The Labor Market Over the Past 15 Months
I was out of town on Friday and Saturday so I’m late to the discussion of the latest news from BLS:
The unemployment rate rose from 4.8 to 5.1 percent in March, and nonfarm payroll employment continued to trend down (-80,000)
Brad DeLong looks at the payroll survey, which shows employment has declined by 232,000 in the last three months:
I will be very interested to see how labor productivity holds up during this recession-like period. Will this see labor hoarding or labor shedding? And, of course, the thing to stress is not that a recession has come but that the policies of the Bushies have done so much to make the previous expansion weaker and fighting this recessionary period harder than it had to be.
Paul Krugman argues that the weakness in the labor market started a while back and he wonders about the usefulness of the unemployment rate:
I’ve argued on many occasions that the official unemployment rate has been a poor guide to the reality of the labor market in recent years. One alternative is “U6″, which the BLS lists under “alternative measures of labor underutilization.” This measure shows what most people sense: the labor market has gotten a lot worse over the past year, not just in the last few months.
Our graph shows both the employment-population ratio (EP) and the labor force participation rate (LFP). It is interesting that the fall in EP last month was only from 62.7% to 62.6% as part of the reason why the unemployment rate jumped was the increase in LFP from 65.9%. But we must recall that EP has declined from 63.4% as of December 2006 to 62.6% last month. In the early part of 2007, the unemployment rate didn’t move much as LFP fell from 66.4% to 66%. In other words – Paul is right in saying that the deterioration in the labor market has been going on for a while.
In fact, it is so bad that even Lawrence Kudlow has to concede the obvious point:
The unemployment rate went up to 5.1 percent. Non-farm payrolls have fallen for three straight months. Private payrolls have fallen four straight months. And the entrepreneurial small-business-oriented household survey is below its November peak, showing a loss of 678,000 jobs. These are relatively mild job losses so far. So one can hope this will be a relatively mild recession. But frankly, no one knows for sure … Recessions are therapeutic. They cleanse excess from the economy. Think about excessive risk speculation, leverage, and housing. Recessions are curative: They restore balance and create the foundation for the next recovery.
Yes – Kudlow thinks recessions are good things as they job you just lost was an excess. In fact, he is calling for economic policies that would make the recession worse:
the U.S. dollar, which some are now calling the U.S. peso, should be appreciated in order to curb inflation.
Dollar appreciation might have a very modest impact on the inflation rate but it would have a significant impact on net export demand. And given that Mr. Kudlow apparently never learned international macroeconomics, let’s remind him that appreciations tend to lower net exports. One would think such idiotic comments would have the editors of the National Review take the curative step of getting rid of village idiots like Mr. Kudlow. Then again – who would write their pieces on economics if not for their group of village idiots?