Storytelling In The News: #81

The story of February employment in the U.S. disappoints

March 7, 2004

February was once described as that "fickle, catarrhal, crafty runt of a month" by the Czech writer, Karel Capek.1/ Even if President George W. Bush seems unlikely to have Capek at the top of his list of favorite authors, he must surely have felt as Capek felt about February when he looked at the February 2004 employment data, which were released by the Bureau of Labor Statistics on Friday March 5. Instead of creating several hundred thousand additional jobs as predicted by the White House only a few weeks previously, the economy managed to create only a net of 21,000 jobs. Since these additional jobs were government jobs, the net private sector contribution of new jobs was zero, against a background in which the economy has already lost several million jobs since President Bush took office. An awful story for President Bush In a strange phrase, the Financial Times headline read: "Lack of new jobs deals blow to US economy." In the FT's mind, the "lack of new jobs" has been turned into a person that is capable of "striking a blow" to the US economy, which is also personified. The image of hand-to-hand combat between the "lack of new jobs" and "the economy" is difficult to picture with any precision, and indeed may involve the illusion that lack of new jobs is a problem for the economy, rather than a sign of its robust productivity (when combined with rapid growth). "Lack of jobs" is a problem for people, not the economy. Nevertheless, the political thrust of their headline is clear enough: more awful news on the job front.

Financial markets reacted instantly to the story emerging from the job data, pushing the dollar lower agains the euro and leading to a sharp surge in global bond prices, while stock prices skidded. The euro initially jumped from $1.218 to $1.234. Marc Chandler, chief currency strategist at HSBC in New York, said that the dollar's recent revival now looked under threat. Steven Poser, market strategist at Poser Global said there was "nothing, and I mean nothing, bullish in the results".

Even the adjustments to the previous month's data were bad: January's employment creation rate of 112,000 - which disappointed many analysts at the time - was revised still lower to 97,000. Most of the job creation in February was in temporary positions, where there was a rise of 32,000. As a result the US actually lost permanent positions during the month.

According to the FT, the figures will alarm Republican strategists, who have been gearing up for November's presidential election. The sluggishness of the labour market has become a significant campaigning tool for Senator John Kerry, the de facto Democrat nominee for the presidency. With just seven payroll releases remaining before votes are cast, the administration is running out of time to demonstrate that their economic policies have helped create jobs. The stomach ache that won't go away Republican fears were confirmed by the striking story in the Washington Post the next day (March 6), which featured the plight of Greenville, Michigan where Electrolux AG has decided to shut down its refrigerator plant and head to Mexico."The people are all scared," the United Auto Workers shop steward told a suddenly hushed rally, organized by Senate Democrats to highlight jobs moving overseas. "It's like a stomach ache that will not go away."

For Greenville, the loss will be staggering: 2,700 jobs in a town of 8,000. Those numbers contrast harshly with President Bush's visit to California on Thursday to talk up the economy. To Doolittle's 2,700 jobs lost, Bush had the two or three that Bakersfield chassis-maker Les DenHerder said he might add, thanks to the president's tax cuts.

"When he says he's going to hire two more [people], that's really good news," Bush said in California during his Bakersfield visit.

It is however going to take more than two new jobs to turn around the perception that President Bush's economic policies are sound. With just seven monthly data releases remaining before votes are cast, the administration is running out of time to demonstrate that its economic policies are working..

The Wall Street Journal suggests that while broader economic gauges have turned up, the labor market is the most potent indicator affecting political attitudes. Another ominous fact for Mr. Bush is that economic improvements alter public opinion only with a time lag. So even if the labor market does get better -- as many economists expect -- that could come too late for the president to get credit in November.

The White House predicament is made more difficult because there's little more that Washington can do to pump up growth in the coming months. The administration's mammoth tax cuts have given the economy some juice over the past two years, but the resulting record budget deficits make it impossible to push through any new reductions anytime soon.

So Mr. Bush finds himself in the same uncomfortable position his father held 12 years ago with an economy that is perceived as faltering in the area that matters most to voters - jobs. The stories that the economists tell Joseph Stiglitz, the Nobel-Prize winning economist, said in the late 1990s that macro-economics had become a boring subject, because now we knew all the answers. Perhaps the White House should give Stiglitz a call, since there is little agreement among economists as to what is going on now in the US economy on jobs. (Perhaps also Stiglitz is less confident now of having all the answers than he was during the booming 1990s.)

The conventional economic wisdom has been that if the economy grows, jobs will follow, as surely as day follows night. With an economic recovery nearly three years old, the economy should be producing 200,000 to 300,000 jobs a month, said Sung Won Sohn, chief economist of Wells Fargo & Co. "Obviously, the relationship between economic growth and employment has broken down." .

What is going on? The outsourcing of jobs overseas is widely accused of playing a part in the job market's stagnation, helping companies increase profitability and productivity while keeping hiring and wages depressed. However, as Greg Mankiw points out, the number of jobs outsourced is only a sliver of the whole jobs picture and it can't be the only driver of the job loss.

Others suggest that firms are simply being more miserly in their hiring. "The clear message of these figures is that companies have been able to crank up output without the need for new workers," said Nigel Gault, director of US research at Global Insight, the economic consultancy.

"Employers are still very, very cautious about adding bodies,'' said a disappointed Bill Cheney, chief economist at John Hancock.

"Companies do not want to take on new workers unless they absolutely have to, and they do not have to yet," said Nigel Gault, chief domestic economist at Global Insight, a forecasting and data gathering concern. Chasing the missing entrails What is President Bush to do? Apparently his high-priest economists have no new solutions to offer. Perhaps he might take heart from how things were done in ancient Roman times. Just as the politicians and economists now study the statistics for traces of the missing jobs, so the Romans sacrificed animals and examined their entrails. The historian Livy records on one occasion that while business was being transacted in the Roman senate, the consul Cnaeus Cornelius reported that the liver of the ox which he had sacrificed had disappeared, in a manner not too dissimilar to the vanishing jobs in the US economy.2/

The Roman senators, like their modern counterparts, were much alarmed at this ominous incident, and their alarm was intensified by the other consul's statement that after the appearance of the defective liver he had sacrificed three oxen in succession without getting any favourable indication. The Roman senate ordered them both to go on sacrificing the animals until the omens were favourable, just as President Bush can do little but direct the Bureau of Labor Statistics to go on collecting statistics until his omens are more favorable.

The problem for President Bush is that as the unfavorable omens from the Bureau of Labor Statistics keep coming out, month after month, the story that the economy is in trouble makes managers, investors and consumers more cautious in both spending and hiring decisions, and so the gloomy story on jobs risks becoming a self-fulfilling prophecy, even if good news would otherwise have been just around the corner. Unless President Bush can find a way to change the story, his re-election prospects must be worrying.

So perhaps President Bush should indeed add Capek's charming little book, The Gardener's Year to his reading list. In it, he will not only discover not only that a good gardener learns the virtues of humility and patience, but also how to avoid succumbing to Faustian delusions of grandeur.

1/ Karel Capek: The Gardener's Year, translated by Geoffrey Newsome, (Continuum, 2004)

2/ Livy: The Founding of the City, 41.15.

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