Mitt Romney Recalibrates His Employment Forecast

Last May, Governor Romney stated that in a typical recovery, monthly employment increases should be about 500,000 per month [1]. The sheer implausibility of that statement (assessed in this post) has induced him to reduce his estimate (without explanation of the change) to 250,000 per month. [2]. In Figure 1, I provide a plot of the implied path, as well as that from his May statement (which made me laugh for days!). In other words, his forecast has moved from clearly “Heritage Foundation space” to something that seems a bit less implausible, even if not clearly motivated by a specific model


Figure 1: Nonfarm payroll employment, seasonally adjusted (blue), Romney trend assuming 250,000 increase per month, per August 2012 estimate (red), and 500,000 increase per month, per May 2012 estimate (green). Assumes 100,000 increase per month from August 2012 to January 2013). NBER defined recession dates shaded grey. Dashed lines at 2001M01 and 2009M01. Blue numbers denote average employment growth per month between trough and peak. Black number between vertical dashed lines is average employment growth between inauguration months. Source: BLS, NBER, and author’s calculations.

Interesting observations:

  • The 500,000 number clearly exceeds that recorded in recent history. Kudos to Governor Romney for disposing of that number.
  • While 250,000 jobs per month is more in line with recent “jobless recoveries” (i.e., after the recessions of 1990-91, 2001, and 2007-09), it is still substantially above that recorded during the G.W. Bush recovery (250K >> 91.7K). It is also very much above (!!!) the 11,100 jobs per month recorded during the entire G.W. Bush administration, when we last implemented tax cuts advocated by supply-side advocates.
  • 250,000 is also above that recorded in the 1991-2001 recovery (196,700/mo, mostly spanning the Clinton Administrations).
  • To my knowledge, the 250,000 figure is not based on simulations from a model. Rather (inferring from the Romney white paper), it is based on extrapolations from two previous recessions, specifically the 1974-75 and 1981-82 recessions.

I recommend the “The Romney Program for Economic Recovery, Growth, and Jobs” for reading, if you want to see how these, and other, numbers were generated. Readers will note that the authors mention, but do not condition on, balance sheet effects, in tabulating the expected growth rates in output and employment. In this respect, they have ignored cross country studies on the issue. [3] [4]

I am dubious that predicted job growth can be sustained at posited rates, if thus-far-unspecified tax expenditures are eliminated, the deficit is to remain at specified levels, and spending cuts along the lines of the Ryan plan, which Governor Romney has endorsed, are implemented. [5]

Update, 8pm Pacific: IMF confirms the findings that growth is typically slower after a banking crisis/recession, in its just released adjunct to Article IV report on the US. [6]

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