The employment report for January, released this morning by the Bureau of Labor Statistics, is a positive report. But while employment growth is now improving, it is still not rapid enough, and its sustainability is a concern.
As I had noted in a posting on December 5 in this blog, monthly employment growth in the US needs to be in a range of roughly 200 to 250,000 per month for unemployment to fall on a sustainable basis. One is now starting to see that, with overall employment growth of 203,000 in December and 243,000 in January. With such growth, the unemployment rate fell from 8.9% in October to 8.7% in November to 8.5% in December and to 8.3% in January. This is certainly welcome. But unemployment at 8.3% is still far too high. In a more robust recovery, one would be seeing monthly employment growth figures of over 300,000.
And the overall employment figures are still being held back by falling employment in government (mostly state and local government, which accounts for 87% of government employment in the US, but there have also been falls in federal employment). In January, total government employment fell by 14,000, thus partly offsetting the rise in private employment of 257,000, to produce the overall gain of 243,000.
For the past year (January 2011 to January 2012), government employment fell by 276,000. This has been a significant factor in holding down overall employment growth. And government employment fell by 230,000 in the year before that (January 2010 to January 2011), and fell by 97,000 in the year before that (January 2009, when Obama was inaugurated, to January 2010), for a total fall in government employment of 603,000 over the three years. In the three years before Obama took office, government employment rose by 248,000 in 2006, rose by 281,000 in 2007, and rose by 200,000 in 2008, for a total increase of 729,000.
Yet Obama has been repeatedly accused of creating an explosion of government. (For a more detailed review of what has happened to Federal Government employment alone, see this blog.) Had total government employment risen by 600,000 rather than fallen by 600,000 since Obama took office, one would have had an extra 1.2 million jobs directly. Even ignoring any multiplier impact, this by itself would have led to an unemployment rate now of 7.5% rather than 8.3%. And assuming, conservatively, a multiplier of just two (so that one additional government job leads to one additional private job, to supply the goods to cover the increased personal spending of the now employed government workers), the unemployment rate would now be a more respectable 6.7%.
While the January employment report was positive, one should keep in mind that there are threats on the horizon. Two to consider:
1) As noted in a January 27 blog, GDP growth in the fourth quarter of 2011 was only 2.8%, and 70% of this came from the change in the change in private inventories. Without this inventory change, GDP would have grown by just 0.8%. For the first quarter of 2012, it is unlikely that private inventories will again go up by so much. And note that because it is the change in the change in private inventories that is the contribution to GDP growth (see this blog), then should private inventories once again increase by as much as they did in the fourth quarter of 2011, the growth in GDP in the current quarter would only be 0.8% (everything else being equal as in the fourth quarter of 2011, which of course it won’t be). That is, inventories would have to continue to rise by as much as they did in the fourth quarter of 2011 simply to keep GDP growth at 0.8%. They are likely to rise by far less, and quite possibly might fall if the high level of inventory accumulation in late 2011 was more than suppliers wanted. This could then significantly hold back production and GDP growth, and hence employment growth, over the next several months.
2) Europe continues to be problematic, with the focus on policies (fiscal austerity) which will make the situation worse rather than better. Europe will certainly be in recession in 2012, and probably already is, and this will hurt the US recovery.
And there are of course other risks, such as, for example, an escalation in tensions with Iran leading to disruption of shipping through the Strait of Hormuz, that could cause oil prices to skyrocket. There are many such scenarios that one can imagine, so a US recovery is anything but certain. So while the January employment report was a positive one, there are still reasons to be concerned.
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