Doing Just Fine After All
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
Just in time for the election, Friday’s employment numbers clearly showed: the economy is creating a lot of jobs, we don’t know how to count all the jobs we have, and job gains are benefiting Americans of all races and skill levels.
Over the past year, NewYork State residents have seen a 14% decline in the number of unemployed, with the state unemployment rate falling from 5.5% in September 2005 to 4.4% in September 2006.
Like New York, thus goes the rest of the nation. The Bureau of Labor Statistics announced on Friday that firms created 92,000 payroll jobs in October and revisions to August and September showed 139,000 extra jobs. Another BLS measure showed an additional 437,000 Americans employed in October and the unemployment rate falling to 4.4%. NewYork data for October will be released on November 21.
Once again, total October job creation was lower than the forecast of 125,000 jobs. But upward revisions to prior months suggest that the preliminary estimates of monthly payroll jobs numbers are consistently underestimated.
BLS revised the original 51,000 September jobs estimate up to 148,000, almost triple the original number. The new number showed that September jobs numbers actually exceeded market expectations, contrary to first impression.
BLS provides three estimates of job creation for a particular month, and then revises the numbers one additional time in what is known as a “benchmark revision.” Therefore, Americans can wait up to 22 months to learn the final jobs number.
The latest benchmark revision showed that BLS believes an additional 810,000 jobs, or 67,500 jobs per month, were created between April 2005 and March 2006. If this yet-unexplained discrepancy is continuing, we could still be missing a large number of jobs every month, implying an even stronger labor market.
The number for jobs that gets the most attention from the public, market analysts, and the Federal Reserve, however, is the first and least accurate estimate. Flaws in this number lead to potential policy and investor missteps.
The initial August estimate showed 128,000 jobs were created, the second estimate showed 188,000 jobs, and the third, on Friday, gave us 230,000 jobs — 102,000 more than first announced. The final number won’t be known until the benchmark revision in February 2008. By that time, the details will only be of interest to historians, because the economy and investors will have moved on.
The differences arise from the increasing percentage of sampled responses received by BLS each month. To get the first estimate for August job creation, BLS heard from 58% of its 400,000 firm payroll sample. For the second and third estimates, BLS received 83% and 86% respectively.
We are creating jobs faster than we know how to count them. But here’s the real mystery — with such strong employment numbers, why the dissatisfaction with the economy?
True, GDP growth slowed in the third quarter to 1.6% due to housing sector declines and high oil prices, but fourth quarter growth is expected to pick up. Oil prices have fallen, and retailers are expecting a solid Christmas shopping season.
Much of the angst comes from appearances of worsening inequality and limited economic mobility. The Financial Times ran articles on two successive days last week entitled “Anxious Middle: Why Ordinary Americans Have Missed Out on the Benefits of Growth” and “Politicians Must Focus on Middle America.”
But these well-intentioned concerns belie the evidence. Friday’s job data showed that over the past year real earnings have increased by 2.4%. Another measure of compensation, hourly compensation in the non-farm business section, has risen by over 3% after inflation over the past year. Benefits such as health insurance, vacations, and pensions are rising and form a larger share of compensation.
Friday’s numbers showed gains by minorities, not just last month, but over the past year. Unemployment rates for African-Americans fell to 8.6% last month from 9.1% in October 2005 , and unemployment rates for Hispanics reached their lowest level ever, declining from 5.9% to 4.7% a year earlier. Now, only 16% of the unemployed have been out of work for 27 weeks or more, compared with 19% a year ago.
The least-educated have made substantial gains. The unemployment rate for adults without a high school diploma was 5.8%, down from 7.1% this time last year. The unemployment rate for adults with only a high school diploma declined to 4.1% last month from 4.8% in October 2005.
The middle class is declining because over the past 25 years more families have moved to upper income brackets. It’s true that in 2004, the latest year Census data are available, only 21% of families earned between $50,000 and $75,000 (in 2004 dollars), compared to 25% in 1979.
But the disappearing families have moved up, not down, so we now have more families in higher-income brackets and fewer in lower-income brackets. This is cause for self-congratulation, not angst. In 2004, 34% of families earned $75,000 and above, compared with 21% of families in 1979, adjusted for inflation. And 46% of families earned less than $50,000 in 2004, compared with 54% of families in 1979.
American family incomes are even better off than they appear because the size of the American family is declining, so family incomes support fewer people. Families averaged 3.29 people in 1979 and 3.13 people in 2004, due to divorce, later marriage, and fewer children.
Those who suggest that inequality has increased are looking at incomes before tax and transfer payments. Once taxes are subtracted from the incomes of top earners and transfer payments such as food stamps, housing vouchers, and child credits are added to lower-income earners, the distribution of income looks a lot more equal, according to Alan Reynolds in his new book “Income and Wealth.”
A better guide to well-being is levels of spending, because spending includes tax payments and transfers. The lowest fifth of the population is spending 11% more in real terms now than 20 years ago; the middle fifth is spending 10% more; and the top fifth is spending 19% more. Although the top fifth is doing better than the rest, all are better off than before.
Friday’s employment numbers show that all Americans are making gains in the current expansion. This is due not to government programs, but to employers’ need for workers. This report cannot fix Iraq’s problems, but it should put economic dissatisfaction on hold.
Ms. Furchtgott-Roth is a senior fellow at the Hudson Institute and director of Hudson’s Center for Employment Policy. From 2003 to 2005 she was chief economist at the U.S. Department of Labor.