The folks who assured us that the problems in the subprime market would never spread to the rest of the housing market, and that the troubles in the housing market would not hurt an otherwise strong economy are now telling us not to be worried about the latest data showing the economy shedding jobs in August. For example, the NYT tells readers that in both the eighties and nineties expansions the number of jobs fell at least once before turning around and growing rapidly. In fact, excluding periods at the beginning or end of recessions, there were three months in which employment fell in the eighties and nineties. In two of these three months, large nationwide strikes could be readily identified as the cause of the job loss. (Striking workers are not counted as holding jobs.) In short, it is an extremely unusual event for jobs to decline in the middle of a period of healthy growth. The job situation is somewhat worse than the data show for two reasons. First, the Labor Department is imputing jobs into the data for new firms at the same rate as it did last year when the economy appeared to be considerably more healthy. This imputation is likely overstating the rate of job creation in new firms. (It may have overstated growth last year too -- we find out next month.) Second, the survey is for the pay period that included August 12th. Many mortgage companies announced large layoffs in August, but most of these workers would still have been on the payroll on the 10th.
--Dean Baker
