June 04, 2003

Demand News and Employment News

Reuters expects bad employment news this Friday, but thinks that the rest of the economic news is good--and that the discrepancy is because employment is a lagging indicator.

I think that the discrepancy comes from the fact that underlying trend productivity growth is much more rapid than in any recession for the past generation--and this drives a big wedge between the demand news and the employment news.

Forbes.com: Economists braced for gloomy U.S. jobs report: WASHINGTON (Reuters) - A postwar jump in consumer confidence and higher stock prices have raised hopes for a U.S. economic rebound, but the job market is still expected to remain listless for months to come.

On Friday, the Labor Department will offer its latest snapshot on employment, for May, and analysts project it will show that businesses are still determined to keep payrolls lean.

"This data may be a problem in that it could show extreme labor market weakness, but it will be a lagging indicator of what's going on in the rest of the economy," said Chris Rupkey, economist with Bank of Tokyo-Mitsubishi Ltd. in New York.

"All of the anecdotal data suggests things are going to be improving," Rupkey added.

U.S. economists in a Reuters poll projected a 39,000 drop in payrolls in May. The jobless rate is forecast to creep higher to 6.1 percent from 6 percent in April...

Posted by DeLong at June 4, 2003 03:01 PM | TrackBack


The lagging nature of employment is a given. The productivity factor can prove transitory - the WSJ (on Monday?) questioned whether a slowing in capital investment and innovation could mean a slump in productivity. Some component of the recent productivity gain (I believe you yourself have argued, Brad?) comes from getting better at using the technology imbedded in the prior wave of capital equipment put in place. So the wedge between demand and employment, while almost certainly there, is uncertain in magnitude and duration. The test comes when we begin getting into the range of growth that is assumed now to be the underlying trend. Is it or ain't it?

Posted by: K Harris on June 5, 2003 06:52 AM
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