Council of Economic Advisers Blog
- Posted byon September 3, 2010 at 9:44 AM EDT
Today’s employment report was better than expected. Private sector payrolls increased by 67,000 in August -- the eighth consecutive month of private sector job growth. This growth is consistent with other recent data reports indicating that the economy is continuing to recover, albeit at a somewhat slower pace than in the early spring. The rate of job growth, however, is not as large as needed to bring the unemployment rate down quickly. Indeed, the unemployment rate rose one-tenth of a percentage point to 9.6%, as more than half a million people joined the labor force. The President continues to work with his economic team and with Congress to identify measures that could help speed the recovery and put the economy on a path of steadily declining unemployment.
In addition to the rise in August, the estimates of private sector job growth for June and July were revised up by a total of 66,000. Since last December, private sector employment has risen by 763,000. Despite the rise in private sector employment, overall payroll employment fell by 54,000, as 114,000 temporary Census jobs were eliminated.
Private sector payrolls expanded in a number of sectors, including education and health services, construction, and temporary help services. Manufacturing employment fell 27,000 in August; much of this drop likely reflects the fact that manufacturing employment in July was elevated because General Motors chose to forgo its usual two-week shutdown. The manufacturing ISM Report on Business released on Wednesday indicated stronger employment growth in manufacturing in August than in July. State and local government payrolls declined by 10,000 in August, consistent with continuing budget difficulties in many states and localities.
In the household survey, the number of people employed rose by 290,000. But, because the labor force rose by 550,000, the unemployment rate ticked up to 9.6% (from 9.5% in July). The employment -to-population ratio also rose one-tenth of a percentage point (to 58.5%), indicating that in the household survey employment growth more than kept up with population growth. In addition, the number of workers who have been unemployed 27 weeks or longer declined sharply, from 6.57 million to 6.25 million.
Against the backdrop of some unsettling economic data in the past few weeks, today’s numbers are reassuring that growth and recovery are continuing. At the same time, the fact that the growth of private sector payrolls is below the level needed to keep up with normal growth of the labor force is obviously unacceptable. There are a number of step we could take to help increase private sector job growth and put the economy on a path of steadily declining unemployment. We will be working with Congress on these measures in the coming weeks.
There will likely be bumps in the road ahead. The monthly employment and unemployment numbers are volatile and subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, positive or negative. It is essential that we continue our efforts to move in the right direction and encourage robust job gains.
Christina Romer is the Chair of the Council of Economic Advisers
- Posted byon August 6, 2010 at 9:45 AM EDT
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.
- Posted byon July 30, 2010 at 9:33 AM EDT
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
- Posted byon July 28, 2010 at 3:20 PM EDT
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
- Posted byon July 14, 2010 at 1:57 PM EDT
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.
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.
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.
Christina Romer is the Chair of the Council of Economic Advisers
- Posted byon July 2, 2010 at 9:30 AM EDT
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.
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.
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.
Christina Romer is the Chair of the Council of Economic Advisers
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