Council of Economic Advisers Blog
- Posted byon June 4, 2010 at 9:30 AM EDT
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.
Christina Romer is the Chair of the Council of Economic Advisers
- Posted byon May 7, 2010 at 9:38 AM EDT
Today’s employment report shows the strongest signs yet of healing in the labor market, as private nonfarm payrolls expanded substantially. At the same time, the rise in the unemployment rate reminds us of how far we still have to go before the economy is fully recovered.
Payroll employment increased by 290,000 in April--the largest one month employment gain since March 2006. Of this total, 231,000 was in the private sector. Hiring related to the decennial Census contributed 66,000 to the total. The payroll employment numbers for February and March were also revised up substantially (by 53,000 and 68,000, respectively). The current numbers now show that employment has grown in each of the past four months.
The job gains were spread widely across sectors. Construction, manufacturing, professional and business services, education and health, and hospitality and leisure all added jobs. Indeed, the rise in manufacturing employment of 44,000 was the largest since August 1998. One area of weakness was state and local government, which reduced employment by 6,000. Temporary help employment grew more slowly than in previous months (+26,000), suggesting that firms may be moving to more permanent hiring. The average workweek for all employees on nonfarm payrolls increased by 1/10 of an hour and is up 3/10 of an hour since December.
In the household survey, the unemployment rate rose to 9.9 percent. This is obviously a very high rate, and reducing it must remain the fundamental focus of policy. Importantly, the rise in the unemployment rate in April was driven largely by a surge in the labor force. The labor force increased by 805,000, while employment as measured by the household survey increased by 550,000. Since December, the labor force has increased by 1.9 million.♦ Such a rise in the labor force often occurs in recoveries as workers who had dropped out of the labor force are drawn back in by improved employment opportunities.
While today’s report clearly suggests that we are moving in the right direction, it also shows how much work remains to be done. The unemployment rate is painfully high, and payroll employment is still nearly 8 million below its level at the start of the recession. It will take many months of robust job growth to restore the labor market to genuine health. Further targeted actions to spur private sector job creation are critically needed to ensure a more rapid, widespread recovery.
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 generate sustained, strong job gains.
- Posted byon April 30, 2010 at 9:46 AM EDT
Today’s GDP report shows important signs of continued recovery. Real GDP grew at a solid 3.2 percent annual rate in the first quarter of 2010. This is the third consecutive quarter of positive growth. To put the rate of growth into perspective, real GDP fell at a 6.4 percent rate in the first quarter of 2009. There is no question that the economy has improved dramatically over the past year.
Each additional quarter of GDP growth is a welcome sign that the economy is healing from a severe recession that cost over eight million jobs and wiped out trillions of dollars in household and family wealth. Given the severity and depth of the recession, it will take a number of quarters of robust growth and strong employment gains to return the economy to full health and full employment.
The most encouraging news in the report was the strong growth of key types of private spending by consumers. Personal consumption expenditures grew at an annual rate of 3.6 percent, suggesting renewed confidence among households. This growth is also consistent with the rise in tax refunds in the first quarter due to the Recovery Act (see the CEA’s Third Quarterly Report on the Economic Impact of the American Recovery and Reinvestment Act of 2009 for more information on the surge in Recovery Act tax relief in the first quarter). Business investment spending on equipment and software rose strongly as well, increasing at a 13.4 percent rate. Businesses also increased their inventory investment substantially, suggesting they are more optimistic about future sales.
While there is much to be encouraged by in the report, there were two areas of notable weakness. First, both residential and non-residential structures investment declined, reflecting continuing slack in the housing and commercial real estate markets. Second, state and local government purchases fell at a 3.8 percent rate, more than offsetting a small rise in Federal purchases. This fall in state and local government spending was the largest since 1981, and is consistent with the continuing severe budget shortfalls in many states.
The Administration continues to work with Congress to take responsible actions that will help the private sector create jobs and speed the recovery.
Christina Romer is the Chair of the Council of Economic Advisers
- Posted byon April 27, 2010 at 9:41 AM EDT
Rural areas are home to about 50 million Americans and are an essential part of the overall economy. As the President embarks on the next stops on the White House to Main Street Tour in Illinois, Iowa, and Missouri, the CEA today released a report that surveys the current state of rural America and describes the Obama Administration’s policies for strengthening the rural economy. The map below shows the distribution of rural counties across the county.
Among the report’s key findings are that rural America has a diverse economy. Rural residents are employed in a range of industries including manufacturing, services, government, and wholesale and retail trade. Agriculture, which has traditionally been a key base of the rural economy, continues to record strong productivity gains and is highly competitive in international markets. However, while rural America offers many opportunities, it also faces a number of challenges. Its educational attainment lags behind that of urban areas. Improvements in health status also have not kept pace, and access to doctors and health services has been a key challenge in rural areas.
The newly-released CEA report outlines four categories of Administration’s policies to lay a foundation for 21st-century growth that will continue to strengthen and diversify the rural economy, support rural workers and businesses, and put rural America on a path toward a more prosperous future. Many of these policies are already being implemented through the American Recovery and Reinvestment Act of 2009. But further work remains to ensure the prosperity and vitality of Main Streets across America.
The first category of Administration policies for strengthening rural America is focused on growing businesses and expanding employment opportunities. These policies include increased support for small business lending through Recovery Act funds to the Small Business Administration. They also include incentives to greatly expand biofuel production and renewable energy generation, which are often centered in rural areas. For instance, with the Renewable Fuels Standard just put into place, it is expected that over 100 ethanol plants will be built over the next decade, while incentives for renewable energy generation in the Recovery Act are expected to double wind generation. There are also important new opportunities for rural tourism and recreation.
A second category of policies is aimed at strengthening rural infrastructure. Without roads, bridges, water projects, and telecommunications, rural America cannot get its products to market efficiently or be fully integrated with the rest of the economy. For this reason, the Federal government has traditionally supported rural infrastructure projects. The Obama Administration has continued that support in important and innovative ways, such as by supporting the expansion of broadband internet access to rural areas and upgrading and improving the efficiency of existing rural water infrastructure.
A third category of policies focuses on strengthening the agricultural sector. As part of the National Export Initiative, the Administration has proposed measures to further open international markets to U.S. agricultural products. It has also proposed reforms to better target farm support programs, and urged a greater focus on local and regional food systems through initiatives such as Know Your Farmer, Know Your Food.
The fourth category of policies is aimed at strengthening the labor force and improving the quality of life in rural America by investing in education and health care. For instance, the President’s proposed American Graduation Initiative, together with infrastructure investments in rural broadband, will help make high-quality online courses available, especially benefiting rural areas. The Administration is also investing in the health of rural America by taking actions to increase the affordability and quality of health care, while bolstering the medical workforce and infrastructure to address the unique challenges rural residents face in accessing doctors and hospitals. Health insurance reform through the Patient Protection and Affordable Care Act also provides special support for the rural medical workforce by expanding graduate medical education positions in rural teaching hospitals and by supporting training for doctors and nurses in rural health care.
The history of rural America is one of proud accomplishment, and the President is committed to ensuring that the future of rural America is as distinguished as its past.
Christina Romer is the Chair of the Council of Economic Advisers
Ann Wolverton is Senior Economist at the Council of Economic Advisers who focuses on Energy, Environment and Natural Resources
Analysis of the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories, and Orders for March 2010Posted byon April 23, 2010 at 11:34 AM EDT
Manufacturers’ new orders for durable goods, which fell 1.3% in March, is the first item discussed in the Commerce Department’s press release, and is the item headlined by many news organizations. But this orders series does not tell us much about the actual direction of the economy because it is extremely volatile. A key source of this volatility of the overall orders series is its inclusion of orders of aircraft. Aircraft orders are often made in bunches, while, in contrast, shipments of finished aircraft trickle out more smoothly following production lags of several years. Excluding transportation equipment (the sector that includes aircraft), new orders increased 2.8%, well above market expectations of 0.7%.
Shipments of nondefense capital goods excluding aircraft increased 2.2% in March, from an upwardly revised February level (see the chart below). Shipments of nondefense capital goods excluding aircraft are the component of this report most directly linked to the equipment and software component of GDP. New orders of nondefense capital goods excluding aircraft increased 4.0 percent in March, suggesting that this sector is likely to remain strong in the near future. Shipments of aircraft are also part of equipment and software investment, and the information in this report suggests a sharp decline in this component of investment in the first quarter.
Overall, equipment and software investment appears stronger than it did a month ago because of the increase in shipments of core capital goods in March and the upward revision in February. Despite the decline in aircraft shipments, equipment and software investment in the first quarter is likely to be positive due to the increase in capital goods shipments excluding aircraft, a quarterly increase in motor vehicle sales, and a persistent increase in software investment. This, together with indicators of manufacturing production and employment, suggest continued recovery in the manufacturing sector.
Steven Braun is the Director of Macroeconomic Forecasting at the Council of Economic Advisers.
- Posted byon April 22, 2010 at 10:41 AM EDT
A central piece of the American Recovery and Reinvestment Act of 2009 (ARRA) is more than $90 billion in government investment and tax incentives to lay the foundation for the clean energy economy of the future. These investments and tax incentives include everything from energy efficiency retrofits to modernizing the electrical grid to tax credits for advanced clean energy manufacturing. These clean energy investments are also providing crucial stimulus to the economy today. The CEA’s third quarterly report on the impact of the ARRA, released on April 14, found that the Act as a whole raised employment by between 2.2 million and 2.8 million jobs over what it would otherwise have been. In a new supplement to the report, we focus in detail on the macroeconomic impact of the Act’s clean energy provisions.
Table 1 lists the clean energy provisions in the ARRA, grouped into nine functional categories. Column 1 shows that of the original $787 billion estimated cost of the Act, $90 billion was devoted to clean energy programs. The last two columns indicate that nearly $40 billion of this total has already been obligated for specific clean energy projects, and more than $9 billion has been outlayed.
To estimate the short-run economic impact of the ARRA’s clean energy investments, we use the CEA macroeconomic model described in our third quarterly report. Table 3 of the supplement shows the results. We find that the Recovery Act created more than 80,000 clean energy jobs as of the first quarter of 2010, and that the clean energy investments supported an additional 20,000 jobs throughout the economy. Importantly, these estimates include only employment related to projects that have received actual outlays to date. In many cases, the additional $20 billion in obligations shown in Table 1 may have already generated economic activity because recipients may begin spending as soon as they are certain funds are available. Looking over a longer horizon, the ARRA’s clean energy provisions will support about 720,000 job-years through 2012. (A job-year is the equivalent of one worker employed for one year.) Thus the Act will be a source of both employment and progress on clean energy for years to come.
Christina Romer is the Chair of the Council of Economic Advisers.
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