Friday's Unemployment: "Good" Only By "New Normal" Standards
The publication of Friday's "Employment Situation" report from the Bureau of Labor Statistics (BLS) gives us our first opportunity to take stock of the first four years of Barack Obama's presidency. This is because the jobs numbers are the first of the major economic data series to be reported after the end of a period.
The jobs numbers are especially illuminating, because the impacts of changes in government policies show up first and fastest in total employment. By way of illustration, total employment peaked in November 2007, but it took until December 1, 2008 for the National Bureau of Economic Research to declare that a recession had begun in December 2007.
Total employment is also the most sensitive indicator of the state of the economy. During the most recent recession, real GDP declined by 4.6% from its peak in 2Q2008 to its trough in 2Q2009. However, the peak-to-trough fall in total employment caused by this recession was 5.9%. And, while 4Q2012 real GDP will probably come in at 3.1% above its previous peak, total employment in December was still 2.2% below its earlier high.
There were 3.3 million fewer Americans working last month than there were back in November 2007, which was more than five years ago. In the interim, America's working age population grew by 11.4 million.
So, how were the December employment numbers? They were terrible. December was an awful month, capping a horrendous first Obama term in office. The current jobs situation could only be seen "good", or even "OK", by someone drunk on Obama's "new normal".
December, America's working-age population went up by 176,000. On the margin, only 15.9% of these people found jobs. For Obama's first term as a whole, our adult population increased by 9.3 million, and (incrementally) not one of these new potential workers found a job. In fact, total employment actually declined by 64,000 over the past four years.
In America's entire post-war history, nothing like this had ever happened before. The record for the fewest jobs created in a presidential term had been held by Bush 43. In his first term in office, total employment rose by only 1.82%. During Obama's first term, the total number of jobs fell by 0.04%.
Yes, Obama inherited a severe recession. But so did Ronald Reagan, and total employment increased by 6.61% during Reagan's first term.
Here are a few more data points that illustrate just how bad the past four years have been on the jobs front:
• During the last month of Bush 43's second term, the unemployment rate was 7.3%. In December 2012, adjusted to the same labor force participation rate (65.8%), the unemployment rate was 10.9%
• The reason that last month's "headline" unemployment number was reported at 7.8% was because of an unprecedented exodus from the labor force under Obama. During the past four years, labor force participation declined from 65.8% to 63.6%. This represents 5.3 million Americans giving up on looking for work.
• The "SGS Alternate" unemployment rate published by Shadow Government Statistics is the broadest measure of unemployment/underemployment. Over the past four years, this increased from 17.6% to 23.0%, bringing it to its all-time high. When Bill Clinton left office, the SGS Alternate unemployment rate was 10.5%.
• Speaking of Bill Clinton, the reason that he is held in such high esteem today is that he guided the nation to effective full employment (an employment-to-population ratio of 64.7%, achieved in April 2000). If full employment is the goal, the U.S. moved 5.9 million jobs farther away from it during the past four years.
So, where do we go from here?
Obama is beginning his second term in office the same way he started his first-by getting the economic program that he wants.
In early 2009, Obama wanted "stimulus". He got $862 billion worth, fueling the largest spending blowout in American history. What do we have to show for it? We have the worst economic performance for any presidential term since 1952, featuring not only the slowest real GDP growth, but also a net loss of jobs.
Obama's stimulus program has whizzed past tragedy, and is well on its way to farce. Adjusted to the labor force participation rate assumed by the stimulus program, December's unemployment rate (10.9%) was more than twice the level promised by Obama's plan (5.4%).
To be fair, Obama didn't get everything he wanted for the economy during his first term. He also wanted big tax increases on "the rich".
Obama will start his second term with massive increases in the top tax rates on ordinary income, capital gains, dividends, and inheritances. And, he has said that these are merely a down payment. Obama wants $1 of additional tax increases for every $1 of putative spending cuts.
Whatever you raise the taxes on, you get less of. Raising taxes on work, savings, and investment will yield lower levels of work, savings, and investment. Coupled with a continuation of Ben Bernanke's bizarre, but Obama-endorsed, Federal Reserve policies, and a massive regulatory assault on key American industries, it is not clear how all of this is supposed to produce prosperity.
The results of Obama's second term economic policies will show up first in the employment numbers. The next twelve BLS "Employment Situation" reports should be interesting.