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At Last, There Are Signs of a Beginning to Recovery From the Recession
Actual Initial Unemployment Insurance Claims fell below 300,000 during the week ending March 16, 2013 for the first time since May 12, 2007! So the economy is at last beginning to show signs of recovery from the recession. To what do we owe this spark of improvement? Will the recovery last?
The media reported that during the week 336,000 seasonally adjusted initial claims were filed, an increase of 2,000 from the previous week. If the reporters read the report of the U.S. Bureau of Labor Statistics, they would have read that the actual number of claims filed was 299,143. Neither CNBC nor Bloomberg TV reported the actual number which would have caused the stock market to rise. Instead, it fell on the news that unemployment claims had risen.
How the BLS calculated the seasonally adjusted number, God knows. It is hard to believe a seasonal adjustment in the month of March would differ by nearly 37,000, more than ten percent. (Moreover, the BLS made similar calculations in 2012 and 2011, so the statisticians apparently don’t ever get around to recalculating the seasonal adjustments!)
There are a number of reasons why unemployment claims have fallen. The government has been “stimulating” the economy by keeping the federal budget in the red by over a billion dollars a year for the past four years. This represents an increase in the demand for goods and services. Unfortunately, much of this demand was for foreign goods and services. The international trade deficits that the U.S. has experienced since the 1990s created employment abroad and caused unemployment at home. As a result, the increase in government spending had a much smaller effect than it would have had in the absence of the trade deficits.
The Federal Reserve System helped finance the deficits by its policy of quantitative easing. It purchased three billion dollars of the government debt and government guaranteed assets. This increased the money supply and was expected to increase the demand for goods. Its principal effect was to stimulate the prices of securities in the stock markets and made many members of the upper middle class and the rich richer. The wealthy did spend more money and luxury boutiques and stores prospered. It had some but very little effect on employment. As we pointed out on this blog last week, the real unemployment rate is about 15%, not the official rate of 7.7%. And again much of the increase wealth resulted in an increase in imports, including travel abroad and in foreign-owned ships.
A third stimulus was supposed to be increased green expenditures including hybrid autos, bio-diesel fuels, and wind and solar energy. Unfortunately, jobs producing so-called green goods are heavily subsidized by current and future taxpayers. And utilities are forced to buy wind and solar energy at high prices which are passed on by the utilities to consumers and businesses. The jobs that are created are probably fewer than the jobs that are lost. Some economists claim that more jobs are lost than are created by the green revolution. In any case, considering the vast increase in government expenditures involved, there has been very little effect on the number of unemployed.
The trouble with government spending as a stimulus is that the spending cannot be cut back without costing the jobs that it created. One merely has to look at the President’s claim that a reduction of less than three percent in expenditures, less than the actual increase in expenditures in prospect during the fiscal year in progress, would cause unemployment (and even the suspension of tourist visits to the White House), all of this coming after four years of trillion dollar deficits. It appears, as we have pointed out that there is no Keynesian multiplier, that an increase in government spending causes a decrease in private spending, and when the stimulus ends, the economy returns to its previous level.
The major impact on unemployment has been the boomlet created in extraction of fossil fuels from shale. The invention of “fracking” has enabled a vast increase already in the production of natural gas and petroleum. The industry promises to convert us from the leading importer of petroleum to a net exporter of oil and natural gas. The administration has tried to reduce the consumption of fossil fuels. Fortunately, it failed. Many jobs have already been created in this industry and the prospect is for many more.
Pres. Obama’s rhetoric informs us that he is looking after the poor. To the contrary, his administration has helped the rich get richer without making much of a dent in the number of unemployed. Real wages continue to fall. And when the stimulus ends, the beneficial effects do too and the economy returns to its previous level. Only real growth in the private sector, manufacturing and housing, provides sustainable employment as the boomlet in the production of oil and natural gas from shale teaches us.
Comment by Jesse, 3/24/2013:
The BLS uses a complicated statistical formula to calculate the seasonal adjustment. All such adjustments must depend criticaly on the ability of the models to use past data accurately in the prediction of future seasonal adjustments. I wonder if the cataclysm of the great recession might perhaps have thrown off the accuracy of those models substantially. For a brief history of BLS seasonal adjustment modeling see http://www.bls.gov/cpi/cpisahoma.htm.
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