Jobless recovery? Doesn’t look like it. Signs are clearly pointing to big increases in payrolls going forward. The Labor Department’s establishment survey (which counts the number of payroll jobs in established businesses) should deliver months where we see 300,000 new jobs, supporting the position that the expansion is strong and sustainable.
There are many signals out there that new jobs are arriving. The employment component of the Institute for Supply Management’s (ISM) November index for manufacturing moved above the critical 50 level for the first time in more than three years, indicating that the employment drought in manufacturing is coming to an end.
The four-week moving average of initial jobless claims has fallen to 359,000. This is below the post-1989 average and not far above the 315,000 level common in the mid-1990s when job growth was fast. As a percentage of employment, the current weekly claims level is consistent with past periods of fast job growth.
One reason for the lag in job creation after the 2001 recession was the unusually deep drawdown in inventories (there’s a strong correlation between inventories and job creation). But inventories rose in September and October, indicating that robust job growth will follow.
In addition, employment gains reported in the Labor Department’s household survey have already been strong. The household survey (which is a job survey of Americans from home to home, rather than business to business) often leads the establishment survey during a recovery. The typical process is as follows: Existing establishments cut employment in a recession; new companies (not covered in the establishment survey) then add jobs in the early stages of the ensuing recovery; and at last the job growth begins to register in the establishment survey.
Meanwhile, today’s strong productivity growth is not and impediment to growth or a substitute for it, as some naysayers argue. In fact, the rate of productivity growth will slow as job growth accelerates.
Some naysayers also argue that “true” unemployment is higher than today’s 6 percent rate. Here’s the thinking: In the 1990s, Federal Reserve chairman Alan Greenspan introduced an alternative, broader measure of slack in the labor market — the pool of available workers. This included those looking for work (the normal measure) plus those who would like to have a job but haven’t looked in the last four weeks. So, there are now 8.8 million unemployed, but in addition to that there are 4.5 million people who would like a job but aren’t looking. Of those, 1.6 million have searched during the last 12 months but not in the last 4 weeks, and 400,000 are “discouraged” in their search.
Yet while the broader measure shows a higher percentage “unemployed” than the conventional unemployment rate, it does not really contain any additional information about labor-market conditions. It has generally moved up and down with the unemployment rate, just at higher levels.
And which direction is the unemployment rate headed? Down.
– David Malpass is the Chief Global Economist for Bear Stearns.