So asks Lawrence Kudlow who writes:
Economic pessimists have had a field day ever since GDP was reported a week ago at only 1.1 percent for the fourth quarter. But the latest jobs report released on Friday blew them out of the water. Including revisions, January employment is a huge 317,000 above the initial December level. In fact, over the past three months, non-farm payrolls have increased an average 229,000 per month. That’s explosive … As soon as the breakout employment news was released, Salesman-in-Chief George W. Bush should have been in the Rose Garden giving it air time. He should have declared that jobs have continued to grow big time while the unemployment rate has fallen – all the way down to 4.7 percent.
To be fair to Mr. Kudlow, I was hoping someone would bring up as I was eager to bring up an old point about the labor force participation rate and I see that William Polley has already weighed in. The point starts with the identity that the unemployment rate is simply one minus (the employment-population ratio/the labor force participation rate).
Let’s go back to December 2000 (just before George Bush took office) and remember that the employment-population ratio was 64.4%, while the labor force participation rate was 67.0% – which translated into a 3.9% unemployment rate. Economic growth, however, was dreadfully slow from early 2001 to September 2003, which translated into an employment-population ratio of only 62.1%. The unemployment rate, however, only rose to 6.2% as the labor force participation rate had declined to 66.1%. From September 2003 to January 2006, the recovery in the labor market has not been explosive but has been sufficient to let the employment-population ratio inch back up to 62.9%. Alas, the labor force participation rate is 66.0%, which is lower than where it was as of September 2003. Leave to Mr. Kudlow to cheer about falling unemployment as a result of fewer people being officially counted in the labor force.
Even as Dr. Polley notes that whether it is reasonable to expect the labor force participation rate to rise, let’s consider what the implications of a 62.9% employment-population ratio would be if the labor force participation rate were currently at 67%. Wow – the unemployment rate would be 6.1%. Even if we split the difference and assumed a 66.5% labor force participation rate with the present employment-population ratio, we’d be talking about a 5.4% unemployment rate.
But beyond these simple realities, there may be another reason President Bush does not wish to join Kudlow’s cheerleading. I bet that President Bush – like Mr. Kudlow – is hoping for another pander to the voters style free lunch tax cut – and if one claimed we were at full employment, the logic behind advocating even more fiscal stimulus would simply be too stupid for even this White House. But not to NRO Financial.