Network News

X My Profile
View More Activity

The unemployment rate and November

"All these wonderful graphs and not one that tracks what really matter, the unemployment RATE," wrote visionbrkr in response to my earlier round-up of economic graphs. Actually, I'd just forgotten to include an unemployment rate chart, it wasn't part of some devious plan to hide the metric. But I ran the numbers and here's the graph:

unemployment_rate10.jpg

You'll see I've got two rates on there: The first is the normal unemployment rate. The second is "U6," which is a broader measure of employment distress. It includes "marginally attached workers and those working part-time for economic reasons."

That said, if I were creating a set of political-economic dashboard measures, I wouldn't add the unemployment rate for a couple of months yet. Employment is a generally lagging indicator. It comes back after GDP growth and job growth have already been going for awhile. So though the amount of employment distress in the country will be very important come the 2010 election, what you want to be watching are the factors that will affect the unemployment rate (and its trend) in October, not what the unemployment rate is right now.

(I should also note that there's evidence suggesting that the unemployment rate doesn't affect midterm elections. Economic growth is a much more powerful determinant, at least according to some data. But I'm skeptical that that'll be true this year, as the employment situation is considerably more acute than in recent elections.)

By Ezra Klein  |  April 8, 2010; 3:09 PM ET
Categories:  Economy  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Will the IRS need 16,000 new agents to enforce health-care reform?
Next: This is gonna be a hit

Comments

devious, never. clever omissions of material facts to make Dems look good to the general public, ah maybe ;-)

in the end while you're right about it being a lagging indicator sadly the general public doesn't see it that way. They see unemployment still at 9.7% and Dems (whether rightly or wrongly) doing nothing about it which gives Republicans the motivation to continue their stall tactics of the last 1+ years.

The general public also couldn't care less about GDP but rather how it affects them, those they know etc. The general public in my neck of the woods are worried about the state budgets, teachers being laid off etc. They see bad news for the last year plus and they want someone to blame for their lot in life. In 2006 and 2008 it was the Republicans. In 2010 it'll be the Dems. It may not be a slaughter (dependent on how much IMO the rate improves from 9.7% which as you correctly point out starts from a negative becuase we need 100k+ jobs just to break even) but it'll be ugly for Dems.

Posted by: visionbrkr | April 8, 2010 3:36 PM | Report abuse

From an economist's standpoint it is a lagging indicator. From the voter's standpoint it is definitely a coincident indicator, as most economic models of voting outcomes use the unemployment rate as an explanatory variable.

Posted by: novalifter | April 8, 2010 3:41 PM | Report abuse

The U6 may be closer to the truth, but it is still a bit fuzzy. Most of my friends work in the so-called "service industry," i.e., they are people like auto mechanics, hair stylists, carpet layers, etc. All of them are still technically employed, but they are not making as much money as they would in a robust economy. For example, a woman may get her hair cut, or she can spend more and get it colored, get highlights, etc. When times are tight, people tend not to spend the extra money on optional services. And then there are people who work in clubs. If you want to know the state of the economy, talk to a dancer in a club. They tell me that men are drinking beer and not tipping. So how do you factor that into unemployment statistics? As I have pointed out to friends, in order for an economy to function, there has to be money in circulation. The main reason for going off the gold standard is that people hoard gold, and money does not circulate. With paper money or, in modern terms, electronic money, the Federal Reserve Bank can regulate the money supply to keep sufficient money in circulation. If there is sufficient money in circulation, and people are encouraged to spend money, then unemployment goes down because people are employed providing goods and services. So, I am spending money to fix a problem with my car. The wife of the owner of the automotive repair business may have her hair styled by another friend. That friend might buy some clothing for her children. The clothing store will restock merchandise, etc.

Posted by: FredinVicksburg | April 8, 2010 3:48 PM | Report abuse

Another reason to be wary of posting unemployment numbers: there are two major sources for these numbers. BLS (Bureau of Labor Statistics) puts out monthly numbers based that tend to be significantly revised. BEA puts out numbers much later, but these numbers tend to be more accurate.

Put another way, BLS numbers tend to be great for journalists chasing the latest headline, but serious policy analysts (and I think you've got potential, here) tend to work off the more reliable BEA data set.

Posted by: MOmark | April 8, 2010 4:44 PM | Report abuse


why are more broads unemployed?

Posted by: ThomasEN | April 8, 2010 4:51 PM | Report abuse

Another significant, and perhaps just as important number for midterms, is the amount of seats held by the party in power. Specifically, how many of the seats under contest are held by the party in power, so how many can actually change?

In the house, that's everybody, and there are a lot of vulnerable Democrats in the house. In the senate, there are certainly quite a few--so anything short of Democrats losing a majority in one or both houses is something of a victory for Democrats, just because they are so exposed.

Anti-incumbency can reflect dozens of things--do independents and opposite-party partisans think the president is over-reaching, and should be restrained? 2006. 1994. Is the base disappointed in what their party has done with the majority? 2006, most definitely. And certainly 2008. Are there a significant number of crappy standard bearers trying to keep an incumbent (either candidate or party) seat, ala Martha Coakley who tick off the voters? Then there are how passionate various groups of voters are over signature issues of the current incumbents. Then there is (way important) what the opposition party is promising to do if you vote for them. And, of course, unemployment and GDP and various other things.

But, historically, 2nd year midterms + already significant majorities indicate significant, though not crippling, losses for Democrats. Because, historically, they have been so victorious electorally in recent cycles there's no place for them to go but down.

Unless Obama turns out to be FDR, and I don't think he will.

Posted by: Kevin_Willis | April 8, 2010 5:11 PM | Report abuse

I wonder, Ezra, if you would be making the point that unemployment doesn't affect mid term elections if the Republicans were in the majority. I suspect not. However, you Democrats keep telling yourselves that a nearly 10% official unemployment rate and a real unemployment rate of close to 20% doesn't meant anything in the upcoming mid terms. That way when the Democrats get hammered it'll be a big surprise.

Posted by: RobT1 | April 8, 2010 5:15 PM | Report abuse

BTW, I should also mention: the unemployment rate was much more acute when FDR, coming off of significant victories already in 1932, added house and senate seats in 1934. Surely, American voters were more patient then, and weren't prepared to punish the Democrats after just two years.

But I think there was also a common perception that FDR and the Democrats were doing something. They were clearly rolling up their sleeves and tackling the economy and fighting the Great Depression. Even though the numbers weren't getting better, the voters felt that they knew that Roosevelt both knew what to do, and was doing the hard work of making it happen. Whether or not that is how Obama is perceived remains to be seen.

Posted by: Kevin_Willis | April 8, 2010 5:17 PM | Report abuse

RobT: Ezra may be a partisan (ah, aren't we all, really?), but in this case he's just looking at the numbers. The unemployment rate is only a minor factor in midterms. Just take a look at FDR adding to his majorities in the house and senate in 1934, a year with a 21.7% unemployment rate. And that's not a U6 number.

In 1994, the Republicans kicked butt. And it wasn't because of the 6.1% unemployment rate, it was because Clinton had appeared to be over reaching, and the Republicans had the Contract with America. I don't think they are going to duplicate that, now. In 2006, when Democrats won significantly in both houses, the unemployment rate was 4.6--almost a full percentage point lower than 2004, and more than a full percentage point lower than 2002, when the Republicans bucked the mid term trend an picked up seats. It's a factor, but it's not a primary one.

That being said, it's very rare that the incumbent party doesn't suffer fairly significant midterm losses when their majority is as significant as the Democrats is now.

Posted by: Kevin_Willis | April 8, 2010 5:26 PM | Report abuse

So the V-shaped job loss/growth graph that Pelosi's office likes to update every month, with the Bush years in red and the Obama years in blue... is that graph fair or truthful?

Posted by: Klug | April 8, 2010 5:37 PM | Report abuse

"So the V-shaped job loss/growth graph that Pelosi's office likes to update every month, with the Bush years in red and the Obama years in blue... is that graph fair or truthful?"

Yes, absolutely. That graph reflects the number of jobs lost each month, so it is not until you see the blue stay over the TOP of the V (and climb steadily up from there furthet into the positive territory) that the rate of unemployment will in fact begin to come down, because of net jobs added each month rather than being lost.

Posted by: Patrick_M | April 8, 2010 6:20 PM | Report abuse

Patrick - thanks for responding.

Perhaps I misstate my comment, which is a bit of a troll about the fairness/unfairness of granting political credit or blame for a lagging economic indicator based on inauguration dates.

It appears that the "bottom" of job loss happened somewhere around Jan-March 2009. It just so happens that President Obama took office on 1/20/09. I suspect that the level of credit the President is out of proportion to any economic policy he may have had time to implement.

That being said, it's the way the game's been played for 30 years, so why stop now?

Posted by: Klug | April 8, 2010 10:08 PM | Report abuse

kevin : "In 1994, the Republicans kicked butt. And it wasn't because of the 6.1% unemployment rate, it was because Clinton had appeared to be over reaching..."

I disagree.

The GOP won seats in 94 because 1) it is normal for the opposing party to pick up seats in mid-terms, b) The Democrats raised taxes (which Republicans call over-reaching), and c) because the Dems failed to deliver on health care reform and so demoralized their base.

To simply say the Dems lost as a result of over-reaching is a vast over-simplification in order to pretend to pretend most Americans think like you do.

Posted by: Lomillialor | April 8, 2010 10:44 PM | Report abuse

"It appears that the "bottom" of job loss happened somewhere around Jan-March 2009. It just so happens that President Obama took office on 1/20/09. I suspect that the level of credit the President is out of proportion to any economic policy he may have had time to implement."


If you look at the graph, you see that the acceleration in job losses finally slows when ARRA passes. Although the economy continues to shed jobs, the number being lost steadily improves in a near straight line throughout the year that follows, and is now entering positive territory with modest job growth.

I don't see how one fairly assigns the "credit" for that year-long reversal that follows the passage of the stimulus to George W. Bush. But, ironically, conventional wisdom is that the Democrats will be punished in November for high unemployment and a sluggish growth in GDP. THAT is how the game is played.

Posted by: Patrick_M | April 9, 2010 12:07 AM | Report abuse

"If you look at the graph, you see that the acceleration in job losses finally slows when ARRA passes."

When I look at the graph, I see that the largest number of job loss was for the month of January 09. I see that the increases in job loss slowed in between November 2008 and December 2008. I also see that the biggest drops in job loss happened between April and May of 2009. I cannot attribute the first and second facts to ARRA (signed 2/17/09); the third is possible, but debatable. The true causality, I suppose, will never be known.

As for the game, yeah, it's unfair.

Posted by: Klug | April 9, 2010 7:01 AM | Report abuse

Yeah Ezra......Dont worry your little head about unemployment. Everyone knows its a "lagging indicator", we've heard that ad nauseum. No, unemployment isnt a "game changer" ....just keep repeating that in November, its NOT a game changer.... Its NOT a gamechanger. HeH

Posted by: Rick554 | April 9, 2010 7:52 AM | Report abuse

Why are republicans complaining about unemployment?

It all fell apart on their watch.

I suppose their whining means they want Obama to hire more people, which means adding to the deficit and abandoning free market principles. In essence, it's hypocritical for all this whining because it really means they want gvmt to step in and make things better.

Btw, bush's stimulative actions near the end of 2008 were classic Keynesian policies in action, and I attribute that for helping to stop the slide off the cliff. Do repubs know they are applauding Keynesian, big gvmt actions when they attribute dcinic recovery to bush? Lol

Posted by: Lomillialor | April 9, 2010 8:20 AM | Report abuse

The comments to this entry are closed.

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company