Is This Part of What’s Going On?

September 7th, 2012 at 10:30 am

I’ve been reflecting over the disappointing August jobs numbers (no surprise there, I guess).  In my earlier post, I made this point:

Over the past five months, when job growth has been slower, average monthly gains were 87,000; over the prior five months, they were 211,000, a notable deceleration.  In fact, the more recent pace is consistent with trend, or slightly below trend, growth in GDP we’ve seen in recent quarters.

In this regard, it’s that earlier, accelerated trend that’s more suspicious.  Why were we generating job growth numbers that most economists would associate with considerably higher GDP growth than was actually occurring?

Seasonal factors explain part of the difference.  The unseasonably warm winter meant the BLS probably over-adjusted upwards in the winter and visa versa in the spring and summer.  But productivity trends may also be in play.

Basically, if output is pretty constant and payrolls are moving up and down more than you’d expect, it could be that weaker productivity explains the payroll uptick and stronger productivity explains the downtick.  To no small extent, this is, as President Clinton would say, arithmetic, because output growth – hours growth=productivity growth.  But it’s worth a look.

Though I really, seriously wouldn’t make too big a deal out of these quarterly numbers, which tend to be jumpy, they do tell that story, with pretty stable GDP growth at trend, and shifting productivity growth negatively correlated with the movements in payrolls.

Sources: NIPA, BLS

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6 comments in reply to "Is This Part of What’s Going On?"

  1. Nhon Tran says:

    Thank you.
    As you wrote, this analysis is accounting/arithmetic. It is worth looking instead at sources of growth in output and employment to see if an explanation can be distilled from the data.

  2. foosion says:

    >>because output growth – hours growth=productivity growth>>

    Productivity doesn’t really explain anything. It’s just the mathematical result on comparing output growth to hours growth.

    We had a massive housing bubble collapse, greatly decreasing aggregate demand and therefore GDP and leaving households overleveraged. Business isn’t going to expand until it seems more demand for its goods and services. Given household finances, the only place that demand is going to come from is government, in the form of increased deficits. Alas, we don’t have a president who appears to understand that and we have an opponent who only cares about taxes on those at the very top of the income scale.

  3. Ilir Deebran says:

    There’s another way to look at this situation. Alex Gheg has a new consumer theory that allows the true measurement of economic growth. Quantity, quality, variety and convenience in one equation. A true scale for the improvement in living standards. This video spells it all out.

  4. dougfir says:

    It looks to me like all the people hired in quarter one are now trained up and are producing at a good pace, hence the lack of need to hire more people.

  5. Virgil Bierschwale says:

    Folks, you can attempt to measure all you want, but until you figure out how to quantify the big business and the mom and pop business actions described in this article, all of your attempts to predict will be worthless simply because of the unknown that most economists do not seem to want to admit actually exists.

    Keep America At Work

  6. Bob says:

    There may be other explanations for the data.
    1. During the recession, many spouses took low paying, menial jobs just because they could get health insurance. The wages were incidental. The main purpose was insurance Their spousal counterparts, as many people I know have done, were working two part time jobs to make ends meet. However the part time jobs didn’t provide health insurance. Ergo, households with traditionally one wage earner became a two wage earner household.
    As Obamacare kicks in, people began to go back to traditional roles. How would I surmise this? Because my family has been going through the same thing. Now,although I am making adequate money to support the family with two part time jobs, we are facing an agonizing decision – should my spouse quit her low paying job and return to managing the home? I believe that many Americans have already made that choice. The job numbers may reflex tthat process.