Podcast: The December Unemployment Report and What It Means for the Economy
January 8, 2011
I'm Michelle Bazie and I'm here with Chad Stone, the Center's Chief Economist, to discuss the jobs report for December.
1. Chad, today's jobs report seems to provide mixed signals, with much less job growth but a larger decline in the unemployment rate than analysts were expecting. What's going on?
You're right, Michelle, that you get conflicting evidence on what's happening in the job market from today's report. December was another month of modest growth - 103,000 jobs overall. That's pretty consistent with the pattern all year and you wouldn't expect that kind of job growth to have much of an effect on unemployment in a growing population.
2. But then why did the unemployment rate fall from 9.8 percent to 9.4 percent?
Well, payroll job growth and the unemployment rate are based on different surveys covering somewhat different populations. One survey asks employers how many people they have on their payrolls and the other asks people whether they have a job or are looking for a job. The surveys don't track each other perfectly and there is always random noise in a particular month's data but the drop in the unemployment rate is quite large and unexpected.
3. So which should survey should we believe?
That's a good question. Most analysts think the survey asking employers how many people they have on their payrolls provides the better guide to underlying trends in job growth. But that one doesn't provide any information on unemployment, so you need both. The other thing is that a substantial part of the drop in unemployment came from people leaving the labor force rather than from finding new jobs. We still have a huge jobs deficit, jobs are still hard to find, and many unemployed workers remain discouraged from looking.
After two years of shrinking payroll employment, it's good news that the economy created over a million jobs in 2010. But we need much faster job creation to simultaneously bring people back into the labor force and reduce the unemployment rate to acceptable levels over the next few years.
4. When can we expect that to happen?
If we continue to produce fewer than 100,000 jobs a month as we did in 2010, never! We have to erase the 7 million jobs deficit hangover from the recession and generate enough additional jobs to account for population growth since the start of the recession and for people coming back into the labor force as job prospects improve. I estimate that we would need about 300,000 jobs a month - triple what we saw in 2010 - between now and the end of 2015 - five years from now to get back to the kind of labor market we had at the start of the recession in late 2007. To do better than that, we would need sustained job growth closer to 400,000 a month. But we could do even worse if we don't see a significant pickup in economic growth pretty quickly.
5. What could put this kind of economic growth at risk?
The economy already faces substantial headwinds from the winding down of the federal 2009 Recovery Act spending and the actions states will have to take in the face of ongoing budget woes. But there is a lot of hostility in the new Congress toward government spending - and for that matter toward the Federal Reserve's actions to try to stimulate the economy. The proposals we are hearing for immediate deep cuts in federal government programs are exactly the opposite of what the economy needs for the recovery to really begin gathering steam.
Thanks very much, Chad.