8.6 Percent

Posted on Saturday, 3rd December 2011 @ 09:40 PM by Text Size A | A | A

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Friday’s release of unemployment data for the month of November indicated that the jobless rate has fallen to a 3 year low, below 9 percent for the first time since then President-elect Obama first declared jobs creation a priority of his new administration three years ago. As the Wall Street Journal points out, the unemployment rate has fallen “sharply to its lowest level in 32 months, capping a string of data suggesting momentum”.

According to the Labor Department, 120,000 jobs were created in
November. Private-sector job creation was offset by continued job cuts among government workers, but the department also revised its estimates for job gains in September and October upward, appearing to be further positive news.

This news provides an empirical rebuttal to all the skeptics that have scoffed at the Obama Administration’s claim to reverse the deteriorating course of the economy and its accelerating loss of jobs three years ago.

“Our unemployment rate has been higher than 8 percent for more than two-and-a-half years, far above what the Obama Administration promised with the ‘stimulus,’ ” Speaker of the House John Boehner said in September.

The claim that the White House “promised” the stimulus would keep unemployment under 8 percent has been a popular mantra among critics. PolitiFact first checked it in July 2009 when then House Republican Whip Eric Cantor said: “We were promised. The President said we would keep unemployment under 8.5 percent (if the stimulus passed).”  According
to PolitiFact Ohio, it peaked at just over 10 percent in early 2010.

In describing the economic policies of the Obama Administration, the Republican National Committee identifies what they call a “Big Fail”: “Since The Stimulus Was Passed, the United States has lost 1.5 Million jobs and the unemployment rate has remained above 8 percent for a post-WWII record 32 straight months.”  True.  That’s why they call it the
Great Recession” guys.

On the policy question of how many jobs have been created by ARRA, several estimates have been floated  by the Congressional Budget Office, an independent agency that does the number-crunching for Congress, as well by three private sector economic-analysis firms:   the CBO estimates between 800,000 and 2.4 million; IHS/Global Insight estimates 1.25 million jobs; Macroeconomic Advisers estimates 1.06 million jobs; Moody’s economy.com estimates 1.59 million jobs. By any one of these estimates we have seen well over 1 million jobs saved or created by the act.

The unemployment peak two years ago reported by the Department of Labor is slightly lower than the one reported by the New York Times at 10.1 percent just over two years ago. According to DOE the unemployment rate peaked in November 2010 at 9.8 percent.   The last day of the federal fiscal year of the preceding Bush Administration would have been September 30, essentially one month prior to the peak in unemployment. To be fair, an assessment of President Obama’s policies should not begin prior to October 1 2009. Even then, they have had a lagging impact, as is the case with all new administrations.

In June 2009, Jared Bernstein, the vice president’s top economic adviser at the time, said that the Administration’s projections in January were simply rough estimates because hard data for the fourth-quarter of 2008 had not yet been released. When they were, they revealed the economy was in worse shape than economists realized, losing 600,000 to 800,000 jobs a month.  So the American Recovery and Reinvestment Act known as the “Stimulus Package” has actually had a tougher road to hoe than originally believed.  Bernstein has argued that the stimulus is actually working and that the jobless rate would be even worse without it.

The chart below shows the trend line that peaked in November 2009 and then follows a distinct downward trend right until Friday’s unemployment report.

Despite the positive news, the fact remains that states are required to maintain balanced budgets, forcing them to implement massive layoffs. As a result, the unemployment rate has been propped more than otherwise would be the case.  This is one of the main reasons that balanced budgets can hurt economic growth in the short run by killing any potential consumer demand created by those who might be otherwise employed.

Regarding Friday’s report, economist Paul Krugman said:  “It could have been worse, but thebasic story remains the same as it has been for 2 1/2 years: an economy that’s  growing, but not enough to feel anything like a real recovery.”  Possibly.

Since January 2009, pegging the unemployment rate at 8 percent has been a psychological benchmark for economic success in the current recovery from the Great Recession.   With this latest release of unemployment numbers, Democrats have been heartened by the news.  They recall 1984, when Ronald Reagan won re-election after unemployment peaked at 10.8 in late 1982, fell to 8.5 percent a year before Election Day as we are now seeing, then declined to 7.4 percent in time for the public to vote, according to the New York Times.

No single person, even the President of the United States can singlehandedly influence the world’s largest economy with a GDP estimated to be nearly $14.5 trillion in 2010 or approximately a quarter of global GDP.  That said, let’s say that under President Obama’s watch that the official jobless rate (not including those who have quit looking for work) has fallen from around 10 percent to 8.6 percent since its peak two years ago.  That’s almost 1 ½ points, 1/10 of a point from the 8 ½ percent benchmark and ½ point above the often cited 8 percent.   So according to this reasoning, President Obama is on course to fulfill his economic “promise”.

Is this a recovery at warp speed?  Obviously not.  A day late and a dollar short? Perhaps by some standards.  But more importantly, the economic policies of the Obama Administration appear to be kicking in. We are
witnessing an economic recovery.  So although we might not yet “feel” it as Paul Krugman said when he exclaimed “Meh,” sometimes even positive economic data are just not touchy feely.  Politically, President Obama should use this as a source of favorable political winds at his back.  Economically, we can see reason for guarded optimism.  Most important, at least some folks are finding their way out of unemployment.

Source: Bureau of Labor Statistics (2011)

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