March 07, 2003

Employment Report Today Not Good

John S. Irons summarizes today's unemployment report. It is significantly worse than I, at least, was expecting...

ArgMax Economics Weblog: Employment Situation: Not good: The Bureau of Labor Statistics released its monthly employment report today. The unemployment rate was up 0.1 to 5.8% in February.

The big news in the report, though, was that total (non-farm) payroll employment fell by 308,000 after seasonal adjustment. This seemes to have been interpreted as a big negative for the economy and was much larger that expected.

Keep in mind that the employment data is often called a "lagging indicator," meaning that the statistic tends to reflect the past state of the economy more that it indicates where the economy is headed. The weak employment number tends to indicates what we already know - that the economy was indeed weak; but it does not necessarily mean the economy is headed further downward.

However, for the unemployed - and those looking for jobs - it is certainly not good news...

Posted by DeLong at March 7, 2003 04:57 PM | TrackBack


As one who has just joined the 308,000, the news is indeed bad. Beyond the recent jobless numbers is the extremely flacid job market. I half think the help-wanted ads out today are issued out of habit rather than need. Though hardly a scientific survey, my networking in search of new employment has convinced me that there is a growing degree of paranoia among those still employed. If my senses are even half right, the numbers are likely to get much worse.

Posted by: John McKinzey on March 7, 2003 08:39 PM

Over at he thinks the government is fudging the numbers. Please check his evidence and post a response.

Posted by: Mike on March 7, 2003 10:56 PM

A "lagging indicator" they may be. Perhaps in order to interpret their significance it is useful to read these numbers in the context of last week's Institute of Supply Managers survey of purchasing managers, or the comments in the recent Fed Beige Book. Looking forward things seem to be getting worse rather than better.

Still with oil prices stuck where they are what else could you expect? NB don't miss Greenspan's speech about housing and refi last week. Yesterday's comments from Morgan Stanley's Dick Berner (who is the manicean eternally optimistic alter ego playing to Stephen Roach's pessimism) could be revealing:

"Nonetheless, fears that a housing bubble is ready to burst surface in virtually every client discussion."

Posted by: Edward Hugh on March 8, 2003 12:44 AM

I'm truly impressed by the unanimity with which the daily dailies agree that there's a horrible real estate bubble going on. Truly truly.

Unlike the dot com nonsense -- which I understood well enough to wonder at times whether I should dive in and rip off a piece for myself -- I know nothing whatsoever about real estate.

However I do know a little bit about how folks live, and hereby throw out a caution: it is common for people to say that "as the baby boomers retire they will cash in their chips..." If that were to occur, it would be the first time ever: until now marginal propensity to invest has always and everywhere increased monotonically with age.

If a real estate bust is supposed to be based on empty nesters selling out, dream on, sez I. At the edge where it counts your marginal old geezer and his wife are putting three bedrooms down to orchids, putting an immigrant couple in the basement, and knocking out the back wall to expand the kitchen/breakfast nook.

Nobody, ever, needs less real estate.


Posted by: David Lloyd-Jones on March 8, 2003 01:37 AM

Guess the Fed will lower rates to 1% (at least that's what market prices are saying).

The problem with dlj's argument, if I'm not mistaken (but then - obviously! - I'm no economist!), is that there's an enormous amount of debt out there, with the only asset on the balance sheet the American home. A lot of Americans face the very real risk of foreclosure (should they lose their job, for instance). And if bankruptcy laws let them keep the house, then doesn't that bode badly for the Fannies?

Posted by: Andrew Boucher on March 8, 2003 02:58 AM

Though I don't have quantitative or broad studies to back this up, it's been my observation that people will do almost anything to hold on to their homes and mortgages. Demand for real estate at current prices may collapse, but one shouldn't assume that an immediate reduction in asking price will ensue because a homeowner who sells for less than his current mortgage debt has neither money nor shelter. Bank strategies will vary, but foreclosing on mortgagees who are able to make even a smaller payment would seem unwise as a plicy since this will result in a sharp decrease in a bank's net assets, while holding on results simply in a lower return on investment -- and an ebbing tide lowers all ships, so the comptetition will similarly see a lower ROI.

The end of a real estate bubble seems likely to result in a decrease in resale of real estate on which significant debt is still owed (most residential real estate?) more than a decrease in prices. As mortgages are completed, mortgagees will be in a position to reduce selling prices but there is a psychological barrier to doing so: nobody wants to be a "loser." I think that dlj is right, people will increasingly find ways to make some money using real estate they already own, and I think that the unemployed as well as retirees will be renting out part of the space or (where zoning permits or is unenforced) mixing commercial uses with residential in their homes.

Posted by: Bob Webber on March 8, 2003 05:23 AM

The unemployment rate makes a good argument for a fiscal stimulus by the Federal Government giving money to the states. CA I understand is cutting back as is my home state of IN. The unfunded mandates are raiding state coffers and states are responding by cancelling infrastructure projects, hiring freezes and money to counties and cities. School boards are laying off teachers or not hiring new ones and letting class size increase

A case can be made that the Feds should help the states because of the unfunded mandates placed on the states by the Federal government. The states have lots of ways to use the money that would employ people productively. The unemployment is a downward spiral for the states because the more people not working, the less state revenue and the more unemployment compensation and welfare costs. The state responds with cutbacks and layoffs and down we go. More employment would mean more revenue and more jobs through building and road contracts, etc. Are the new Bush advisors recommending this course? It would give a lot more stimulus than a tax cut on dividends.

Posted by: bakho on March 8, 2003 08:18 AM

Good Grief. Lagging, smagging. A loss of 300,000 jobs last month is staggeringly large. The economy is growing far too slowly relatively to productivity growth to cause employers to add to the labor force. There is no reason to assume this will change soon. The new job loss shows that this quarter will again mark poor GDP growth or even no growth. The recovery that has been "here" each month is not here.

Men and women lose jobs and stay out of work month on month. The Fed has lowered rates repeatedly simply to keep the economy from a more severe slowing. The Administration has offered up a tax cut that has had a minimal stimulus effect while assuring a horrid structural deficit. Now, the Administration claims that cutting the tax on stock dividends is the true answer for the economy. Hogwash. We are in trouble folks, and nonsense about lagging smagging is just nonsense.

Posted by: anne on March 8, 2003 09:32 AM

The new economic advisors as the old economic advisors will give White House advice when the White House tells the advisors what to advise. Doh.

Posted by: jd on March 8, 2003 09:48 AM

Paul Krugman -

Why is the administration so uninterested in helping the economy? Here's my theory: The depressed state of the economy provides a convenient if bogus rationale for the huge, extremely irresponsible long-run tax cuts that, after Iraq, constitute this administration's principal obsession. To do anything else to help the economy would suggest that it's possible to create jobs now without putting the country's future solvency at risk — and that's not a message this administration wants to convey.

Posted by: jd on March 8, 2003 09:50 AM

What we might well do in thinking about real estate is ask how the gradual move to deflation in Japan effected the real estate market, or was a decline in real estate prices the cause of a general deflation?

Brad DeLong, Paul Krugman, and Stephen Roach have been concerned about the gap between GDP growth and productivity growth giving over to less and less price flexibility. There appear to be growing deflation pressures, and while we may not have a general deflation housing prices could begin to fall or at least cease to rise for a considerable period.

Why the housing deflation in Japan?

Posted by: anne on March 8, 2003 10:04 AM

Remember also. We are net creditors. Older men and women especially earn significant amounts of income from bonds, but bond yields have fallen lower and lower. Incomes of bond holders is falling and will be constrained for quite a while. This could be another problem. Of course, if you have a million dollar taxable stock portfolio and the Administration cuts the dread stock dividend tax you will be just fine.

Posted by: anne on March 8, 2003 10:15 AM

Happy times are here again.....

Citigroup, remember old Jackie Grubman, is paying Sallie Krawcheck 29.7 million dollars to run the brokerage unit for 2 years. How much will Citigroup brokers make you these 2 years? Off the topic?

Posted by: jd on March 8, 2003 10:29 AM

"The weak employment number tends to indicates what we already know - that the economy was indeed weak; but it does not necessarily mean the economy is headed further downward."

When employment is this weak this far in a period of minimal growth, I would suggest we have a most serious problem. I suggest that we could easily enter "another" recession if consumer spending slows even mildly. Stephen Roach has argued that there is no reason to soon expect an increase in industry investment. I agree.

We are slowing again, Europe is slowing. Japan has been slow for nearly a decade. Latin America is slow. There is a serious problem.

Posted by: randall on March 8, 2003 10:58 AM

"'s unemployment report. It is significantly worse than I, at least, was expecting... "

From Gene Epstein's Economics column in today's Barron's,

"And all credit to Michael Lewis of the Chicago-based Free Market Inc., for being the only economist I know (and believe me, I follow a few) to predict that February's East Coast Storms would cause a huge decline in payroll employment.
The Bureau of Labor Statistics announced Friday that employment fell 308,000 in February, following a rise of 185,000 in January.

"The weather's impact was especially evident in construction (down 48,000) restaurants (down 85,000), and retailing (down 92,000)...

"Adds Lewis, 'I expect a major rebound next month.'"

Posted by: Jim Glass on March 8, 2003 11:24 AM

Even if the weather accounted for all 300,000 jobs lost in February, that would still mean a month of no jobs created. Employment has been weak and is weak and seems to be growing weaker.

Long term unemployment is rising. I too can find no encouragement in carefully reviewing the data. We have a problem.

Posted by: anthony on March 8, 2003 02:14 PM

In some past recessions unemployment has gone up in a straight line and then headed down like it bounced off a wall. There is not always a leveling off period. Corporate profitability is a much better predictor of future employment.

Also, deflation is unlikely given the drop in the dollar and the rise in energy prices.

The Federal Reserve has a chart where they show the current production level to be right about equilibrium and the previous boom to have gone off the path of stable prices. Also remember the rise in energy prices increases the natural rate of unemployment at least temporarily since our structure does not match the reality of prices. Productivity has got to level off soon anayway. With few investments being made how exactly are we going to continue making more for less?

Posted by: snsterling on March 9, 2003 12:56 AM

"The Federal Reserve has a chart where they show the current production level to be right about equilibrium and the previous boom to have gone off the path of stable prices."
Got the link for us?

Posted by: Joerg Wenck on March 9, 2003 06:58 AM

Productivity happily is not likely to level off soon. There is ample investment in technology, but technology goods prices are falling so that sales revenue of technology companies is rising quite slowly. Our company is making fine progress in productivity, but our costs are contained.

What may well happen if growth stays low is that rises in prices for energy products will result in price pressure on other products. Energy price increases have not ended deflation in Japan. We need to grow faster. A weak dollar, as well, may not result in significantly higher product prices.

Corporate profit does not bode well for significant labor force growth.

Sorry, I can not understand how the current production level could be at equilibrium when capacity use is so far below what has always been deemed healthy.

Sorry, if some are sanguine about the economy I am worried!

Posted by: anne on March 9, 2003 08:27 AM

Darn - If Alan Greenspan is not worried about the economy, alan ought to be worried.

Posted by: dahl on March 9, 2003 08:31 AM

Surprisingly sensible discussion. Here's a bit of perspective. Friday's New York Times had an article explaining why Australia was the "lucky country" for having such a sustained economic expanison. Their current unempolyment rate? 6.1 per cent, greater than ours, assuming the statistics are collected in such a way that the two can be compared.

One obvious drag on our economy is the slowdown in some our major trading partners. Japan and Germany are the obvious examples, but there are others.

Posted by: Jim Miller on March 9, 2003 09:32 AM

On Australia -

The problem in America is not simply a 5.8% unemployment, but the shedding of 2 million jobs by employers in the past 2 years. Also, unemployed workers and families have far less of a social safety net in America than in Germany or Australia.

Stephen Roach has pointed out again and again that America has been the overwhelming world growth engine these last 5 years. We are also the overwhelming trade engine. There will be no help to America from Germany or Japan. Latin America is very important to us in trade, and Latin America is growing weakly or stagnant from Mexico on south.

China is growing rapidly, but China is not a major importer of American goods. India? No.

Perhaps Canada, Austrailia, and the smaller Asian countries will expand demand for American goods. Perhaps.

Also, a piddling rate cut by the European Central Bank is not going to help anyone.

Posted by: anne on March 9, 2003 10:05 AM

The GDP gap chart I was referring to is on page 10 of the Monetary Trends report. Here's the link below. On the same page is also a chart which suggests the current interest rate corresponds to an inflation rate target of 6% according to Taylor's Rule. Not that I disagree with stimulative policy here... it can always be raised in a hurry if need be.

I think the falling dollar will serve as an indication to other central banks/governments that it is time for them to step up and allow their populations to enjoy some of this enormous wealth which was created rather than strive to make things cheaply for Americans.

Posted by: snsterling on March 9, 2003 10:21 AM

Hopefully. Consumption patterns change slowly. China should have much faster growth in domestic consumption, but the growing middle class save far more than middle class Americans or Europeans.

After the Asian crisis of 1998 the local economies recovered as the export market to
America continued to grow rapidly. The smaller Asian economies did not develop enough domestic demand sources to cut relying on American markets.

European economies needs to spur domestic demand, but notice the Euro economies. The Euro constraints on fiscal policy will constrain any stimulus, and the Euro central bankers are in Oz.

Posted by: anne on March 9, 2003 10:31 AM

Though I am optimistic about productivity growth remaining high for quite a while, since there is no evident slowing in product improvement by technology companies, that does not mean economic growth will improve. We can have high productivity growth and poor GDP growth for quite a while. We need better fiscal policy to stimulate GDP growth, and I am in no way encouraged by the likes of a cut in stock dividend taxes.

Also, the growing structural deficit is going to be a growth problem but the Administration denies any such possibility. Good grief!

Posted by: anne on March 9, 2003 10:42 AM

Stephen Roach

The European Central Bank has blown it again — easing by as little as possible in the face of an increasingly treacherous economic climate. Yet this action should not be viewed in isolation. It is emblematic of a deeper problem that has afflicted central banks over the past dozen years: While the monetary authorities experienced great success in taming inflation, their record in tempering the perils of deflation borders on abject failure. The Bank of Japan has led the way. The risk is that the Federal Reserve and the ECB are now following in its footsteps....

Posted by: dahl on March 9, 2003 11:00 AM

In 1994 Stephen Roach started warning about an inflationary overheating of the US economy. It didn't happen--he couldn't have been more wrong. The economy continued to expand without inflation much more rapidly than he said it could and now he has to claim that the expansion was a mirage in order to save face.

As for Japan.... Japan is the way it is because of the personal religious beliefs of BOJ Gov Hayami. Reflecting Japanese society as a whole he is biased in favor of savings and sacrifice over consumption. Osama Bin Laden can only dream of becoming a central bank governor! One can do a lot more damage that way compared to blowing things up. As an Objectivist, Greenspan is flexible according to the needs of the economy. If he were made BOJ governor he would immediately print money to fund the elimination of the consumption tax.

Japanese boomers retire before ours anyway.... it has already started. It's not long before the retirees take the pieces of paper they have been diligently stuffing in vaults and start demanding stuff.

Posted by: snsterling on March 9, 2003 11:55 AM

So finally begin the nutty offensive comments. Sigh.

Posted by: dahl on March 9, 2003 01:47 PM

Chart of Unemployment (89-99)

Better to respond to personal insult with a chart I think. What do you think people were saying in the first part of 1992? In fact I do remember some of it. There were books and TV shows about how the Japanese were much more productive than we were, and there were incidents where foreign cars were attacked by mobs. The president was voted out because the economy stunk.

Then it just got better.

It takes a long time for cycles to play out (lately about a decade), and I'm not one to call a top or bottom. Eventually they play out. I agree with Paul Krugman's basic argument that having too much production is not a bad thing, although it is up to the central bank/goverment to see to it that people get enough money in their pockets to buy it with.

Most of the entries here are pessimistic. Many even refute that unemployment is a lagging indicator. I am not a pessimist, though bad things can happen as a result of war, natural disaster, or continuously bad policy (Great Depression for instance). But for all the cycles I will still say economics is about the progression of humankind turning dirt and rocks into computers, spaceships and medicines and that is ongoing.

(last post, no personal attacks please)

Posted by: snsterling on March 9, 2003 03:49 PM

Certainly there are business cycles. We have just been through an unwarrented run up in stock prices followed by collapse. This has collapsed demand. Yes there is the business cycle and presidents get more blame and credit than they deserve for the economy. However, there are responses that make things worse and responses that make things better. The Bush administration acts as if there is nothing it could do to make things better save cut taxes.

Posted by: bakho on March 9, 2003 05:52 PM

one thingie... did some research for myself... here results....

Weekly Claims - Leading Indicator <-- use this to predict
Payroll - Coincident
Personal Income - Coincident
Unemployment Rate - Lagging

Posted by: snsterling on March 9, 2003 08:01 PM

Bloomberg is reporting today that the Fed may actually begin targeting 10Y rates by buying Treasuries.

Does anyone else think this is a really bad idea?

Posted by: Andrew Boucher on March 10, 2003 01:59 AM

A few random responses.

Mike, as nobody else has replied, I'll try. To the extent Wampum wants to characterize what the BLS is doing about reservists called to active duty as hankypanky, that's not right. BLS is sends out a set of instructions for handling called up reservists, but cannot know how well those instructions are followed. This is a problem of ignorance, admitted ignorance, rather than fudging the numbers. These data mean what they mean, even if Wampum wishes they meant something else. You just have to know the rules.

Andrew, the Bloomberg article is not clear on when Greenspan and company mentioned turning to non-standard methods of easing. In fact, they have been saying that for some time (you probably knew that?). In part, it seems an effort to assert that the Fed is not close to running out of options just because rates are nearing nominal zero. It is a confidence building effort (though it doesn't seem to be building your confidence). I'm not sure how much confidence the Fed would be able to generate if it should come to buying 10s, but I don't know what harm it would do. The Treasury is already pretty clearly working to flatten the curve, while the Fed works to steepen it.

To those worried about a housing bubble, I ask -- what's a bubble? If home prices are not as inflated now as stock prices were in early 2000, is it helpful to use the same term to describe both? Steven Roach, popular in today"s postings, has recently offered 5% as the likely decline in the average value of homes if the economy tanks again. A look at the average price of existing homes sold over the last few decades makes that magnitude look reasonable - home prices don't fall much, nor for long. One wouldn't want to be in the wrong end of the distribution, of course.

Posted by: K Harris on March 10, 2003 06:00 AM

Sorry Sterling

I did not understand the comments about the Japanese Central Bank Chair. I thought the comments were right but stereotyping. Sorry. Sorry. Sorry.

Posted by: dahl on March 10, 2003 09:45 AM

K Harris: Yes, I've heard it before. But when the idea begins to appear in mainstream media (like Bloomberg), it looks very much like the Fed trying to prepare everyone for it. Surely *some* people think this is a bad idea. Shouldn't such a radical change in policy (not used for - what - 50 years?) be discussed rather than submitted to?

For one thing a lot of companies and munipalities are going to have even more trouble paying for their pension funds. (For one thing, the present value of the obligations explodes when there are lower long-term interest rates.)

Posted by: Andrew Boucher on March 10, 2003 10:10 AM

A local observation on housing prices. I'm in Silicon Valley where we have 20-25% vacancy in office space. (Possibly higher now.) We are not yet seeing bankruptcies of commercial space rentals.

Housing prices have continued to rise, and the median is upwards of $450-500K. But recently I'm told that it is "investors" looking for safe havens for their money who are buying, and few people looking for a place to live.

The rental market is very, very soft. In my neighborhood, which is largely a rental area, at least 5% of houses have "for rent" signs out front, and several others have "room for rent" signs. Apartment buildings ALL have "apartment for rent" signs, in every area of the valley.

So the housing market here is almost entirely "investors," and the true demand for housing to live in is soft and rapidly getting softer.

Those empty rental houses must be running up significant cash flow problems for their owners, who will be forced to sell. At that point the "investors" will stop buying, and prices should start to return to a level that is justified by demand. Unfortunately the boom here is long over so there are few reasons for housing prices to be any more than double (or possibly triple) the national average, in my opinion. Double or triple the national average means there's a lot of room for prices here to fall. It's only a question of when.

Unless, of course, the tech economy sees a significant turnaround, and the tech companies respond by starting to hire Americans to work locally again. I guess anything can happen.

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