Thursday, July 24, 2014

What if this, is as good as it gets? (2004)

OK, time for me to use one of those econogeek phrases."The Business Cycle".

There, I said it, I feel better now - let me explain what today's jobs numbers tell us, and why it is better news than a Democratic challenger would like, but worse news than Bush can afford.

You see, we just had our recovery - as bad as it is, the weakest since we've tracked these things.

The business cycle shows up in all sorts of ways, in employment it shows up this way - a recession hits, and at some point business stop hiring - there is a jump in the big "after Christmas" layoff season - as retail and construction jobs vanish for the winter. Then the next spring isn't as good.

The next winter is when people who work take a beating - claims spiral, often because extended unemployment benefits have been passed. But then, they were passed because of the payroll survey showing the job market taking a hair cut. That spring is awful. In the terrible double dip recessions of the early 1980's, the yearly cycle breaks down almost completely - there is no hiring. Spring never comes.

Then there is a gangbusters year - hiring comes back. The recovery begins, and if it gets to being an expansion, what happens is smaller and smaller peaks in most years, and lower and lower troughs.
Now for the hard core numbers:

According to the labor department, the raw number of people filing initial unemployment insurance claims was at 354,000, and it peaked this year at 677,000. Last year it peaked at 724,00 initial claims - there were also more "bad weeks" near the top of the curve last year.

According to the labor department some 3.7 million Americans were drawing continuing claims as of the week ending the 14th, which is the last week we have data for. The peak this year was at 4.1 million, and this is about 350,000 lower than last year's peak - which is a fairly good estimate of the number of people that have been put back to work in the last year - 350,000. To give you an idea of how bad this is, Bush Jr would have to put that many people back to work a month just to get even.

Now what does all of this mean? Well many economists who follow the job market look at seasonally adjusted numbers. I don't - I don't think it is either necessary, nor is it healthy. There is a yearly employment cycle, and seeing where it is healthy and where it is not tells us a great deal about the economy.
So what do the numbers tell us?

First, they tell us that the job picture improved in the last year - with an official 350 billion dollar deficit, it had better have improved. Bush Jr. has borrowed about 1 million dollars for each person put back to work. Somehow, I think this isn't a great deal of bang for the buck. I mean, at one million dollars a worker, you could set up a law firm in Downtown Manhattan.

Second, they tell us that the recovery from the recession has happened - that first year where growth is good. Only, it is the worst job growth of any recovery year in the post war era. To give you an idea:

After the early 1990's recession the peak of people drawing unemployment fell between 1992 and 1993 by 1 million.

After the Reagan Recession, the peak of people drawing unemployment fell between 1983 and 1984 by 2 million.

After the Nixon Ford recession, peak of people drawing unemployment fell by 1 million.

So, what does this have to do with - that phrase again - the Business Cycle?
Essentially, when there is a recession, businesses try and hold on, they aren't sure whether it is a temporary dip and will come back - which would mean they need the people, or whether they should lay off. Generally, there is a lag then, between the GDP down turn and unemployment - often as much as a year. Then the recession hits, and somewhere GDP starts to grow again - but business don't tend to hire - because they want to be sure it is spring again in the economy. But then it does hit, and they hire lots of people back quickly to compete with the other business for this new cycle. After all, get a consumer early, and they stay loyal.

One can see this by the peak unemployment number. Looking at the numbers since 1967 tells you that the peak unemployment number - let me call it the "J" number, tells you how bad it is. It is also an excellent leading indicator of the next year's J number - a big jump in J means next year will be bad. The only "false positive" was 1996.

The other number is the bottom number in the fall- call it the F number. This tells you how good things get.

By these standards we see why the Republicans want to sell things as getting better - the peak J number is getting better - the jump from last year to this indicates, well, this was the gangbusters year of growth. Worst one since we have data, but, better than any non-recovery year since the 1970's.
But the reason the pain is bad out there is because of the F-number: since unemployment began to rocket upwards in 2000, we've had only a few weaks where fewer than 3,000,000 people were drawing claims. To give you an idea of how bad this is, consider that in Clinton's second term, we spent fewer weeks ABOVE 3,000,000 - than we have spent BELOW 3,000,000 under Bush.
Basically, this tells us that the Bush economy is just one with a lot more permenant unemployment: about a million jobs are gone and are not coming back.

It also tells us something else - in 2000 there was a big jump in continuing claims in the winter. This was a clear indicator that dramatic action was needed to head off a peak of unemployment. Instead - Bush delivered an economic plan designed to destroy jobs. It worked beautifully, the Republican war on Prosperity scored a stunning victory - by having the  worst F number in 2001 since the pit of the Reagan Recession some 20 years ago.

You see, in the summer of 2001 - before September 11th - the rehiring cycle had died. For the first time since 1982 the regular yearly cycle broke down - a sign of how bad the job market got. What this means is that even that summer, anyone who could look at a graph could tell that the recession was going to deepen, and that the tax package passed by Congress and signed into law by Bush Jr had failed completely to cushion the blow of the recession. September 11th merely made it worse. Much worse
Which points us to what the Republicans thought all along - that by just borrowing and squandering - the Bush Job program is two air craft carriers named after Reagan and his own father - that the economy would come roaring back, fueled by debt. But the problem is that while in the 1980's we lost a lot of manufacturing jobs, but picked up, lower paying, service jobs, this time the service jobs are being created elsewhere. Instead of turbo charging the hiring picture, all this has done is bloat the trade deficit. Reagan borrowed 150,000 dollars for each job created - Bush borrowed 5 times that number. If Bush Jr. had gotten as much out of his deficit as Reagan did out of his - adjusted for inflation - then we would have had, not 350,000 jobs, but 1.5 million.
So what does this tell us about the future?

These indicators are rock solid accurate - this is as good as it gets, we aren't about to tank, but this is the recovery. Welcome to it. We should expect only small improvments in the jobs picture during this business cycle.

Well, until the last year - that is the other pattern, just as the economy over heats, there is one or two really good hiring years again. Then the recession hits. Which is a possibility here - this might not be the recovery year, but, instead, the last "good" year before another recession.