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Thoughts from the Frontline

The Unemployment Surprise

October 8, 2012

Choose your language

The unemployment number surprisingly dropped to 7.8% last Friday, and the shoot-from-the-hip crowd came out in force. To say that the jobs report was met with skepticism would be a serious understatement. The response that got the most immediate airplay was ex-GE CEO Jack Welch (who knows a few things about making a number say what you want it to say) tweeting, "Unbelievable job numbers ... these Chicago guys will do anything ... can't debate so change numbers."

Not be left out, Fox Business quoted Ed Butowsky of Chapwood Capital Investment: "'No way in the world these numbers are accurate,' he said. 'Somebody needs to do an investigation.... Investigate these numbers.'"

Such a significant drop in the unemployment rate does not seem, at least on the surface, to be consistent with the slowing economy. It certainly wasn't what most Republicans were expecting one month prior to the elections, and the partisan reaction from my fellow Republicans was sadly predictable. So, since an investigation has been called for, this week we will do just that: we will investigate the numbers. What we will find is that the falling unemployment number was perfectly consistent with a slowing economy, if you look at the details. That seemingly contradictory conclusion gives rise to a question, gentle reader, that will take more than one paragraph to answer. It will make for some interesting reading, I think.

Let me start by acknowledging that one of the most dangerous things one can do in the writing business is try to separate a man from his pet conspiracy theories. But this is one conspiracy that needs to be thoroughly debunked, as the reaction to it is an example of the coarsening of our American culture. If some bit of data does not dovetail with our favorite meme, our immediate reaction is to shoot the messenger rather than examine the facts as presented. With that proviso, let's jump right in.

You Know You Were Surprised

Like anybody else who is paying attention to the current economic situation, I was surprised when the headlines said that unemployment had dropped to 7.8%. A drop of that magnitude does not seem to be historically consistent with an economy growing less than 2%, with job growth – at least as measured by the Establishment Survey – barely keeping up with population growth, or with tax receipts that were…

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Steve McGuire

Oct. 12, 2012, 12:58 p.m.

There are two unemployment issues on which I need more information.
1) Is “overemployment” a valid economic term.  By overemployment I mean employing more workers than necessary to produce a given amount of output.  If so, could US have been in such a condition before the 2007-2008 recession/depression?  Then after layoffs and downsizing businesses discovered they could get the same output with fewer employees.  I know this all is tied in with productivity measures, but I wonder if it’s a mistake to think we’ll get the same unemployment drop with economic growth as we have after past recessions.
2) Tied to this same issue is robotic automation.  If robot automation is adopted as fast as some predict, it will no longer be an issue of shipping jobs overseas.  There will be fewer and fewer human jobs for everyone - robots can even make robots.  At that point we can have great growth in economic output without a corresponding reduction in unemployment.  Seems like a lengthy restructuring of the economy?  Of course unemployment/employment is tied to demand as well as tax revenue.  I just don’t see the macroeconomic effect of all this.

Thanks,
Steve McGuire