Jobs Report, January 2010, Shows Lower Unemployment, But Weaknesses As Well

My blogging colleague Jill Schlesinger has weighed in on today's jobs report, and finds the employment glass half-full. I'm not going to poke any holes in what she's pointed out, but delve into another set of details from the same report, which give a less favorable view. People are unemployed longer now than in prior slumps, the labor force is contracting as it has never before, and while the temporary help jobs are positive, they're slowing down. I'm just not that positive - blame it on that cough I wrote about a few weeks back.

The first point is the shrinking labor force. For population growth, the rule of thumb is growth of about one percent per year, and in good times the labor force grows faster than that, say a percent and a half. During the last really bad employment recession, in the early 1980s, the labor force kept expanding (although not every month) and from the end of 1979 to mid-1983 rose aby about 0.6 percent.

In this recession, the labor force has been steadily shrinking -- 15 out of the last 30 months. (Please see the graph below.)

From the recent peak in employment, in October 2009, the labor force is down 0.1 percent overall, or about 1.6 million jobs. Somehow the US economy was able to create jobs in the 1980s recession, but can't do that today. (The key is in the static U.S. manufacturing sector, as I wrote on January 15.)

The second point is the length of unemployment. The number of people out of work for periods of from 5 to 15 weeks has been dropping, and that's great. Allowing for increases in the size of the labor force, the numbers look much like prior recessions. (See below.)

But the number of people out of work for very long periods, 15 weeks and more, is still climbing, and is about twice as high as it was in 1981. (The labor force is about 50 percent larger than it was then, but it's still at record proportions.)

As for new jobs, there are a few positive numbers in the BLS's Summary Table B of employment by industry - temp jobs are positive but falling (from 95,000 in November to 52,000 in January) and retail jobs reversed course with 42,000 in January, but the picture is still overwhelmingly negative.

So what does it take to create jobs? Paul Kasriel, the superb chief economist at Northern Trust Global Economic Research, set us straight on that earlier this week:

Based on the ADP monthly survey of employment, small- and medium-sized firms (less than 500 employees each) are the fount (or black hole, as of recent months) of jobs in the U.S. economy. So, rather than asking Washington career politicians what it takes to create more jobs, why don't we poll small businessmen and businesswomen?

Too high taxes? Increased regulation? Too little credit? All of these problems have increased in recent months. But, by an order of magnitude, independent businesses report that their biggest problem today is poor sales! Can you imagine that? After a collapse in aggregate demand emanating from the longest and deepest recession in the post-war era, independent businesses need more demand for their products and services in order for them to step up their hiring.

[S]ome career politicians in Washington are arguing that the 2009 fiscal stimulus package, (The American Recovery and Reinvestment Act or ARRA) has been a failure. Others argue that the fiscal stimulus was too small, and another one is needed. Before we declare the fiscal stimulus a failure or enact yet another one, why don't we hold judgment until the ARRA has been fully implemented. You see, according to ProPublica, as of January 25, only approximately 30% of the $580 billion allocated spending in the 2009 fiscal stimulus program has actually been disbursed to date.

...

In sum, if what small- and medium-sized businesses need to increase their hiring is increased sales, then it would seem that fiscal stimulus coupled with Fed-created credit is the right medicine.

...

So, before we decree that the ARRA has been a failure or before we enact a supplemental program, let's see how the current one plays out when more of the funds have been dispersed.