Last week’s unexpectedly weak jobs number has economists and traders questioning their assumptions about the strength of the recovery. That’s exactly what we should be doing.
By Vikram Rangala
Tuesday, April 7, 2015
Monday morning MarketWatch began an article with, “Is the US economy really falling back? Or getting ready to spring forward?” It goes on to quote both economists who see a limited, temporary slowdown and other economists who see signs of more serious, longer-term weakness.
Both sides have solid evidence to cite at this point, starting with the employment report itself. The economy added just 126,000 jobs and the previous two months (i.e. the rest of the first quarter) were revised down by 69,000. That’s a big drop in job growth.
Nevertheless, optimists counter, that is still jobgrowth—nonstop for 61 months since 2009. That is the longest streak of job creation on record.
The deeper question of under-employment
Go beyond the “glass half full” set of arguments and the doubts and questions become harder to answer. Some are best left to economists, like whether low commodity prices reflect a lack of demand for raw materials from manufacturers. Or whether the strong dollar and cheap oil are a net plus or minus for either the global economy or Mideast security.
Other questions are easier to see and may be the ones we most need to ask of ourselves and our policymakers. For example, while unemployment held steady at 5.5%, the Bureau of Labor Statistics U-6 number, our most comprehensive measure of under-employment, actually fell 0.1% in March.
We all know, or might even have been, someone who in the past six years was underemployed. They generally work as contractors or “consultants,” and get a 1099 tax form instead of a W2. They may spend well over 40 hours a week “employed,” especially if they work more than one job. But it’s likely none of those jobs gives them more than 39 official hours. The trouble is, two or more part-time jobs don’t equal a full-time job.
Underemployed workers are also generally under- or uninsured for health care. As more of those workers move to full-time jobs, with full benefits, the effects will be hard to measure. By that I mean that we quite literally aren’t good at measuring the effects of re-employing the underemployed on the scale that is now happening.
Michael Madowitz, an economist at the Center for American Progress, wrote Monday:
We simply don’t have much experience predicting what happens when we put the underemployed to work. There are a series of rules you can use to forecast Fed behavior in a normal world of inflation and unemployment, but those rules weren’t devised to deal with such a large share of the slack in labor markets represented by the underemployed.
Better jobs come from better questions
We are seeing a more layered transformation in 2015 than just people who didn’t have jobs for a while now getting new ones. Many are getting jobs in new fields and industries—new for them and new for the world. Some jobs simply didn’t exist when the financial crisis hit.
As just one example, I’m the communications manager for Nadex, the first binary options exchange in North America. The position didn’t exist before; indeed, many companies are just now recognizing the importance of having a communications director.
Nadex itself began in 2009, after and in some ways as a response to the financial crisis. That crisis was precipitated in part by leveraged debt, lack of transparency, and questionable middlemen. Nadex came out of the question: could we offer a more fair and democratic way to participate in the markets?
Binary options are fully collateralized, transactions are conducted transparently, and all customers are direct members of the exchange. And it costs an affordable $100 to open an account. It’s our answer to a question that hadn’t really been asked before.
The Fed embraces uncertainty
It may well be that this hitch in the record streak of job creation—which shows no sign of ending next month or this year—is giving us a chance to think not only about whether we’re creating jobs, but what kind of jobs and new businesses we are creating. And the Fed’s cautious approach suggests that they are doing exactly this kind of deep thinking.
On Monday, New York Fed president William Dudley said the timing “will be data dependent and remains uncertain,” reported Bloomberg. “I anticipate that the path will be relatively shallow [as] headwinds in the aftermath of the financial crisis are still in evidence.” Today, Minneapolis Fed president Narayana Kocherlakota went further, suggesting no increase until late 2016. The new investor consensus is that the Fed won’t raise rates until November.
So Good Friday brought some bad news. And the subsequent rally suggests that investors are wisely reading the bad job numbers as a good sign. But perhaps the really good thing is that it is making us look beneath the surface at what is driving, or can drive, a recovery that is truly long and strong.
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