Another Mediocre Jobs Report

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US monthly job changes, total private and total government, December 2010 to June 2012

The Bureau of Labor Statistics released its regular monthly jobs report this morning, and for the third straight month it indicated a positive but low rate of private sector (and total) job growth.  Government jobs continued to be cut, thus bringing down total job growth and acting as a drag on overall jobs.  While government jobs fell by just 4,000 in the initial estimate for June (led by Federal Government job cuts of 7,000), the earlier government job cut estimates for April and May were revised sharply upwards to a cut of 17,000 government jobs in April and a cut of 28,000 government jobs in May.  This scaling back of government continues to act as a drag on the economy.

Total (private and government) job growth was an estimated 80,000 in May, about the same as a revised 77,000 total in May.  But as was indicated in my June 1 posting on this blog on the May jobs report, the US labor force is growing at a rate of about 83,000 per month (based on the average growth over the last 10 years, so as to get away from the month to month fluctuations).  Hence no progress is being made on reducing the number of unemployed, and the reported unemployment rate (based on the separate Household survey; the jobs numbers come from an survey of Establishments) was unchanged at the still high 8.2%.

None of this is good for the economy, nor for Obama’s re-election prospects.  But while Romney and his Republican colleagues will reiterate their strong criticism of Obama’s policies, asserting that an explosion of government under Obama is the cause of this poorly performing job market, their arguments are simply inconsistent with the facts.  Government jobs (primarily at the state and local level) have indeed contracted sharply during the period Obama has been in office.

It is instructive to compare job growth during the Obama period to that of Bush, Jr., during his first term:

Net Job Growth Private Sector Government Sector
Obama:  January 2009 to June 2012 +160,000 -633,000
Bush:  January 2001 to June 2004 -1,790,000 +766,000

Jobs in the private sector are now slightly higher, by 160,000, than when Obama took office in January 2009.  The recovery from the free-fall in jobs that was underway when Obama was sworn in is now complete, although there is still a long ways to go to catch up with what would have been normal growth during this period.

In contrast, at the same point in Bush’s first term there were almost 1.8 million fewer private jobs than when he took office.  Yet while Romney harshly criticizes job performance under Obama, he praises the policies under Bush.

And there is a sharp contrast not only in private job growth but also in growth in the number of government jobs.  Since Obama took office, 633,000 government jobs (primarily state and local) have been cut.  In contrast, for the similar period during the Bush first term, government added 766,000 employees.

Had government jobs followed the same path under Obama as it had under Bush, there would now be 1.4 million more workers in the public sector.  1.4 million more workers employed would, by itself, have brought down the overall unemployment rate from 8.2% to 7.3%.  But there would also be multiplier effects in an economy with its still high unemployment, as the newly employed school teachers, policemen, firemen, and other public workers spend their earnings in their communities.  Assuming a conservative multiplier of just two (that is, one newly employed additional worker for each newly employed public worker; many economists would estimate the multiplier is in fact higher than two in conditions of high unemployment), the overall unemployment rate would be only 6.4%.  The economy would be approaching full employment, which is normally taken to be unemployment in the 5 to 6% range.

The scaling back of government has been devastating for the job market during the period Obama has been in office.  Yet through repetition, the common view is that government has exploded during Obama’s term.

Barclays Bank Could Not Manipulate LIBOR By Itself

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Over the last two weeks, Barclays Bank has admitted that staff in 2008 (in the chaotic financial markets following the Lehman Brothers collapse) had sought to manipulate the daily fixing of LIBOR (the London Interbank Offered Rate).  LIBOR is a key set of interest rates, indicating the short-term borrowing costs on the inter-bank market of the largest and most active banks in the world.  Trillions of dollars of loans have interest rates set in relation to LIBOR, and hence even small variations in LIBOR can lead to billions of dollars of higher (or lower) profits.

The scandal is a serious one.  Barclays Bank paid a fine of 290 million British pounds (equal to $453 million), the Chairman of the Board Marcus Agius resigned, CEO Robert Diamond resigned, there have already been Parliamentary hearings, and there will be further repercussions for Barclay.  Barclays’ stock has plummeted.

But what is odd is that, so far, there do not appear to have been major implications for other major banks that participate in the LIBOR setting process.  To see this, it is important to understand the rules under which LIBOR rates are set each day.  The process is organized by the British Bankers’ Association (BBA), which provides a good description on its web site.

LIBOR is set each day by submissions from panels of major banks, with separate (but overlapping) panels of banks for each of the 10 currencies being covered.  For borrowing in US dollars, 18 banks participate.  Each submits in London, at 11:10 am local time each working day, a figure which that bank indicates would be the cost for it to borrow funds from other banks were it to do so on that day at 11:00 am.  Separate submissions are provided for each of the time periods for such borrowing, from over-night funds to twelve month funds.  The three and six month periods are probably the most common dollar LIBOR figures the market focuses on.

The BBA (or to be more precise, BBA Libor Ltd.) takes the daily submissions, examines the data for any obvious errors, excludes the top four and bottom four submissions from the 18 banks (for the US dollar rates) for each of the borrowing periods (from over-night to 12 month), takes the simple arithmetic average of the middle ten submissions for each of the borrowing periods, and then publishes this by 11:30 am.

The important point here on the question of whether Barclays alone could have manipulated these rates is that the top four as well as the bottom four submissions are excluded from the calculations of each of the LIBOR rates each day.  If the Barclays submission alone were an outlier, it would not have mattered as that submission would have been excluded from the calculation.

Hence Barclays attempt to manipulate the LIBOR market could not have succeeded unless it was in either tacit or explicit collusion with at least four other banks.  Yet while investigations continue by both the UK and US bank regulators (and probably others), the markets do not appear to have paid much attention to the possibility that other banks will be charged with colluding with Barclays in attempting to manipulate the LIBOR rates.  There are three US banks on the US dollar LIBOR panel of 18 banks:  Bank of America, JP Morgan Chase, and Citibank.  But while the price of Barclays stock has dropped 15% in the two weeks since the LIBOR manipulation charges came out, the prices of these stocks have been largely flat.  The other banks on the 18 bank panel include three others from the UK (in addition to Barclays), three from Japan, three from France, two from Switzerland, and one each from Germany, the Netherlands, and Canada.

Waiting for Medicare While a Cancerous Tumor Grows

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A startling news report tells of a New Jersey woman who waited until her 65th birthday (when she would become eligible for Medicare) before going to a hospital to treat a rapidly growing tumor in her body.  The tumor was cancerous, and had grown in size to 51 pounds by the time of the operation to remove it.  Her body weight had ballooned from her normal 120 pounds to 170 pounds while she waited until she could receive Medicare coverage.

The case illustrates why we need to make sure all Americans can have access to affordable health care insurance.  Without health insurance, the lady was unwilling to seek treatment.  The doctors said they would have treated her regardless of her insurance status in such a condition, but the hospital might still have gone after her to seek whatever compensation they could.

It would have made sense for all for her to have received an early treatment.  Not only would her own likelihood of recovery have been better, but the expense of the operation (done earlier rather than later, before the tumor had grown to 51 pounds) would have been far less.  Indeed, it would have made sense for Medicare itself to have paid for an earlier operation, if it were legally possible for it to do so.  The lady would have gained, Medicare would have gained (as it subsequently covered a far higher cost), and society would have gained.

Yet we still operate in a country where over 50 million of its citizens do not have health coverage.  Not only is this a human tragedy, but it is also financially foolish.  It leads to postponed medical care that can often cost far more than earlier intervention would have.