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This is just a brief post-mortem on this morning’s monthly employment situation report, for those who did not have the opportunity to spend time with it.

As you probably know, the employment report is based on two separate surveys, one of employers and one of households.  The employer survey is generally thought to be the more reliable, with the footnote that it has a significant inevitable weak spot in the impossibility of adding newly created firms to, and dropping dying firms from, the sample in real time.  The household survey shows greater variability from month to month because of the difficulty some workaday citizens have with picking up the nuances of the concepts, not to mention the refusal of some to participate.

This month’s employer survey showed mediocre growth – 162,000 new jobs.  That is not enough to rebuild employment very much from the enormous job losses of the financial crisis, after taking into account the growth of the potential labor force (about 100,000 to 120,000 per month) because of the simple expansion of the adult population.  If you were hoping for a breakout number, this isn’t it.

The industry categorization of job growth was not terribly encouraging, either.  More than half of the new jobs came in food services and drinking places, and in retail trade.  I don’t want to overstate this complaint.  Job growth is better than the alternative, and jobs should not be downgraded reflexively on the basis of their industrial classification.  But having half of new job creation in these categories would be more satisfying if the overall new-job number had been robust.

One perspective on the labor market, and on the economy generally, is that the weakness in so many economies around the world (including ours) leads to reduced demand for goods and for highly technical services, which are the industry categories that tend to provide the best-paying jobs.  If we had robust overall economic and job growth, the retail and dining-and-drinking sectors would face more competition in the market for labor, and would have to pay more, benefitting everyone.  We don’t need a campaign against “services” and those firms that provide them, and we don’t need a campaign for gravity-defying higher wages without demand for labor.  We need economic growth.

In the household survey, the unemployment rate fell by 0.2 percentage points, from 7.6 percent to 7.4 percent.  Increasingly sophisticated public opinion puts much less stock (pardon the pun) in the unemployment rate than it did, say, two or three decades ago.  More people now understand that the unemployment ratio has a numerator and a denominator, that both matter, and that shifts in one or the other can yield a misleading overall change.  In this case, the household survey had employment rising, unemployment falling by a little more, but the size of the labor force declining a bit.  If the economy had been improving significantly, we would have expected some of the large number of discouraged job losers to re-enter the labor market.  Instead, following the pattern of recent months, we have at best tepid interest in the labor market.  Again, the need – easy to say, but more difficult to legislate than some would admit – is greater overall economic growth.

Wall Street often needs to decide whether good economic news is bad news (because it portends government macroeconomic restraint), or bad economic news is good news (because it will motivate government macroeconomic stimulus).  This time, Wall Street will have to interpret mediocre economic news.  May it choose wisely.

So the trend is that the trend continues.  Move along, folks, there’s nothing going on here.  (Sigh.)

I’ve been saying for several years that the best person to manage our way out of the current economic doldrums would be George Balanchine (if only he weren’t dead) – because this will need to be the most carefully choreographed dance of monetary and fiscal policy in all history.  The Federal Reserve will at some point need to raise interest rates that currently are on the floor (“at the zero bound,” in econ speak) and draw down a balance sheet that is orders of magnitude greater than its normal size, to head off inflation – all in a shaky economy nestled in a shaky world economy.  Meanwhile, the fiscal policymakers will have to head off a mounting debt by slashing a far-oversized budget deficit, which is driven by complex structural problems with their own powerful political self-defense mechanisms – all the while avoiding crunching that same vulnerable economy, and somehow acting in harmony with the aforementioned independent Federal Reserve.  It is a situation only an academic economist could love:  It offers plenty of ivy-covered reward for writing theoretical papers which will never be tested in practice, and so have no real-world consequences.

And that is the good news.  A recent more-practical (but still plenty wonkish) paper by two Federal Reserve economists, Christopher J. Erceg and Andrew T. Levin, explains that today’s labor market is not only painful, but also puzzling to policymakers.  It identifies yet another unprecedented challenge that is layered upon all the others to make the path back to Normal, wherever that is (unfortunately not the town that is readily visible on the map of Illinois), even more tortuous.

The Erceg and Levin paper already has gotten plenty of press (for example, see a New York Times reference here), but is worth your attention if you have not seen a close discussion.

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We had a pretty good job growth number of +227,000 for February.  And the consensus seems broadly to be that the economy is back, and employment is on a sustainable upward track.

I’m not part of that consensus.  I think (1) very short term: we are on an, at best, fragile path; (2) long term: recovery to acceptable unemployment numbers is going to take a sustained 10 years.

To begin with, that 227,000 jobs increase is welcome but small. This economy needs monthly increases of about 110,000 just to keep pace with an increasing population.  So we cut into the “stock” of unemployed only by about 117,000.  And we barely cut at all into long-term – greater than 26 weeks – unemployment.

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