I’d meant to comment on this post from over the weekend earlier:
Larry Summers, the president’s chief economic adviser, says the shedding of jobs in an economy emerging from recession should end by Spring.
“It will take time,” Summers said in an appearance on CNN’s State of the Union with John King today. “A year ago, the question was would we have a depression?
“Today everyone agrees that the recession is over,” Summers said. “And the questions are around how fast we’ll recover. Experience is that it that these things — that it takes significant time.
“First, GDP increases. We have seen that start to happen. Then firms ask the workers who are already with them to work more hours. That’s starting to happen. Then, net job creation starts to happen,” Summers said. “We were losing 700,000 jobs a month when President Obama took office. Last month, we lost 11,000. So we are getting there. And most professional forecasters expect job growth by Spring, and I think that’s a reasonable judgment in an uncertain world. ”
I genuinely hope he’s right. However, I do have my doubts. Specifically, what immediately struck me when I read this is that it was an application of the Friedman unit to economics. That sounds like an excellent topic for a masters thesis. “The spring” is sufficiently far away that it’s unlikely that he’ll be held to it, it’s optimistic-sounding, and it’s darned hard to prove one way or another.
It does seem like an appropriate time to produce the now notorious graph comparing the administration’s assumptions:
and a graphic of the unemployment rate to date:
What was the administration wrong about and when were they wrong about it? Clearly they were wrong about the amplitude: unemployment has risen significantly higher and faster than the administration’s worst case scenario. And they were wrong about the periodicity: we aren’t seeing the situation improve as fast or as much as they projected.
As I read things in order to believe that we’ll see job growth by spring you’ve got to assume a number of things. First, you’ve got to assume that the small decrease in unemployment was a harbinger of things to come. Second, you’ve got to believe that the significantly smaller number of first time unemployment claims is both correct and will continue.
I think there are good reasons to believe that neither of those things is true. The most recent jobs report (linked here previously) shows continued declines in both construction and manufacturing. Retail sales (also linked here previously) only look good when compared to last year’s horrible results. And the ADP report differs significantly from the BLS report, suggesting at least to me that we’ll see an adjustment upwards in the unemployment rate for November.
If the unemployment rate hasn’t peaked yet or if the economy goes into a “double dip”, I doubt that we’ll see any significant increase in job creation before next summer or, possibly, through 2010.
I’ll have to remember to look at the various time series on unemployment by July and post on this. I’ll even be fair and wait for the June numbers (reported in July). My guess is that this too, like the administrations initial statements about unemployment, are wildly optimistic.
As I noted in your post on the drop in the unemployment rate, a big reason for that was people leaving the job market. If people were to return to the job market it could blunt the impact of job creation even if it does start in the sprint.
Unemployment and the overall job situtaion (i.e. looking at the establishment survey) from the past two recessions support your beliefs. The lag between the end of the recession and a turn around in the labor market has grown longer not shorter. This is one reason why I thought Krugman, et. al. (which includes Summers) prediction regarding unemployment and jobs was wildly optimistic.
Further to your observations about construction, manufacturing, and retail we still have a lot of houses out there. There is an over supply and the administration has pursued policies that, if anything, propped up housing prices which in simple economic terms results in a glut–i.e. the price cannot drop to the point where the market clears. Or even more simply we may not have seen the bottom in the housing market yet. We might not see it until these home buyer credit programs are stopped.
“The spring†is sufficiently far away that it’s unlikely that he’ll be held to it, it’s optimistic-sounding, and it’s darned hard to prove one way or another.
And to top it off: “A year ago, the question was would we have a depression?”
Not really. That was fear mongering on the part of the new administration for political reasons.
So we have a false premise to gage current performance off of, and a look far, far down the road that no one will remember. In other words, we have duplicity.
Only with a willing press can you get away with this stuff. Of course, most people still think Bill Ayers was “just someone I casually knew from the community.”
I guess the model works.
“Not really. That was fear mongering on the part of the new administration for political reasons.”
When was the last global recession. Why was Paulson so scared, on his knees begging? What do you think would have happened if Citi, BoA, etc. went under?
Steve
Global recession? 2001-2002 using the IMF’s definition. There have been four since 1985, BTW. As for Paulson, IDK, maybe he was worried about Goldman Sachs and whether or not he’d have a job after his tenure as Sec Treas was done? Goldman was the largest recipient of AIG bailout money out there.
About the only thing you have is the failure of large banks, but I’m not convinced that would have been as bad as many are making out. You have to keep in mind the symbiotic (I’d say incestuous) relationship between DC and Wall Street. We are told by the people who benefit from keeping these “too big to fail” financial entites that we have to bail them out otherwise the consequences would be dire….for whom? You and me or for DC and Wall Street?
Sigh, ok, I will be more careful with my terminology. When did we last have a recession that affected essentially all of the significant economies of the world? 1998 was technically a global recession, but the US was not affected. The 2001-2002 global recession affected different parts of the world at different times and largely avoided places like Canada and Australia.
When was the last time a major international bank failed? How would we divvy it up? Whose BK laws would apply? How many years would it take to figure out? How many years did it take to finish the bankruptcy of the last major US regional bank before this crisis? How many foreign banks go under w/o the bailouts?
Steve