Jobs: Mixed News
One of the themes we are seeing most frequently nowadays is the stock market’s over reaction to any shred of good news and its avoidance of any bad news. Today’s report on employment is a classic example.
The facts are these: payrolls dropped by 54,000 in August; the unemployment rate edged up to 9.6%; but hidden in the mix was a rise of 67,000 in non-government payrolls.
Naturally the stock market rallied based upon that last snippet. The private sector hired more than it fired by a decent margin.
The market swept aside the poor 121,000 government workers who lost their jobs as being insignificant. And that little uptick in total unemployment was treated with disdain.
So much for reality.
What do we more sober types make of this?
Obviously any time the private sector creates rather than destroys jobs we should be happy. So August was a good month in that regard. Plus we all knew that the government was going to shed jobs because a mass of temporary census workers were coming out of contract as the census effort winds down. I think it is telling of our fear of failure that most analysts on Wall Street had predicted a much worse private sector outcome and so they were carried away by what appeared to be great news.
Let’s keep our feet on the ground: for an economy this far into recovery the number of jobs created in August was paltry. It was insufficient to keep up with population growth. I have said before that we need to create over 100,000 jobs a month just to keep even. Having said that any growth is good growth. So let’s not be churlish.
This, I think, is the ongoing difficulty we are having: none of the good news is so good that we can breath a sigh of relief. Instead we are stuck in a series of apparently endless “mixed” messages. The drift is palpable. The economy just cannot get into a high gear.
The reason is clear: the defensive posture of both households and business self-perpetuates itself. As we shed debt, which is a rational thing to do, we cripple our ability to spend. This limits growth and presses down on us. So we shed more debt. And so on. The last great de-leveraging period in American history was the Great Depression. This time is not quite as bad due to the fiscal and monetary stimulus which has the effect of mitigating the reduction in debt and thus keeps cash flowing. Nonetheless we are running the risk of crashing the second we stop the stimulus. It looks as if the private sector has not yet completed its reduction, this increase in jobs is a sign of tentative rather than buoyant business expectation. The conversation is far too biased towards fear of the next bad news rather than the next good news.
Fear is corrosive because it enervates. It prevents investment and induces individually sensible, but collectively destructive behavior. Only the government can step in to stop the rot.
More stimulus is needed. Today’s jobs report confirms that.
