On Friday, we'll get the latest news about unemployment, but Calculated Risk raises concerns that even if the results surprise us with more job growth -- perhaps 200,000 jobs -- they should still disappoint us. How's that?
The March report will be distorted by two factors: 1) any bounce back from the snow storms in February, and 2) the decennial Census hiring that picked up sharply in March.
These are real payroll jobs, but the Census hiring is temporary -- and the Census jobs that are added in March, April and May will all be lost over the following 6+ months.
... The important point is 190,000 is probably a weak number for March -- and probably not "setting the stage for a broadening of the expansion" -- although we need to see the details.
Meanwhile, the puzzle of how broader economic recovery has still failed to bring any sign of a real turn around in the labor market continues to make policy-making difficult. The Federal Reserve is working on a couple of theories, including an optimistic idea that suggests the antiquated approach to measuring economic growth has been at the center of failures to understand labor-market dynamics:
The economist, Jeremy Nalewaik, argued that a lesser known measure called gross domestic income may give a more accurate assessment of the business cycle. GDP looks at spending to measure the size of the economy, while GDI focuses on income.
Based on GDI, the economy began contracting in 2007, not 2008 as GDP data indicates. It also shows growth did not resume until the final quarter of 2009, while GDP showed the economy had expanded in the third quarter as well.
If GDI is indeed a more accurate gauge, there is reason to think employment will soon rise. Data released last Friday showed GDI jumped at a 6.2 percent annual rate in the fourth quarter, even faster than GDP's 5.6 percent pace.
That would also help explain why payrolls were still contracting eight months after GDP indicated economic growth resumed. Employment gains normally lags economic growth by a few months, so if the cycle turn came in October rather than June, it would make more sense to see job growth now.
Given what we know about GDP's failures as a measurement, perhaps this should give us a little more optimism about what's coming next for the jobs situation.
-- Tim Fernholz
