After all, the decline was caused in no small part by a surprising reduction in the labour force, which could be an indication that more workers were discouraged and no longer looking. That would hardly be an encouraging development.
Anyway, it was said, the unemployment rate is based on a survey of only 60,000 households, some of whom cannot be reached in any given month. It can be volatile, so you should not pay much attention to it. The president took heart from the figures, but critics said there was no real improvement.
The above describes what happened a month ago, when the unemployment rate for December came in at 9.4 per cent. It was the first time in more than 11 years that the rate had declined that much in a single month, but the headline in The Chicago Tribune read, “US jobs picture gets darker; Unemployment rate dips, but only because workers apparently are giving up.”
As it happened, those paragraphs also describe the situation 28 years ago. In January 1983, with President Ronald Reagan reeling from his large setback in the midterm elections the previous November, the unemployment rate fell to 10.4 per cent from 10.8 per cent. It was the first such decline in five years, but few thought it significant.
“The AFL-CIO,” The Washington Post reported, “said yesterday that there was no real improvement in unemployment last month because the decline was caused primarily by people dropping out of the labour force, rather than finding jobs.”
The Reagan administration then thought the unemployment rate was likely to stay above 10 percent throughout that year. Now the Congressional Budget Office forecasts that the rate will stay above 9 per cent this year.
In fact, the rate at the end of 1983 turned out to be 8.3 per cent. Before last month’s report, there had been only seven monthly reports during the previous 45 years that showed a decline of at least 0.4 percentage points. Three of them were in 1983.
Then, as now, the stock market was surprisingly strong, but many people discounted that because of the obvious woes of the economy. I don’t have a scientific measure, but I know that my e-mail inbox is getting a lot of messages offering conspiratorial explanations for the strong stock market. One reader asked if I had any evidence that Chinese manipulation was causing American share prices to rise. He did not respond when I asked why the Chinese would want to do that. There are also many differences between then and now. The report on how many jobs were added during the month — which got much less attention in those days — was strong in January 1983, and disappointing last month, when it showed an increase of 1,03,000. But job figures are often revised substantially in subsequent reports, particularly at inflection points in economic growth.
The Labour Department has already disclosed that it will revise downward the number of jobs reported in the 12 months through March of last year. In other words, the depth of the recession was even worse than we thought. In the past, there have been substantial increases when the economy was strengthening, so the current figures may prove low. A quick upward move in the unemployment rate could indicate that the glum outlook may be justified.
But there are signs that the economy is doing better than some statistics would indicate. The first report on gross domestic product for the fourth quarter showed a surge in consumption spending, rising at an annual rate of 4.4 percent. Disposable personal income, adjusted for inflation, rose at a rate of only 1.7 per cent. It was the fastest growth in consumption since early 2006, but the overall report was viewed as disappointing. The consensus seems to be that consumers are back to their old bad habit of borrowing and spending, and that such an increase cannot be sustained. After all, their incomes are not rising, so how else could they be getting the money except by borrowing it?
The trouble with that analysis is that there is no evidence people are borrowing more, at least not in the consumer credit figures released by the government. They show that outstanding borrowings are coming down, not going up.
There is a good chance that the income numbers in the GDP report will be revised up when better data is available. That happened back in 1983.
The first indication of whether that will happen will come four months from now. The earliest estimates of personal income are based solely on the Labour Department’s job survey, according to the chief of the National Income and Wealth Division of the Bureau of Economic Analysis, Carol Moylan. Next month the third-quarter figures will be revised to reflect more reliable statistics from reports companies file when they pay unemployment insurance premiums. The fourth-quarter figures will be available at the end of May.
Those same reports will be the basis for the final figures on job growth — the ones you see when you look at history. From 1979 through March 2009 — the last month to have a benchmark revision — the median change from the first number to the final one was up or down 71,000 jobs. That record of inaccuracy does not seem to bother the Federal Reserve. On Thursday, its chairman, Ben S Bernanke, made clear that other positive indicators could not overcome the one everyone watches. “Until we see a sustained period of stronger job creation,” he said in a speech at the National Press Club, “we cannot consider the recovery to be truly established.”
The list of things that could go wrong is long now. Strife in Arab countries has pushed up oil prices. Europe is focused on whether more countries will need bailouts. Foreclosures continue in the United States, and the banks are still finding out just how much the mortgage debacle will end up costing them. Long-term unemployment will remain a problem even if the overall unemployment rate falls rapidly. Still, companies report that business is improving, and consumers appear to be willing to spend. Nearly everyone with a job got a raise in January, courtesy of Uncle Sam, who reduced payroll taxes.