The 2010 jobs outlook

The 2010 jobs outlook

I want to continue to focus on the new economic projections from OMB and CBO. Here is some basic background:

  • The unemployment rate in July was 9.4%.
  • Most economists consider “full employment” to be in the 4.5% – 5.5% range.
  • There are now about 154 m people in the workforce, so each tenth of a percentage point on the unemployment rate is about 150,000 people.
  • This means July’s 9.4% unemployment rate translates into about 14.5 m people who want work but don’t have it.
  • Rule of thumb: Because the labor force grows over time, the U.S. economy needs to create about 100K – 150K net new jobs each month for the unemployment rate to stay constant. For the unemployment rate to decline you need to exceed that range.
  • The U.S. economy lost 247,000 jobs in July.

On Friday, August 7th the President spoke in the Rose Garden. He said:

Today we’re pointed in the right direction. We’re losing jobs at less than half the rate we were when I took office.

I wrote earlier about why this is the wrong way to analyze it. Now I want to compare the President’s language with his Administration’s new projections.

Here is an excerpt from Table 2 on page 11 of the Mid-Session Review, released Tuesday by the President’s Office of Management and Budget:

The blue highlight shows that the Administration projects the unemployment rate in the fourth quarter of this year will be 10.0%, six-tenths of a percentage point higher than it was in July.

The red highlight shows that the Administration projects the unemployment rate in the fourth quarter of next year will be 9.7%, three-tenths of a point higher than it was in July.

I draw two conclusions from this table:

  1. This is not “headed in the right direction.”
  2. If the Administration’s projection is correct, the unemployment rate will be in the high-9s during the next election and it won’t be coming down quickly.

The last point surprised me. The Administration projects the unemployment rate will decline by only three-tenths of a point from the fourth quarter of this year to the fourth quarter of next year. That’s not good.

Looking at another part of the same table, they project GDP will grow in 2010, either 2.0% or 2.9% depending on how you want to measure it. But it appears they project employment growth to be slow enough that the unemployment rate will decline very slowly throughout 2010.

The only explanation I can find to square this projection with the President’s language is footnote 1 above. Between early June and early August we had six weeks of economic data, some of which was positive. Still, I would be surprised if the Administration would rely on this new data to disclaim the forecast they published just this week.

I think the President and his team will have a tough time arguing that the stimulus is having the desired effect as long as the unemployment rate continues to climb, and even when it begins to decline if it does so slowly. The Administration will of course argue that things would be worse if they had not done the stimulus. That’s a tough message to sell when the unemployment rate is in the 9s or 10s.

I need once again to remind you that nobody really knows what next year will look like. These are all just educated guesses.

CBO does not publish projected fourth quarter levels, so we can’t compare their projections. They do project the average annual unemployment rate, and their projections are slightly more pessimistic than OMB’s. OMB projects an average annual unemployment rate next year of 9.8%. CBO projects 10.2%. The Blue Chip survey of private forecasters projects 9.9%.

There seems to be a disconnect between the President’s language, which is raising expectations that things will get better in the near future, and his Administration’s economic projections.

If these projections are realized I imagine they will affect significantly the 2010 election. If the unemployment rate is in the 9.5% – 10% range on Election Day, and if it is declining as slowly as the Administration projects, there could be a big effect in the voting booth.

(photo credit: Library of Congress)

20 responses

  1. Keith:

    A purely political tactics question…

    Do you think the new administration can effectively pull off their standard “we inherited worse than we thought” all the way through 2010? That is, do you think they could actually succeed through the 2010 cycle in using a continued downward trend as a lever against Republicans instead of the other way around?

    • I think that's what their message is going to be next year but it won't work. They will have had a year and a half in power in DC and have gotten many of their initiatives passed. The democrats will lose power – it's just a question of how much.

    • If the Obama and his Democrats try to duck their rightful share of blame for the mess they've made with "we inherited worse than we thought," the adults who remember as far back as 2008 can remind everyone that

      (1) Democrats were hoping for "worse,"

      (2) when GOP candidate John McCain offered to work with Obama and the Democrats to hammer out a bipartisan response to the fall 2008 financial panic he was rebuked by an indifferent Obama and mocked by Democrats and their media wing, and

      (3) when after the election, then-lame duck President Bush tried to work with president-elect Obama to forge crisis countermeasures that would assure the public and markets that efforts begun before Obama was inaugurated would continue afterwards, Obama and his "we won" partisans sat on their hands and did nothing.

      Whatever Obama "inherited," he worsened and added his own new puppy-style messes to it.

  2. The recession is worse than anyone thinks is pure propaganda and denial. We the people know it's a Depression, despite the 'media spin' and deception by the Obama Administration. How does one use the word 'Crisis' 27 times in one speech, saying it's the worst since the Great Depression, and then claim they didn't know how bad it was? Deception.
    In a time of deceit telling the truth is a revolutionary act. What we are witnessing is a good, old fashioned coup d’etat by a group of
    dedicated communists who have planned this since the 1960’s, if not before.
    We must realize, and understand that we are in the fight of our lives here. We
    are fighting for the very existence of America. For her very soul. We the people,
    are now fighting back. Not because we love peace less, but
    because we love Freedom more.

    In the end, we will either be victorious, and save America, restoring the rule of
    law, and the Constitution, or America will fall into the depths of communist hell.
    Silence no more. Silence is consent.

  3. I am convinced that Obama has been told that he can win in 2010 by Axelrod no matter what the economic news is.

  4. You're undoubtedly well aware of this, but if we look at the BLS "U6" rate Obama and the Democrats are in really, really big trouble. It's now over 16%:

    http://www.bls.gov/news.release/empsit.t12.htm

    If the GOP has any sense, it'll be wielding the U6 numbers like a baseball bat in coming months. We're still over a year out from the elections, but smart Donks are already looking to November 2010 with considerable angst. I'm not predicting the GOP will pick up either the House or the Senate. However, given current trends, the Donks are headed for major losses, which will likely lead to the GOP cobbling together de facto majorities via tactical alliances with surviving Blue Dogs. I'd say this scenario is keeping Obama up at night even as he vacations:

    1. The Democrats would still be in nominal control of all three branches, but weakened to the point where they couldn't get anything meaningful done without the approbation of a rejuvenated GOP.

    2. Worst of all, the Democrats would still get most of the blame if the proverbial pooch gets screwed.

  5. Keith

    I wanted to thank you for your analysis. If I have a complaint it sometimes is almost too wonky but you are doing a job that I don't see anywhere else in the economics blogosphere. Keep up the good work.

  6. Keith, excellent as always.

    Do you feel we are now at a "permanent" lower employment level that the bubbles have burst? Can we achieve 4% unemployment in a non-bubble economy?

  7. Either this is the most incompetent government in many, many decades or it is advancing an agenda that is even worse than has been generally discussed. I personaly believe that the intent is to do Europe one better and create a govt. dependancy that outstrips even what exists there. if there is not a swing that rests control of one or both houses in Congress in 2010 from the Democrats, then the damage will take a long time to repair – if it is effectively repaired. This makes the unproven assumption that Republicans have actually learned from their mistakes.
    it is difficult to understand how, faced with the deficit, debt and unemployment numbers, there is not an even greater populist movement for "change" away from this insanity.

  8. Pingback: AIP Blog

  9. @kbh:
    Thanks for the post. I don't believe the situation is as dire for the Democrats as we conservatives would like to think. The administration is already planning to double the national debt over the next ten years. If a massive, multi-trillion, individual stimulus package is necessary to "win" in 2010 and 2012 then the administration will do exactly that. Republicans can moan about the deficit till the cows come home but the Democrat constituency will readily vote for an administration and party that promises more bailouts well before they vote for Republicans who only promise more pain.

    • Good point, Red St8r. In an election between Uncle Skinflint and Uncle Sugar, the Republican candidate always loses. The children love Uncle Sugar so and don't care much about his pecadilloes that shock some of their parents if Uncle Sugar is generous with treats, Happy Meals, movie tickets, and the occasional pocket change for candy money.

  10. Pingback: The Greenroom » Forum Archive » Negative job growth for 2009-2010, says OMB

  11. A by-product of these pessimistic unemployment figures would be that anything less than the predicted figures could be taken as proof of the Obama administration's success. Perhaps the projections were based on unrealistically negative assumptions. As to why such assumptions would be used — I do not know.

  12. Pingback: Hot Air » Blog Archive » Negative job growth for 2009-2010, says OMB

  13. "How does one use the word 'Crisis' 27 times in one speech, saying it's the worst since the Great Depression, and then claim they didn't know how bad it was?"
    -Fred

    Wow. This never even crossed my mind. Now that I think about it, it just looks like sheer incompetence.

    "the Democrat constituency will readily vote for an administration and party that promises more bailouts well before they vote for Republicans who only promise more pain."
    -RedSt8r

    I don't know. MOst people would prefer to work. And once I think people really understand that it's their (taxpayer) money they (politicians) are using to to give back to the taxpayer for votes- I don't think they have a chance.

  14. If a massive, multi-trillion, individual stimulus package is necessary to "win" in 2010 and 2012 then the administration will do exactly that. Republicans can moan about the deficit till the cows come home but the Democrat constituency will readily vote for an administration and party that promises more bailouts well before they vote for Republicans who only promise more pain.

    Eventually, you're just spending Monopoly money, to little or negative effect. What they've already got planned already has them in big trouble – both in terms of fiscal/monetary problemsand in terms of public opinion. They won't even try.

  15. Well in general I find the comments here very optimists as the comments refer to high unemployment that will make the Democrats lose The House or suffer significant losses in 2010.

    The reality is much worse, the fact is that the dollar is going to be intentionally destroyed in 2011 and we are going to experiment an extremely chaotic future where the country as we know it today is going to disappear substituted by State tyranny.

    I believe if we follow the present course, the end of 2010 will see U6 levels above 23%.

    If on the other hand, in 2010 we have a similar 9/11/2001 attack due to the Administration failure to protect us, the timetable will change and the prediction for 2011 will take place immediately in 2010.

    We better start thinking about the unthinkable as there is a total determination from the people in charge (I am not talking about the Administration) to implement their agenda.

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