It is all but impossible to know with any certainty what today’s jobs numbers are signaling. The huge snow storms of February put a lot of noise in the data, making it hard to figure out what would have happened in a normal month or even a normal February. That means it’s hard to know what we should read into the numbers about the direction of the economy.
There are a few standout numbers. To begin with, the headline unemployment number and payroll number were slightly better than expected. The consensus was looking for unemployment at 9.8% and a 50,000 payroll drop. Instead we got just 9.7% unemployment and 36,000 jobs lost. The fact that we beat consensus despite the snowstorms may provide a psychological boost to investors as well as businesses trying to figure out whether to position themselves for more recession or a turn into recovery.
Construction lost 64,000 jobs. As we noted last month, we consider the continued loss of construction jobs a sign that the real economy is undergoing a healthy transition away from the bubble. The big danger with all our new subsidies to housing was that it would thwart the ongoing liquidation of human and financial capital allocated to housing, producing another round of malinvestment. In short, the continued loss of construction jobs is hopeful sign that we aren’t creating an artificial recovery by re-inflating the housing bubble.
Unfortunately, the snow storms make it hard to tell how seriously to take this liquidation. It’s hard to build homes when you are buried under several feet of snow. So we cannot totally dismiss the dangers of a bubblicious recovery.
The unexpected loss of government jobs is also a hopeful sign. Growth of government jobs can make employment numbers a head fake. They don’t reflect actual strength in the economy. Like bubbly construction jobs, government jobs are real jobs. Government workers buy cars, homes, services, consumer goods and services. So government hiring can provide a temporary boost to the economy. But their rise and fall depends on policy decisions rather than underlying economic conditions, which means that they are useless as an indicator of the health of the economy.
The rise in the number of people who are long-term unemployed is terribly unfortunate for those people. But it also indicates an economy in transition away from the bubble economy. During the economic bubble that popped, there was a massive amount of misallocated capital. Too many people gained jobs, connections, skills, experience, and personal attachment to jobs that were not economically feasible outside of the bubble. The loss of those jobs and the unemployment of those people is not the growth of a human “output gap” but the liquidation of misallocated human resources. These people will have to find new skills in jobs that have yet to be created, if we’re to have a healthy recovery. Just putting people back in jobs we don’t need would be a sign that we were once again blowing up the bubble.
The rise in temporary service jobs is a sign of recovery. In a healthy recovery following an economic bubble, businesses stung by the collapse of long term projects begin to recover from liquidation by engaging in short term spending. This includes making short-term investments and hiring temporary workers. A quick reversal to full-time hiring or investment in long-term projects is a sign of a renewed bubble, foreshadowing a future collapse, rather than a healthy recovery. The small growth in manufacturing, 1000 jobs, is also a signal of a healthy economic recovery.
Over the next several months, thousands of individuals will face the end of their federal unemployment benefits. The typical interpretation of this reads these people as becoming the hopelessly jobless. Expect to see a lot of specualtion about whether the unemployment numbers are concealing the actual number of jobless people. That speculation is half-right. What’s really happening, however, is that resources locked out of the jobs market start to re-enter the market. As long as unemployment benefits continue to pay people not to learn new skills or accept lower wage jobs, the recovery will remain anemic. The misallocation of human capital will remain stuck in place.
Of course, if the economy is not recovering, the loss of unemployment benefits can be devastating. We need to create new jobs in new businesses to soak up those now entering the jobs market. This is a tough task, especially since as many as 400,000 workers could be re-entering the jobs market. But it’s a two-way street: employers who know that they will not face a labour crunch can more easily expand operations as the workforce expands due to the end of unemployment benefits.
So that’s the challenge face: can we create enough non-bubble, non-government jobs to soak up the increasing number of job seekers? Or will we panic and try to re-inflate the bubble, forestalling the necessary reckoning with actual economic conditions and guaranteeing another, most likely worse, economic crash in the not so far off future?
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