Council of Economic Advisers Blog

  • The Employment Situation in July

    Private sector employment grew 71,000 in July, the seventh consecutive monthly increase, including continued growth in manufacturing. But, the pace of growth was not enough to reduce the overall unemployment rate, which remained 9.5 percent.  There was, however, important variation in employment growth across industries: employment in manufacturing as well as education and health services increased, while that in financial services and construction decreased.  Employment in state and local government, including public school teachers, decreased 48,000, underscoring the importance of the additional state fiscal relief working its way through Congress.

    Overall payroll employment decreased 131,000.  However, much of this decline was anticipated because of the winding down of temporary Census employment.  The sharp decline in state and local government employment also contributed to the overall decline.  Private sector employment increased 71,000, above the revised levels of private sector job growth in May (51,000) and June (31,000).  Private sector employment has grown by 630,000 since its low point in December 2009.  Average weekly hours in the private sector rose another one-tenth of an hour; hours are now five-tenths of an hour higher than they were in October 2009.

    A bright spot in the private sector jobs numbers for July was the growth of manufacturing employment.  Manufacturing employment grew 36,000, the seventh consecutive monthly rise.  Manufacturing employment is now up 183,000 since its low point.  Both financial services and construction shed jobs.  Temporary help employment also fell, the first such fall since November 2009.

  • Advance Estimate of GDP for 2010:Q2 and GDP Revisions

    Today’s report shows that real GDP, the total amount of goods and services produced in the country, grew at a 2.4% annual rate in the second quarter of this year, the fourth straight quarter of positive growth.  Growth in the first quarter was revised up to 3.7%, meaning that growth has averaged over 3% for the first half of 2010.  This solid rate of growth indicates that the process of steady recovery from the recession continues.  Nevertheless, faster growth is needed to bring about substantial reductions in unemployment.  Much work clearly remains to be done before the U.S. economy is fully recovered.  The comprehensive data revisions released with the report provide further evidence of just how severe the recession has been: the fall in GDP between 2007:Q4 and 2009:Q2 was 4.1%, making this the deepest recession since 1947

  • Extending High-Income Tax Cuts is the Wrong Answer for the Recovery

    President Obama has made it clear that he favors extending the 2001 and 2003 tax cuts for middle-income families, but letting those for high-income earners expire as called for in current law.  Recently, some have argued that extending the high-income cuts is necessary for the economy.  This is simply wrong.

    First, extending the high-income tax cuts would provide very little job creation in 2011. There is widespread agreement that the short-run economic benefits of high-income tax cuts are small.  The Congressional Budget Office lists a tax cut for high-income earners as a particularly ineffective job creation measure.  Private sector forecasters have reached the same judgment.1 The vast majority of economic research shows that higher-income earners spend less of a tax cut and so tax cuts to those earners create fewer jobs throughout the economy.2

  • CEA Releases Fourth Quarterly Report on the Economic Impact of the Recovery Act

    As part of the unprecedented transparency and accountability provisions of the Act, the CEA provides a report to Congress about the Act each quarter.  In the Fourth Quarterly Report  released this morning, we not only find that the Act has had a substantial effect on output and employment, but that it is leveraging private capital and making important investments in the future productivity of the country.

    The Changing Composition of Recovery Act Stimulus.

    Congress designed the Recovery Act both to begin spending out quickly and to provide crucial support to the economy over a two-year period.  It has met and is continuing to meet these goals.  The state fiscal relief, payments to seniors, and the emergency unemployment insurance benefits went out almost immediately, and started aiding the economy in the spring and summer of 2009.  The tax cuts also went into effect immediately, but it has been during tax season (the first two quarters of this year) that many Americans have seen concrete signs in the form of reduced tax payments and increased tax refunds.  In previous CEA Recovery Act reports, we have highlighted the state fiscal relief  and the tax cuts and income support provisions  of the Act, and found evidence of their effectiveness.

    In today’s quarterly report, we highlight the public investment spending in the Recovery Act.  This is the project spending that not only creates jobs in the short run, but leaves us with an expanded and improved ability to create high-paying jobs in the future.  The Recovery Act includes $319 billion of public investment on everything from basic infrastructure such as roads and bridges to twenty-first century infrastructure such as a smarter electrical grid and universal broadband.  It invests in community health centers, health information technology, education, and job training to improve the health and skills of our citizens -- our human capital.  And, it makes unprecedented investments in basic scientific research to enhance innovation and so help retain our competitive edge.  All of these investments will help increase the long-run productivity of our economy and the standard of living of ordinary Americans.

    The public investment components of the Recovery Act were always expected to spend out more gradually, because they typically require planning and are often awarded through a rigorous competitive process.  But as of the end of June, roughly two-thirds of the public investment funds included in the Act had been obligated, and more than $86 billion had been outlayed.  Public investment outlays increased by more than 50 percent between the first and second quarters of this year, which explains why the Vice-President has named this summer the “Summer of Recovery.”  As the other stimulus in the Recovery Act gradually winds down over the next few quarters, the public investments will continue at a rapid pace, providing continued support to the economy. 

    CEA 071410 Figure 5

    Leverage Provisions of the Act. 

    An innovative feature of the Recovery Act is its focus on partnering public investment with private and other funds.  Much of the Recovery Act investment spending takes the form of matching grants, loan guarantees, interest subsidies, and tax incentives that support and encourage outside investment.  For example, the 48C Advanced Energy Manufacturing Credit gives private firms that pass the Department of Energy’s competitive process a 30 percent tax credit for their investments in factories to produce solar panels, wind turbines, and other clean energy products.  The Broadband Initiatives Program provides grants and loans to firms and regional authorities to bring internet access to rural communities.  And, the Build America Bond program subsidizes the interest cost of state and local government borrowing for schools, transportation, and other vital projects, so that these entities are encouraged to invest in local infrastructure.

    The CEA’s report collected information from 15 agencies on the nature and extent of these leverage provisions in the Recovery Act.  We find that roughly $100 billion of Recovery Act funds use leverage, and that these provisions are encouraging co-investment in a wide range of areas.  The greatest use of these innovative provisions are in the areas of clean energy, economic development, and building construction.  We estimate that the $100 billion of Recovery Act funds will partner with close to $300 billion of other funds, the majority of which are from the private sector.  That is, $1 of Recovery Act funds is matched by $3 of other funds.  All told, the $100 billion investment from the Recovery Act will support more than $380 billion of total investment spending.

    CEA 071410 Table 15

    Jobs Impact 

    In our report, we estimate the impact of the Recovery Act on job creation in two ways.  Our model-based approach uses multiplier estimates similar to those used by the Congressional Budget Office to estimate how the Recovery Act tax cuts and outlays to date likely translate into employment effects.  This approach indicates that the Recovery Act has raised employment relative to what it otherwise would have been by 2.5 million jobs as of the second quarter of 2010.  The projection approach uses statistical procedures to project the likely path of employment based on the information available through the end of the first quarter of 2009.  This yields a substantially larger number:  it suggests that employment as of the second quarter is 3.6 million higher than it otherwise would have been.  By this estimate, the Recovery Act has met the President’s goal of saving or creating 3.5 million jobs -- two quarters earlier than anticipated.

    Our review of a wide range of other estimates of the employment effects of the Act shows that our model-based estimate is similar to that of outside experts.  There is obviously a great deal of uncertainty around any jobs estimate.  But, our compendium of outside estimates shows that respected analysts across the ideological spectrum, as well as the non-partisan Congressional Budget Office, agree that the Act has had a significant beneficial effect on employment and output over the past year.

    CEA 071410 Table 9

    Christina Romer is the Chair of the Council of Economic Advisers

  • The Employment Situation in June

    Today’s employment report shows continued signs of gradual labor market recovery.  Private nonfarm payroll employment increased by 83,000 in June and the unemployment rate fell two-tenths of a percentage point to 9.5%.  June marks the sixth month in a row that private sector employment has increased.  These continued signs of healing are important, particularly given the recent volatility in world markets and the mixed behavior of other recent economic indicators.  However, much stronger job gains are needed to repair the damage caused by the financial crisis and put the millions of unemployed Americans back to work.

    Payroll Employment

    Total payroll employment fell 125,000 in June.  This decline had been widely anticipated because some of the temporary employment related to the Census began to wind down last month.  Temporary Census employment dropped 225,000 in June.  Non-Census employment rose 100,000, reflecting a rise in private employment of 83,000 and a rise in other types of Federal employment.  Private employment rose at an average monthly rate of 119,000 in the second quarter of 2010, up from 79,000 in the first quarter, and up dramatically from the average decline of 752,000 in the first quarter of 2009.  Private employment has increased 593,000 since its low point in December 2009.

    Employment gains were spread broadly across industries.  The biggest gains were in professional and business services (including an increase of 20,500 in temporary help services), leisure and hospitality, and education and health.  Manufacturing also added employment for the sixth month in a row.  Besides the decline in Federal employment related to the Census, the industries losing jobs were construction, finance, information, and state and local government.  Average weekly hours for all employees on private nonfarm payrolls also declined one-tenth of an hour in June.  Hours, however, are still up four-tenths from their low in October 2009.

    Unemployment

    The unemployment rate fell two-tenths of a percentage point for the second month in a row.  At 9.5%, the unemployment rate is now six-tenths of a percentage point below its high last year.  However, the drop in the unemployment rate was driven in large part by a substantial decline in the labor force, which we expect to be reversed as employment prospects continue to improve.  The household survey also found that the number of workers working part-time for economic reasons declined substantially for the second month in a row.  The number of such workers has fallen 525,000 over the past two months.

    While this report suggests a continuation of gradual labor market repair, it is important to emphasize the magnitude of the damage that remains from the recession.  Payroll employment is still down 7.5 million from its pre-recession peak and the unemployment rate is more than 5 percentage points above its pre-recession low.  It is essential that we focus on accelerating job growth.  That is why the President continues to work with the Congress to pass targeted jobs measures such as an extension of emergency unemployment insurance, a program for small business lending that will enable small firms to get the credit they need to expand and create jobs, and more aid for troubled state and local governments to prevent layoffs of teachers, firefighters, and police.  These are fiscally responsible measures that would have a substantial impact on the rate of job growth.

    As always, it is important not to read too much into any one monthly report, positive or negative. The monthly employment and unemployment numbers are volatile and subject to substantial revision. Emphasis should be placed on persistent trends rather than month-to-month fluctuations.

    CEA 7.2.10 Jobs Chart 1

    CEA 7.2.10 Jobs Chart 2

    Christina Romer is the Chair of the Council of Economic Advisers

     

  • The Employment Situation in May

    Today’s employment situation report shows continued signs of labor market recovery. Payroll employment rose for the fifth month in a row, and the unemployment rate fell two-tenths of a percentage point to 9.7 percent. While these are encouraging developments, we clearly have a very long way to go until the labor market is fully recovered. It is essential that we continue our efforts to move in the right direction and generate steady, strong job gains and continuing declines in unemployment.

    Payroll employment rose 431,000 in May. As expected, most of this increase was due to temporary hiring associated with the decennial Census. Total private employment increased by 41,000, somewhat lower than the rate of increase in previous months. Building on the steady gains in previous months, private employment is now nearly 1/2 million higher than in December 2009. Both manufacturing and service-providing industries showed job gains; employment in construction and state and local government, however, fell noticeably. Average weekly hours, which are another important indicator of labor market healing, rose by one-tenth of an hour in May and are up four-tenths of an hour since last December.

    The unemployment rate, which had risen in April, fell two-tenths of a percentage point to 9.7 percent. Both the labor force and the household measure of employment fell in May, following tremendous gains in the previous months. Consistent with the rise in average weekly hours, the number of full-time workers rose for the fourth month in a row and the number of people working part-time for economic reasons declined sharply.

    The fact that the unemployment rate fell and private employment rose are obviously encouraging signs that recovery continues. At the same time, the continued high level of unemployment and the slowdown in private sector job growth emphasize the need for continuing vigilance. The Administration strongly supports targeted actions to spur private sector job creation and prevent continued reductions in state and local government employment. Tax incentives for clean energy manufacturing and energy efficiency, extensions of unemployment insurance and other key income support programs, a fund to encourage small business lending, and fiscal relief for state and local governments are essential measures to ensure a more rapid, widespread recovery.

    As always, it is important not to read too much into any one monthly report, positive or negative. The monthly employment and unemployment numbers are volatile and subject to substantial revision. Emphasis should be placed on persistent trends rather than month-to-month fluctuations.

    CEA 60410 employment chart

    Christina Romer is the Chair of the Council of Economic Advisers