The Economy Is Stalling – Employment Report for May 2011

First the facts and then my comments.  Calculated Risk Blog reports from the BLS:

From the BLS:

Nonfarm payroll employment changed little (+54,000) in May, and the unemployment rate was essentially unchanged at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains continued in professional and business services, health care, and mining. Employment levels in other major private-sector industries were little changed, and local government employment continued to decline.

The change in total nonfarm payroll employmentfor March was revised from +221,000 to +194,000, and the change for April was revised from +244,000 to +232,000.

The distressing news here isn’t so much the rise in unemployment rate from 8.9% to 9.1%.  Given the margin of error in measurement*, the unemployment rate has essentially been 9% for the last few months.  The distressing part is three fold.  First, the number of net new jobs created was only 54,000.  We need at least 150,000 and closer to 180,000 net new jobs each month to keep pace with population growth.  54,000 is simply not enough.  What’s worse, it’s a very significant drop from the March and April levels with no obvious explanation other than the economy overall is seriously slowing down.

The second distressing item is the revisions to the April and March numbers.  Normally previous months’ numbers are revised as the Bureau gets more and better data.  But revisions typically aren’t very large and may be either up or down.  But to have 12% and 4% downward revisions to the previous two months means the mild optimism folks were expressing two months ago was misplaced.

Finally, the most distressing part news, but totally unsurprising, is that local government employment (think teachers and police) continues to decline and be a significant drag on the economy as state, local, and the national government continue to think they can cut their way to prosperity.  They can’t.  There’s no history or empirical evidence that shows drastically cutting government spending in the middle of a significant slump will bring prosperity.  Quite the contrary, we have extensive theory and evidence that says cutting government spending in the middle of a slump will make the slump worse, make unemployment higher, and actually increase the government’s deficit.

So just how bad is this continuing failure to recover from the Great Recession of 2007-09?  Again Calculated Risk obliges with a great graphic.  This graph compares each official recession since the end of World War II.  It plots the percentage decline in total employment (the loss of jobs!) by month and then shows how long it took to recover employment.  At the rate we are “recovering” (it’s not really a recovery!), it will be many years before we again get back to the employment levels we had when this disaster began to unfold in 2007.  Without major changes in policy direction, we are definitely facing a lost decade for the U.S.

There are a total of 13.9 million Americans unemployed and 6.2 million have been unemployed for more than 6 months. Very grim numbers.

Overall this was a weak report and reminds us that unemployment and underemployment are critical problems in the U.S.

Percent Job Losses During Recessions

Percent Job Losses During RecessionsClick on graph for larger image in graph gallery.

This graph shows the job losses from the start of the employment recession, in percentage terms – this time aligned at the start of the recession. …

In terms of lost payroll jobs, the 2007 recession is by far the worst since WWII.

* for a more detailed explanation of how to read unemployment rate and employment numbers, see these four posts on the Employment Muddle Part I, Part II, Part III, Part IV.

Recessions Are Matters of Life and Death

I think it’s always important for policy wonks, politicians, and tenured professors to careful when discussing recessions and unemployment.  It’s very easy from the safety of a secure income to focus on the data and the numbers.  But behind the data and numbers are real humans.  Recessions and high unemployment have real, human costs. It’s truly a matter of life and death.  This recently reported from Calculated Risk Blog shows suicides rising in connection with a poor economy:

From the CDC: CDC Study Finds Suicide Rates Rise and Fall with Economy

The overall suicide rate rises and falls in connection with the economy, according to a Centers for Disease Control and Prevention study released online today by the American Journal of Public Health. The study, “Impact of Business Cycles on the U.S. Suicide Rates, 1928–2007″ is the first to examine the relationships between age-specific suicide rates and business cycles. The study found the strongest association between business cycles and suicide among people in prime working ages, 25-64 years old.

• The overall suicide rate generally rose in recessions like the Great Depression (1929-1933), the end of the New Deal (1937-1938), the Oil Crisis (1973-1975), and the Double-Dip Recession (1980-1982) and fell in expansions like the WWII period (1939-1945) and the longest expansion period (1991-2001) in which the economy experienced fast growth and low unemployment.

• The largest increase in the overall suicide rate occurred in the Great Depression (1929-1933)—it surged from 18.0 in 1928 to 22.1 (all-time high) in 1932 (the last full year in the Great Depression)—a record increase of 22.8% in any four-year period in history. It fell to the lowest point in 2000.

• Suicide rates of two elderly groups (65-74 years and 75 years and older) and the oldest middle-age group (55-64) experienced the most significant decline from 1928 to 2007.

There is no data yet for the recent recession, but suicide rates probably increased significantly. This is another impact of the housing bubble – and there is no recovery for the families who lost someone to suicide.

The good news in this study is the long term decline in elderly suicide rates, probably because of improved access to medical care.

I agree with CR that the decline in suicide rates among the elderly from 1929 to 2007 is partly due to improved access to medical care (read Medicare), but it’s also no doubt due to Social Security.  The future seems less overwhelming when you have the confidence and security that Social Security can provide.  Unfortunately many in Washington today want to turn back the clock to an earlier era when the elderly didn’t have such security or medical care.  If that happens, we can expect suicide rates among the elderly to go back up.

I think it’s noteworthy that the connection is between suicides and recessions/higher unemployment.  It is not between suicides and inflation.  Just another reason why I think unemployment is the more serious and damaging problem of a macroeconomy.

Gold Standard Not Attractive

Paul Krugman observes how life under a gold standard is not pleasant:

Anyway, one alleged fact I keep hearing is that recessions were short and shallow under the gold standard. I don’t know where that’s coming from, but it just ain’t so. The data aren’t as good for the pre-1933 era as they are now, but for what it’s worth they suggest that there were a number of nasty, prolonged slumps under the gold standard. In particular, the Panic of 1893 was associated with a double-dip recession that left industrial production depressed and unemployment high for more than 5 years. Here’s the estimated unemployment rate from Historical Statistics Millennial Edition:

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That’s a pretty ugly, prolonged slump. Gold is no panacea.

It was these persistent high unemployment rates under the deflationary gold standard that led to William Jennings Bryan’s famous “Cross of Gold” Speech.  I wonder why there’s apparently no William Jennings Bryan today – our unemployment is worse and will likely be as long or longer.