More Bad News on the Economy II

The Economic Policy Institute loves to report bad news about the economy (when, that is, a Republican is in office).  But they are basically honest, and sometimes you have to just have to admit that the news is good no matter how much that hurts.

The nation’s unemployment rate fell to 4.7% in January—the lowest rate since July 2001— and payrolls expanded by 193,000 jobs, according to today’s report from the Bureau of Labor Statistics (BLS).  Hourly wage growth also accelerated, up 3.3% over the past year, the highest growth rate since February 2003.  Also, the share of the jobless population stuck in long-term unemployment fell to 16.3%, the lowest rate since March of 2002, suggesting an increase in the availability of jobs.

In fact there is no question that the economy is very strong right now.   The only way EPI can find any bad news is by making comparisons with past recoveries. 

This pace of job growth, though solid, still remains well-below that of past recoveries.  Over the comparable period in the recovery of the 1990s, payrolls grew at a rate of 2.8%. If we were adding jobs at this rate today, the average monthly gain over the past year would have been 303,000.  For all recoveries that have lasted at least this long, the annual rate of job growth at this stage was 3.1%, almost twice that of today’s pace.

That's a fair criticism, but its difficult to know exactly what it means.  The contemporary economy is clearly much different from what it was a few decades ago.  Robert Samuelson makes these observations in the Washington Post:

A puzzle of our time is why the economy has become increasingly stable while individual industries have become increasingly unstable. The continuing turmoil at General Motors and Ford simply reflects this more pervasive industrial instability -- also in airlines, telecommunications, pharmaceuticals and the mass media, among others. Hardly a week passes without layoffs from some major company, which is "downsizing," "restructuring" or "outsourcing." And yet, the broader economy has undeniably become more stable. Since the early 1980s, we've had only two recessions, lasting a combined year and four months and involving peak unemployment of 7.8 percent. By contrast, from 1969 to 1982, we had four recessions lasting altogether about four years and having unemployment as high as 10.8 percent.

I do not find this as mysterious as Samuelson does.  An economy in which specific industries are free to fail and restructure in response to changing circumstances should, as a whole, be flexible enough to ride out all kinds of shocks-like hurricanes or soaring energy costs.  That's what we have now.  Of course there are some disadvantages to this.  It makes everyone feel a little less secure.

Assuming there's something to this theory -- which seems a good bet -- it helps explain the riddle of why there's so much anxiety amid so much prosperity. As Americans stock up on BlackBerrys and flat-panel TVs, it's hard to deny the affluence. But people also look to their employers for a sense of confidence about the future -- and here doubts have multiplied, because more companies and industries seem assailed by menacing forces.

What is the bottom line?

Why does an economy of greater stability have industries of lesser stability? The answer is competition. An intensely competitive economy enhances overall stability by holding down inflation (which is itself destabilizing) and spreading economic disruptions throughout the business cycle (rather than letting them accumulate for periodic, massive downturns).

But the solution to one problem creates other, though smaller, problems. Except during unsustainable booms, say, the late 1990s, even good times are punctuated with insecurities, disappointments, job losses, broken promises and shattered expectations. What may be good for us as a society may hurt many of us as individuals. The unending challenge is to find the necessary social protections that help the most vulnerable without frustrating desirable, if sometimes painful, change.

But the insecurities have compensations of their own: new jobs open up rapidly as old ones are replaced.  The EPI report observes this:

The decline in unemployment was accompanied by increases in employment rates for some groups, particularly Hispanic workers (up one percentage point), and high-school dropouts, up 0.8 points.  While monthly changes in this value can be unstable, over the past year, employment rates are up half a point over all, 0.9 points for African Americans, 1.7 points for Hispanics, and 1.3 points for high-school dropouts, a sign that the tightening job market is reaching less-advantaged workers.

Another positively evolving sign is the improvement in the extent of long-term unemployment, measured as the share of the jobless who have been without work for at least half a year.  This share, which was stuck at or above 20% for 32 months, has fallen from 21% last January to 16.3% last month.

Lower unemployment among the most vulnerable subgroups, and decreases in long-term unemployment, that's hardly bad news.