- The Washington Times - Friday, August 6, 2004

There’s not enough sweet stuff in America to sugarcoat Friday’s lousy jobs report. Once again, the employment report clobbered the expectations of economists, whose consensus projection called for a payroll increase of about 225,000 jobs in July. That turnaround would have been double June’s very disappointing increase of 112,000.

In fact, Friday’s report downwardly revised June’s total to 78,000 after clipping 27,000 jobs from May’s previously reported total of 235,000. Then, the report lowered the boom on July: A paltry 32,000 payroll jobs were added last month. Here’s the upshot: The poor numbers for July, coupled with the downward revision for June, mean that a mere 110,000 jobs were created over the two-month period, an amount below the very disappointing 112,000 figure reported last month for June alone. The recently favorable job-growth trend has suddenly become ominous again.

In two very important respects, the historical linkage between economic expansion and payroll growth was completely severed after the 2001 recession ended. First, job growth began far later than it had after previous recessions, when nonfarm payrolls often began expanding within a month of the recession’s trough (as in March 1961 and December 1970) or within two months (as in May 1975 and January 1983) or within three months (as in June 1991). Thus, contrary to a nearly infinite amount of economic misinformation that followed the 2001 recession, nonfarm payrolls have not been a lagging indicator. Indeed, the Conference Board, a private research firm that compiles the indexes of leading, lagging and coincident indicators, officially classifies nonfarm payrolls as a coincident indicator.

Although the eight-month 2001 recession, during which 1.64 million jobs were lost, officially ended in November of that year, the economy continued to shed more than 1 million additional jobs over the next 21 months. Nonfarm payrolls hit bottom in August 2003, when employment was more than 2.7 million jobs below the cyclical peak of March 2001. Thus, in a marked departure from previous expansions, payroll growth following the 2001 recession did not begin until 22 months later in September 2003. Second, once job growth did commence — and contrary to the trends following the recessions that ended in 1961, 1970, 1975 and 1982 — payrolls began rising at a very tepid pace. (Job growth did proceed slowly after the 1990-91 recession ended, but the pace was not nearly as slow as it has been following the latest recession.)

From a base of about 130 million nonfarm payroll jobs, monthly job growth during the first six months of payroll expansion was as follows: September 2003 (67,000); October (88,000); November (83,000); December (8,000); January 2004 (159,000); and February (83,000). How tepid was this growth? Well, the monthly average over this six-month period was 81,000. That average is about a third of 236,000 payroll jobs that were created, on average, during each of the 96 months of the Clinton administration. It wasn’t until March that job growth finally took off: March (353,000); April (324,000); and May (208,000). Over that three-month period, the monthly average was nearly 300,000. Then, payroll job growth returned to a crawl, increasing by 78,000 in June and 32,000 in July.

The sharp drop-off in job creation is matched by a marked deceleration in the growth rate of the economy. After expanding at the recently revised annual growth rates of 4.1 percent (April-June 2003), 7.4 percent (July-September 2003), 4.2 percent (October-December 2003) and 4.5 percent (January-March 2004), the pace of economic growth recently slowed to 3 percent (April-June 2004). The annualized growth rate of consumer spending, the indispensable ingredient since the economy resumed its expansion in late 2001, had exceeded an average of 3.6 percent over the 10 quarters from 2001’s fourth through 2004’s first.

During a generally terrible job market, that impressive growth rate in consumer spending was made possible in large part by the mortgage-refinancing boom and the 2001 and 2003 tax cuts. But the stimulus from both of those factors has dissipated recently, partly explaining why the increase in consumer spending slowed to a minuscule 1 percent during the second quarter. With the return of a truly lousy job market during the past two months, suddenly the economy’s future has become much more cloudy than it was just a few months ago.



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