The editors of the Wall Street Journal react to the Bureau of Labor Statistics’s bad labor report released yesterday:
An economy doesn’t live by demand alone. There is no clearer evidence of that dictum than Friday’s surprising jobs report for April, which undershot the expectations of economists by more than 700,000. Welcome to the supply-side jobs slowdown.
Employers added a net 266,000 jobs in April, while the unemployment rate ticked up 0.1 percentage point to 6.1%. Payrolls for March and February were revised down a combined 78,000, and 48,000 of the new jobs in April were in government, mostly local education as schools reopened.
The report wasn’t a total washout, as private payrolls grew 218,000, mostly from leisure and hospitality jobs (331,000) as the lockdowns continued to ease. But there were large losses in temporary positions (-111,400), couriers (-77,400), food and beverage stores (-49,400), and nursing homes (-19,500). Some of this reflects a reallocation of jobs as businesses reopen and consumption shifts.
The Keynesians who now run U.S. policy, at the Treasury and Federal Reserve, have been using their usual demand-side playbook. Bathe the country in government cash, keep interest rates at zero, and the resulting rise in consumer demand will drive everything.
They’ve underestimated the supply-chain constraints that have been screaming across the economy for months—from too few workers to the computer chip shortage and soaring lumber and freight prices. The economy can’t produce enough goods and services fast enough to meet the soaring demand from the easing pandemic and government policies that have shoveled cash to consumers and rewarded Americans for not working.
As I’ve said before I think that characterizing the president’s economic advisors and the president himself as “Keynesian” is a stretch. They’re folk Keynesians. I don’t believe that John Maynard Keynes ever envisioned an economy that imported $4 trillion of goods per year, ran a persistent trade deficit, and in which the trade deficit actually increased during a recession and in the presence of substantial fiscal stimulus:
My offhand guess is that the Biden Administration will consider the BLS’s report confirming evidence for the need for their stimulus policies.
I think we’re in unknown territory. I don’t think you can make confident projections about the relation among unemployment, aggregate demand, and aggregate product under the present circumstances.
There are other possible reasons.
1. Statistical anomaly — due to 2020, all economic statistics that are seasonally adjusted or compared to a baseline that includes 2020 should be taken with caution. Treasury bond yields staying level along with commodity prices instead of declining suggests many share this view.
2. Economists got carried away — 1 million jobs in a month is an extraordinary number of jobs in a month. As reference, only the 4 months after the first reopening in spring 2020 have ever achieved 1 million jobs in a month . Considering the 2nd lockdown was less strict then the first, it is a bit surprising to expect such a high number.
3. Employers are treating the demand as transient — If one considers WFH (home office/exercise equipment) or stimulus demand as transient; hiring employees into declining demand is a bad idea.
“Biden Administration will consider the BLS’s report confirming evidence for the need for their stimulus policies” — would have been true either way; if the jobs report had met expectations, they would have credited their stimulus policy for working.
A number of the other numbers were pretty positive and we did see more people return to the labor force. I agree that we are in uncharted territory and this admin, like pretty much every other, will pick the numbers it likes as proof that their plan is needed/working.
Steve