Geithner Takes Lead in ’Much Ado About Nothing’
What if the Bureau of Labor Statistics had reported a 220,000 increase in March nonfarm jobs two weeks ago instead of 120,000?
Simple. We would have been spared a lot of market volatility, political grandstanding, I-told-you-sos and speculation that, like 2010 and 2011, solid job growth early in the year would peter out by summer.
Not to mention that there isn’t a heck of a lot of difference between 120,000 and 220,000. If you don’t believe me, listen to the statisticians.
Every month, the BLS includes a technical note with the employment report -- too bad so few people read it -- explaining that the “confidence interval” for the change in total nonfarm employment from the establishment survey is on the order of plus or minus 100,000.
Translation: From a statistical point of view, an increase of 120,000, 220,000 or 20,000 is pretty much the same. But oh what a difference it makes in our world of snapshot analysis!
In a labor force of about 155 million, 100,000 is a rounding error. It’s also a net change, offsetting the millions of workers who are hired each month with those who are fired or quit. The BLS’s monthly JOLTs report (Job Openings and Labor Turnover) details the high degree of churning in the U.S. labor market. During the 12 months ended in February, for example, 50.6 million people were hired while 48.6 million left their jobs for a net employment gain of 2 million.
Safety in Numbers?
This isn’t to denigrate the work of the civil servants at the statistical agencies. As someone who spent a day with a BLS employee on her rounds checking prices for the monthly consumer price index, I can testify that there is a method to the madness.
But the numbers have a lot of noise. Warm winter weather can turn a few construction hires in February into a seasonally adjusted boom. It also depresses industrial production through reduced output of natural gas and electricity (utilities are part of industrial production). The timing of Easter, a moveable feast, may shift retail sales from March to April or vice versa. An early or late payroll survey week may distort employment gains or losses. Holidays may shift first-time filings for unemployment benefits from one week to the next.
These are the vagaries of economic data. What’s so striking, and depressing, is the reaction. Short of true shocks that ripple through the financial system, a $15 trillion economy doesn’t turn on a dime. Businesses don’t start hiring one month, only to get cold feet the next. And consumers don’t open their wallets and immediately shut them -- unfortunately, in cases where they are empty.
The hyperventilating over the March employment report is really much ado about nothing. Treasury Secretary Timothy Geithner said as much when he was dispatched to the Sunday morning talk shows -- not on April 8 but on April 15, nine days after the employment report was released -- to try and quell the angst. He told the various network anchors that the U.S. economy is gradually getting stronger. No, it’s not good enough yet. And yes, there are challenges and risks ahead. But the preponderance of evidence from employment, exports, agriculture, manufacturing, energy, high-tech, and business and consumer confidence, suggests a gradually improving trend.
He’s right. Take a step back, take a deep breath and look at the big picture. Recoveries from financial crises, such as the one the U.S. experienced, are different, we learned from economists Ken Rogoff and Carmen Reinhart. They are more protracted, on average, with some metrics, such as employment and house prices, still depressed as much as a decade after the crisis erupted.
The government can’t wave a magic wand and make things better quickly, try as it might. That’s why the true legacy of financial crises, according to the authors, is a boatload of government debt. And Washington is doing nothing to alleviate it.
Everyone, both Republicans and Democrats, agrees we need fundamental tax reform that would lower the rates and broaden the base. Where’s the legislation to implement it?
Congress crafts bills (see health care) and budgets to comply with a 10-year window, with the goodies front-loaded and the pain to-be-delivered sometime in the future.
The future is now. Yet somehow it’s never a good time to make the hard choices to put spending on a sustainable path in relationship to revenue. It’s never a good time to let the Bush tax cuts expire (the economy is too fragile). It’s never a good time to do away with tax breaks and deductions, such as the one for mortgage interest (the housing market is too weak) or charitable contributions (charities are still hurting from the recession).
The political classes are always eager to “do something” to help in the short run. The last thing we need is a steady stream of snapshot data analysis to egg them on.
(Caroline Baum, author of “Just What I Said,” is a Bloomberg View columnist. The opinions expressed are her own.)
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Today’s highlights: the View editors on fixing U.S.-Pakistan relations and creating a bureau to study climate change; Ezra Klein on post-election tax reform; Caroline Baum on the myopia of short-term economic statistics; A. Gary Shilling on his readers’ questions about his economic forecast; the Squam Lake Group on money market reforms; Fredrik Erixon on Europe’s coming welfare cuts.
To contact the writer of this article: Caroline Baum in New York at firstname.lastname@example.org
To contact the editor responsible for this article: James Greiff at email@example.com