarter. I am forecasting many surprised economists and reporters.

I have one more point skunk to toss over at the celebrators. Here is the path of the employment to population ratio (EPOP) over the downturn. Note that we have only risen slightly from the low hit in December of 2009 and the EPOP is actually a hair lower today that it was a year ago. The drop in the unemployment rate over this period was entirely due to people leaving the labor force. Now is that good news or what?

 

Employment to Population Ratio in the Dowturn

 

LNS12300000_406645_1301768971989

 

Source: Bureau of Labor Statistics.

 
That Big March Jobs Number Print
Friday, 01 April 2011 23:04

It seems that the current contingent of economics reporters are too young to remember a healthy economy. This is the only way to explain the extraordinary celebration of the gain of 216,000 jobs reported for March. While this news is certainly in the "could have been worse" category, this is hardly an impressive rate of job growth, especially for an economy recovering from a severe recession. Remember, job growth averaged 250,000 a month for the 4 years from 1996 to 2000, and that was starting from an unemployment rate that was already under 6 percent.

For those folks too young to remember how an economy is supposed to grow, I constructed a simple chart showing monthly job growth in the two years following the 74-75 recession, the 81-82 recession, and the 91-92 recession and compared them to the 216,000 job growth reported for March. (In making comparisons it is worth noting that the period following the 90-91 recession was known as the "jobless recovery.") The numbers shown are labor force adjusted which means that I multiplied the number of jobs created each month by the ratio of the March 2011 labor force to the labor force in the month given.

 

Book4_11013_image001

Source: Bureau of Labor Statistics and author's calculations.

 
Reducing Oil Imports to Lower Prices: Is President Obama a Neanderthal Protectionist? Print
Thursday, 31 March 2011 05:14

The description of his strategy in a Washington Post article suggests that he is. According to the article, President Obama wants the United States to reduce its dependence on foreign oil because the price is high.

This strategy makes no sense in the current context because there is a world market for oil. Increased production of oil in the Gulf of Mexico or Alaska has no more impact on the price that people in the United States pay for their gas than increased production in Venezuela or Saudi Arabia. The only way that focusing more on domestic production would substantially reduce the price of oil relative to the rest of the world would be if President Obama plans to put export restrictions on U.S. oil.

Of course since the U.S. doesn't have enough oil to ever be close to self-sufficient, this would be impossible in any case. The Post should have pointed out to its readers that President Obama's strategy for reducing the cost of oil does not make sense.

 
Is It Plausible That Michelle Rhee Really Never Considered the Possibility that Teachers and/or School Administrators Cheat? Print
Thursday, 31 March 2011 04:51

Washington Post reporter Jay Mathews had a column on former DC school chancellor Michelle Rhee's initial response to a USA Today article that finds evidence of widespread cheating on the exam scores reported by one of the District's star schools. Ms. Rhee denounced the article and described the reporters who researched it as flat earthers who opposed school reform.

The next day Rhee apologized for her previous comments and acknowledged that there were important questions about the integrity of the test scores that need to be examined. Mathews praised Rhee's reversal and commented that:

"I sensed from my talk with Rhee that one reason she misspoke on Monday was that she had not had time to read either the USA Today story or the investigators’ reports, or to probe the weaknesses of test security protocols in Washington and other districts."

If true, this would be astounding. There have been major testing scandals in many cities around the country dating back to the mid-90s. In the wake of these scandals it is difficult to believe that a school administrator who substantially increased the importance of standardized tests in the assessment of teachers and schools had not given careful consideration to test security protocols.

 
Distressed Sales are Simply Part of the Process of a Deflating Bubble Print
Thursday, 31 March 2011 04:45

USA Today had a piece that reported that distressed house sales are likely to depress house prices for years to come. The piece never refers to the housing bubble. This is remarkable since it is impossible to understand the housing market without reference to the bubble.

At its peak, the bubble pushed house prices more than 70 percent above their long-term trend values. The fall in prices to date has brought prices closer to their long-term trend, but the market still has to fall another 15-20 percent to return to its trend level. Distress sales are part of this process, but the main point is that house prices are still well above the level that would be supported by the fundamentals of the market in large parts of the country.

 
Leonhardt Gets it Right on the Fed Print
Wednesday, 30 March 2011 05:05
David Leonhardt has a nice column making the point that the Fed faces a lot of pressure to keep inflation under control, but it does not have the same lobby pushing it on unemployment.
 
Is There Anyone in the World Who Is Demonstrably Less Competent Than Alan Greenspan to Pass Judgment on Financial Reform? Print
Wednesday, 30 March 2011 04:54
The Financial Times featured a column from former Federal Reserve Board Chairman Alan Greenspan arguing that the reforms in the Dodd-Frank bill will make financial markets less stable. Just in case you have forgotten, we have 25 million people who are unemployed, under-employed or have given up looking for work altogether because Alan Greenspan did not understand financial markets and the economy. Perhaps the FT will have a column offering advice on disaster management from Michael Brown.
 
Can Someone Get Dana Milibank a Teddy Bear? Print
Wednesday, 30 March 2011 04:48
We have almost 25 million people unemployed, under-employed or who have given up looking for work altogether and he is worried about the "$14 trillion debt crisis." Yeah, this is the crisis that has pushed the interest rate on 10-year Treasury bonds all the way up to 3.4 percent. Pretty scary.
 
The Problem Is the News Reporting, Not Just Editorials: More From Ezra Klein on Social Security Print
Wednesday, 30 March 2011 04:11

Ezra Klein responded to criticisms raised by myself and others of his piece urging liberals to support Social Security reform. Ezra suggests that we over-rate the importance of editorials in shaping public debate.

For myself, I never meant to suggest that the main problem was the anti-Social Security diatribes that are regularly featured in the Washington Post and elsewhere. The problem is that the major news outlets (e.g. the Washington Post, National Public Radio, the Wall Street Journal) allow their editorial position to thoroughly permeate their reporting.

Their news sections are full of pieces that highlight the Social Security crisis and routinely feature prominent people saying the equivalent of "the earth is flat," without the reporter calling readers' attention to the vast body of evidence showing that the earth is not flat. At best, readers are allowed to hear the perspective of an expert saying that the Social Security is not in crisis, but even in this sort of he said/she said story, the flat-earthers typically out-number the reality based commentators.

Read more...

 

 
Mark McKinnon Plays "How Many Things Can You Get Wrong About Social Security in One Column" Print
Tuesday, 29 March 2011 07:07

The hottest sport these days in Washington is seeing how many incorrect or misleading statements about Social Security you can get in one column. All the major media outlets are fully on board, anxious to convey any misinformation that reflects badly on the program. And there are plenty of deep-pocketed funders like Wall Street investment banker Peter Peterson who are happy to finance the effort. Hence we are seeing a plethora of pieces decrying the high-living seniors who are getting fat on their Social Security checks.

The latest contestent to enter the fray is Republican political strategist Mark McKinnon with a column in the Daily Beast. Let's play along.

Mckinnon starts by warning that the United States could end up like Greece or Portugal, abandoned by the credit markets and forced to beg international organizations to buy our debt. Very nice -- this one always gets lot of points with political pundits. Of course it is not true. The United States has its own currency, that means it can never be like Greece or Portugal.

Read more...

 

 
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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