It looks like the U.S. economy might be in sustained jobs recovery. That recovery might even turn out to be a significant one.
Just days before last Friday’s great jobs report, I posted about a whole series of economic releases that would give hope to the idea that a virtuous circle is taking hold in the U.S economy.
Of course, with 2012 an election year, we’re going to see all sorts of attempts to spin these numbers in partisan ways — or to dismiss them out of the belief that the Obama White House has direct control over all the data.
But the trends are pretty clear in the government data at the state and federal level and in the releases from a panoply of private sources: the economy is getting better, and the pace of improvement seems to be accelerating.
Now, maybe we’ll see a sudden downturn because of Europe or gas prices or something else. Maybe as I have speculated before, the recent seasonally adjusted jobs data is not taking into account how seasonal factors might have changed since the 2007-2009 recession.
But whether the recovery is sustained or not, I think it’s still worth in this election year considering a few questions.
First, let’s look at this graph from Calculated Risk about job growth data from the Bureau of Labor Statistics:
As you can see, the number of payroll jobs in the U.S. declined dramatically through 2008 and into 2009, before an erratic recovery beginning in 2010. These numbers are seasonally adjusted, so those declines in December 2008 and January 2009 would be even worse if not adjusted for ordinary seasonal trends. (January and December are always bad months for job growth, even in a booming economy.)
A number of points I want to make here in bold:
1. Employment is a lagging economic indicator
Some data is considered a leading indicator of the direction of the economy, some data is coincident, and some is lagging. In other words, the job losses in any given month are probably a result of economic woes in previous months.
2. Did the Bush and Obama administrations make moves that added jobs and/or prevented further job losses? Yes. Absolutely.
If the Bush administration had not moved to shore up the financial system, we would have seen much more dramatic losses here. The Obama administration stimulus package slashed taxes by about $200 billion, which put more money in consumers’ pockets; provided direct aid to state government budgets and prevented hundreds of thousands of additional layoffs, many of which would have inevitably been in education; and funded many infrastructure projects that otherwise would not have gotten done. It’s a no-brainer that more jobs would have been lost without those moves. One could make all sorts of philosophical arguments about the stimulus, but there’s no doubt it buoyed jobs and the economy.
3. Why was the Obama administration so far off when it said that unemployment would never go over 9%?
This is one of the great political mysteries of this administration. Even as simply a political ploy, it would have made sense to overstate the likely job losses to make the stimulus look better. Pretty clearly, administration economists and advisors really didn’t think job losses would continue at such a pace — and they really didn’t understand just how bad the economy was in late 2008 (before Obama took office) or in early 2009 (when the stimulus and other measures were being debated). The result of this huge mathematical and political miscalculation is that the administration left itself open to critics to argue that the stimulus failed — even though it’s obvious the economy would have been far worse without it.
4. Other controversial measures — such as bailing out the auto manufacturers — also prevented mass layoffs in 2009 that would have made this graph look far worse.
5. Given that Obama did not take office until mid-January 2009 and given that employment is a lagging economic indicator, it’s fairly absurd to blame job losses through mid-2009 on the Obama administration.
6. It’s also worth noting that in typical recoveries, government jobs increase along with the private sector. That has not happened this time, which has limited the overall job gains.
7. The fairest criticisms of the Obama administration are those that target the relatively slow job gains over the last two years. There seem to be a variety of reasons (some in the administration’s control, but most not) for the sluggishness of the recovery, beginning with housing:
- Given the overhang of existing inventory, the foreclosure crisis, and continued declines in home values, there was no way — under any circumstances — that residential investment and new construction could fuel this recovery as in recoveries past.
- The Obama administration continued the Bush administration policy of homebuyer tax credits, which might have supported the banking system at a critical moment, but merely delayed the inevitable reckoning that we’re seeing right now with continued home price declines.
- The Obama administration has not moved aggressively to enact other controversial — and perhaps politically impossible — measures that would support housing.
- The economy has faced numerous other headwinds, all of which have taken a toll over the last two years: the Japanese tsunami disrupted the supply chain, Europe is likely in recession right now and might yet face an explosive financial collapse, gasoline prices are very high relative to their historical trends, American consumers have not flooded the economy with cash, slack in capacity utilization and end demand have limited investment by corporations that are sitting on tons of cash, and so on.
- While there might be some companies holding back on new investment until they see how the Obama administration’s healthcare plan fares in the Supreme Court, the factors above seem far, far, far more important. If a company has sufficient demand for its products or services, it will ramp up production and hire more employees now no matter what might be coming in a year or two.
A final thought: I have always thought that Obama is far more of a moderate than either his fans or detractors grasp. He came into office at a critical moment in the nation’s economy and was confronted with some horrid choices. Not supporting the banking system, not passing a major stimulus package, and not bailing out the auto industry would have resulted in catastrophic economic consequences. But by doing those things when the deficit was going to explode anyway because of dramatic declines in tax revenue, Obama played right into the narrative that he was nothing but a big-spending liberal. That’s going to be the narrative that will dominate much of the 2012 general election, and it’s a narrative that is incorrect in many ways.