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How Strong is this Jobs Recovery?

Posted By Barry Ritholtz On December 12, 2005 @ 2:20 pm In Data Analysis,Economy | Comments Disabled

The White House, Treasury Secretary Snow [1], and Labor Secretary Elaine Chao [2] have been pointing out that the American economy has created 4.4 million new jobs created since May of 2003.

Inquiring minds want to know: How legitimate is that number? Note that this is a very different (but related) question to the one Floyd Norris looked at in the Sunday NYT [3]: How does this post-recession Jobs recovery compare to prior ones?

Both questions should be familiar to readers of this blog.

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The answer is, it depends upon how you look at it: Its either 1) Very Legitimate; 2) Legit, but Misleading; 3)About a Third Fabricated Projected;  4) Not nearly as legitimate as it appears. Here’s how they breakdown:

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1) The Very Legitimate argument is simply math: In May 2003, there were 129,827,000 people employed, as of November 2005, there were 134,289,000. That reflects 4,462,000 new jobs. So the 4.4 million number is very accurate — at least mathematically.

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2) The Legit, but Misleading take is based upon the time period selected: Note that May 2003 happens to be the low point for total employment. The only way to get at that 4.4M number is by advantageously selecting time periods on a trough to peak basis.

If this were a mutual fund advertisement, such a selective time line would be disallowed by the SEC as misleading:>

> >> > > > >>>  Total Employed (in 1,000s)
[4]

Source: BLS [5]

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What if we took a less randomly selected time period? If measured from the start of the President’s first term, the job creation numbers are much worse: about 1,835,000.

As we pointed out earlier [6], we can make the numbers better or worse depending upon when you mark the beginning of your time period.

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3) The Fabricated Projected Answer is based upon a simple adjustment: The 4.4 million new jobs number includes a newer adjustment called Birth/Death adjustment. [7] Its been gradually phased in since 2001, becoming fully implemented by 2003. This is an estimate (not a measurement) of the jobs created by newly born firms and lost by newly dead firms. Out of the 4,462,000 new jobs measured from the March 2003 low, ~1,639,000 were this statistical fiction "adjustment." That works out to be 36.7%. That’s a hefty number by any measure.   [NOTE: But see Tim’s comments below]

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4) The prior three issues have been quantitative. Our last measure — "Not nearly as legitimate as it appears — is more qualitative:

As I’ve noted previously [8], the jobs recovery compares rather poorly [9] with prior post WWII recessions and their aftermaths. We’ve seen that the jobs created are unusually dependent upon the real estate complex, they pay less and have weaker benefits than the lost jobs they replaced. And, there have been an unusually large amount of government jobs created. So the overall quality of this recovery is pretty mediocre.

These four measures show that this has been a fairly mediocre jobs recovery. The reason for this is quite simple in my opinion: Its because this is a post-bubble economy — the 2,000 crash was a 100 year flood — and looking at this recovery as if its just another post war cycle misses the bigger issues.

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Which brings us to the next query, Norris’ question:  How does this post-recession Jobs recovery compare to prior ones?

The bottom line is reflected in the table accompanying Norris’ Column [3]:

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Historical Comparisons, Job Creation, Presidential Terms
[10]
Table courtesy of NYT [11]

Here’s an excerpt:

"In terms of economic growth, this recovery ranks eighth for the four-year
period after the official end of a recession, as measured by the National Bureau
of Economic Research. It is just better than the period after the previous
recession, under the first President Bush, ended in 1991, and considerably
better than the period after the first recession in the Eisenhower
administration. Then, a new recession began three years and three months after
the first one ended.

The recovery that began in 1991 became the longest period of uninterrupted
economic growth in American history, an indication that there is nothing wrong
with a slow start. But the current recovery so far is far from impressive.

Consider jobs, the focus of the Treasury chart. A unique aspect is that the
job count continued to fall for 18 months after the 2001 recession ended.
The
number of jobs in November was up 3.4 percent from the job low 30 months
earlier.

That measurement, which is the way the Bush administration chose to look at
the data, ranks eighth among the 10 postwar recessions, a fraction ahead of the
recovery after the 1990-91 recession, and better than the period after the
recession that ended in July 1980, when another recession followed a year later.

Were job growth instead to be measured from the end of the recession, this
recovery is the slowest ever, with the job count up 2.6 percent in four years.
The previous low was a 4 percent gain in the four years after the 1953-54
downturn."

This is yet another example of contextualizing data. Too often, the headline (4.4 million new jobs!) is misleading when compared to the actual data beneath . . .

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Source:
The Jobs Recovery Looks Good, Until a Longer Look Is Taken [3]
FLOYD NORRIS
NYTimes, December 10, 2005

URL to article: http://www.ritholtz.com/blog/2005/12/how-strong-is-this-jobs-recovery/

URLs in this post:

[1] Treasury Secretary Snow: http://www.ustreas.gov/organization/bios/snow-e.html

[2] Labor Secretary Elaine Chao: http://www.dol.gov/_sec/aboutosec/chao.htm

[5] BLS: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet