Up, up and away!?
Posted by Jason Apollo Voss on Nov 5, 2009 in Blog | 3 commentsLast week saw initial jobless claims fall 20,000 to a level of 512,000. The 512K is the lowest number of filings since January of this year. Remember that this data is always estimated (look at how round the figures are) and hence, very volatile. In fact, the data are constantly revised as proof rolls in to substantiate, or refute, assumptions. Consequently, the better way to look at this data is always on a 4-week moving average. The 4-week moving average saw jobless claims fall by 3,000 to 523,750. That is the lowest level since January 10th.
While these statistics sound impressive, there is one even more impressive statistic that indicates to me that the job market is about to improve and dramatically. “What is that,” you ask? Productivity.
Why employment is about to improve dramatically:
The Labor Department reported that productivity in the third quarter rose a stunning 9.5%! OK, some info about how productivity is counted is in order. Basically its “output divided by the number of workers.” So if output is up, as GDP was in the Third Quarter, but employment is down, as it was in the Third Quarter, then productivity rises. Productivity is a more preferred measure of what I have been calling real economic growth. However, there is a flaw in the usual interpretation of the number. Namely, 9.5% productivity growth is not sustainable. Why not?
The real reason that productivity is up 9.5% is that folks who remain employed are being worked to the bone. Salaried employees are working non-paid overtime. Breaks are shorter. Stress is higher. Etc. Remember, when laying off employees, businesses try and lay off high salaries, but also the marginal job, or marginal employee. That means that most businesses have their core, preferred employees in place. Businesses also know that they cannot abuse their relationship with their preferred employees indefinitely. To release the pressure in the system businesses are going to have to hire new employees soon. So the crazy high productivity growth is an indication that employers are going to have to start adding jobs soon. Does this make sense?
A New Prediction:
Because retail sales were also better than expected, though mixed, in October it is likely that the Christmas holiday sales season will be better than expected; but not by much. However, it should be enough to give businesses, both retail and manufacturing, to increase employment. Previously on the blog I had said that I thought it would be 18 months (starting at the end of the third quarter) until employment was back to more normal levels (c. 6% unemployment). The surge in productivity indicates to me that unemployment should improve a little faster. I am now guessing that we are 15 months away from a 6-7% unemployment rate. Amen!
Jason
So are these people amateurs, or is there really something to this wild and crazy idea of "real productivity gains?" Heh.
http://www.delawareonline.com/article/20091105/BUSINESS/91105023/Productivity+gains+may+be+bad+news+for+job+seekers
Hey Nate! How was the wedding? I hope that everything was perfect.
OK, I have read the article linked in the comment. One of the critical sentences in the article is: "As long as companies can get their workers to produce more, they have little reason to hire."
My contention is that 9.5% productivity growth is not sustainable. That number sustained means that every person is finding a way to do their job more efficiently to the tune of almost 10%. I don't know what you do for a living, but only the recently employed can make those kinds of strides in productivity as they "settle in" to their new work.
No, I think the 9.5% is statistical evidence of an overworked employee. As we all know, when we are overworked we start to take vacations, we get sick and take sick time, we slack off at work…anything to re-equilibrate with a normal work load. This huge jump in productivity is a classic response toward the end of a recession.
If there had been a 9.5% productivity gain in an economic boom period then the article's interpretation would be correct. But instead, I feel this is a classic example of a reporter making the traditional interpretation of data – productivity puts a damper on employment – while ignoring the real meaning behind the data – people are being worked to the bone.
Jason
Sooooooo, an amateur reporter. He's (she's, whichever) not seeing the context for that 9.5% productivity gain. I agree with you entirely, and was amused to see just the opposite so soon after reading your article.
The wedding was great! Very memorable, since I cut a bit of tendon in my (of course) ring finger on my left hand a month before the wedding, and got married in a splint. She wasn't too impressed with that move, but had a pretty good sense of humor about it.