Economics, Pethokoukis, U.S. Economy

Where’s that 5% unemployment rate Obama promised by now?

WHjobschart

On the surface, the July jobs report — the unemployment rate dipped to 7.4% last month thanks to a shrinking workforce as the economy added a disappointing 162,000 net new payrolls — is just another dismal data point in America’s “new normal” recovery. But it’s also an important milestone and metric for judging the Keynesian fiscal experiment known as Obamanomics.

In January 2009, Team Obama economists put together a report – half quantitative analysis, half sales pitch — outlining the potential economic impact of the proposed $800 billion stimulus. (See above chart from that report.) If Congress passed the plan, the report forecasted, the economy would generate enough additional demand, output, and employment that two big things would happen:

First, the unemployment rate would never reach 8%. Unfortunately, we hit 10% unemployment in October 2009. Failure number one.

Second, the unemployment rate would return to its long-term “natural rate” of 5% by July 2013 (a jobless rate, it should be noted, above the low points of the Bush and Clinton presidencies). Labor markets would be back to peak health. The Great Recession would truly and finally be over.

Mission accomplished by this jobless report.

Of course, we now know conclusively that this prediction — based as it was on the pixiedust magic of Keynesian fiscal multipliers — was a total failure, one even beyond what the July job numbers suggest.

This is important: Obama economists assumed the unemployment rate would return to 5% even without a stunning collapse in labor force participation. Why? Government stimulus would reignite the private economy, causing a return to 4% GDP growth or higher, growth not seen since the late 1990s.

  • In August 2009, the White House predicted GDP would rise 4.3% in 2011, followed by 4.3% growth in 2012 and 2013, too.
  • In its 2010 forecast, the White House said it was looking for 3.5% GDP growth in 2012, followed by 4.4% in 2013.
  • In its 2011 forecast, the White House predicted 3.1% growth in 2011, 4.0% in 2012, and 4.5% in 2013.

In fact, the economy has only grown at half that pace during the recovery; even slower over the past year.

And once you take that labor force decline into account, adjusted for the aging of the US population, the “real” unemployment rate is between 9% and 10% while the combined unemployment/underemployment number is 14.0%. As a recent report from the Century Foundation calculates it, almost the entire decline in the unemployment rate during this recovery was because of declining labor force participation rather than increased labor demand.

Yes, the Great Recession was worse than Team Obama knew back in 2009. And other bad stuffed happened later, like the euro crisis. (Not to mention some good stuff like the Bernanke Fed’s unprecedented monetary easing.) Through it all, however, the White House stayed optimistic, even knowing the history of post-financial crisis recoveries. And there is no sign yet that Obama is reevaluating the notion that higher taxes and more government investment is the path to American prosperity, or acknowledging that uncertainty about Obamacare might be slowing the creation of full-time jobs.

Now, maybe the smart guys on Wall Street are right, and finally the economy is ready to really accelerate. Deutsche Bank, for instance, sees the unemployment rate falling to 5.6% by the first quarter of 2016 (including a less active labor force). If so, you can thank a) the Fed and b) the natural resilience of the entrepreneurial US economy. A job market recovery? Obamanomics never did build that.

39 thoughts on “Where’s that 5% unemployment rate Obama promised by now?

  1. It’s easy to smash the WH over this rose-colored projections but you’re still arguing on their turf, which is to assume the numbers aren’t massaged or altered or real. They’re fake – this is gov’t propaganda – and the real numbers that everyone knows we should care about, that show the structural problems associated with a Zombie, gov’t supported economy, are being ignored (not by you, at least not completely). Further, the part time jobs being created (77% of increase) is strictly because of the incentives set up by PelosiCare.

    Finally, the smart money is going to hang in as long as the Bernank keeps printin’. If it “tapers”, see you later, suckers!

  2. Further, the part time jobs being created (77% of increase) is strictly because of the incentives set up by PelosiCare

    I wouldn’t take that to the bank, just yet. This expansion is similar to previous ones in that the ratio of part-time employment for economic reasons to the civilian employment level has declined.

    FRED chart

    • Counterpoint – the ratio of part-time employment because that is the only thing they could find (as opposed to it due to slack work) is still climbing, and is as high as it has been since the definitions were changed with the 1994 reworking of the CPS.

      FRED chart

  3. Its worse than that. Take a look at the household survey and compare July of 2012 with July of 2012.

    http://www.bls.gov/news.release/empsit.a.htm

    Th above is the link so any liberal can challenge me and find out their wrong!
    In July of 2012 the Unemployment Rate was 8.2% today that rate is down to 7.4% – So are happy days here again? The Media would tell us that…but not anyone who actually reads the FULL Report. Media people cannot read unemployment reports and the administration knows it.

    But I can …so Here goes

    In 7/2012 there were 243.4 able bodied citizens, In 7/2013 that number grew to 245.8 million A growth of 2.4 million.

    In 7/2012 The Civilian work force was 155 million employed, in 7/2013 it was 155.8 million Employed. Basically in one year where our able body population grew by 2.4 million our work force grew by 800,000. Ladies and Gentleman…thats what we call an economic problem.

    Now in 7/2012 we had 142.3 million employed, in July of 2013 144.3 million, that is actually a good number but not post recession.

    The Bottom line 58.7% of our population is employed today versus 58.5% a year ago. To contrast this, when happy days were here, that number was around 64%.

    Going back to the key problem is the civilian labor force, the percentage of civilians participating has dropped from 63.7% to 63.4%…In a recovery that should not be happening. But it has.. Why because the amount of individuals who are not in the labor force increased from 88.4 million to 90 million.

    So next time some liberal brags about this recovery tell them they don’t know what the heck they are talking about. There is no meaningful recovery. That despite 85 billion in pump priming and another 10% of GDP deficit spending.

    The fed knows the recovery stinks, if it didn’t pump priming would cease, Deficit spending would surge as would macro inflation. I use the term macro inflation, because if you look at commodities, inflation is in full gear!

    Comparing the participation rate today, its the same as it was when Jimmy Carter was President. The difference – people are so dependent on welfare, and the demographic change in this country since 1980 has been so profound that bad economic situations like this, which would have lead to a landslide defeat of a President did not materialize. Sadly things will have to get much much worse before people wake up, if they do at all. By that time the golden goose that was the United States will cease to exist.

  4. i th5ink the emphasis on the one time stimulus is misleading. In essesnce there is a trillion dollar stimulus every year of the last 5 and yet you let obama off the hook by buying their rhetoric that we need more stimulous. look at the federal spending and it shows a huge increase during his tenure. the notion that we only had one 800b stimulous is misleading

  5. Please, please don’t ask for 5% unemployment! The only way Obama would grant that wish is to drive the labor force down to unheard of levels. That, combined with splitting every full time job into two part time jobs, is the only way Obamanomics could get to 5%.

  6. Obama is a mediocre President with little business sense.

    That said, what is stalling the USA economy is that the Fed has its hobnailed tight-money boot on the throat of the USA economy.

    But, as Obama appointed many on the FOMC board, maybe he does deserve blame….

  7. What is really interesting is if you chart Canada’s unemployment rate, it more or less holds to the “Without Stimulus” line. You have to be in pretty sorry shape when the Canucks eat your free-market lunch…

  8. there is a reason larry summerS put up that 5.5% unemployment number when he talked the other day. And then he talked about “potential”…….5.5%…….NORMALIZED…….not the old 4.0% or a tad less. Will be cooking the books to a whole new level which will make ENRON look like pre schoolers. I’m sure Greek politicians are giving them night classes on this.

    see that’s the reset or normalization racket right there. If there isn’t potential “according to his ability” then there is a justification of a shortage of “”according to his needs” point they make.

    welcome to global hoax……….the environment “according to his ability” will dictate “to each according to his ability”…..

    normalization, handicapping and excuse making for central planning failures. You can see the psychological set up in all this A MILE AWAY.

  9. The natural rate of unemployment is not 5%. It is 3%. The extra 2% in unemployment is due to regulations and law choking off economic activity in death by a thousand cuts fashion. That’s what, 2 million people out of work due to the high friction policies of big government. It should be our goal to reduce friction and get those people to work. Since a disproportionate number of those 2% are going to be low skilled minorities, you’d think the first racial minority president would at least include getting that 2% to work as a goal but not this guy. Obama excludes these people as a goal. He wants them unemployed. If they are employed, it is unnatural.

    Disgusting.

    • Obama forced the sequester, so in this case, your statement is unintentionally correct (and stupid).

      Also, the sequester has nothing to do with massive job loss and failure of new job creation, other than part-time jobs, due to Obamascare, which is White House policy/their signature “achievement,” so again your comment is unintentionally correct, and stupid.

      Other than that, you’re spot on.

  10. This type of column is getting real old. Fact: the Obama administration’s predictions were wrong. Fact: the economy is really bad. We get it.

    But truth be told some supply-side tax cuts aren’t going to make things rosy and cheery. The fact is that in the past three decades we’ve gone from the world’s largest creditor nation to the world’s largest debtor nation. The Federal national debt is scary enough. Add to that the unfunded obligations of SS, Medicare, gov’t retirement plans at the Fed’l, state and local level.

    The party is over. It’s belt tightening time. We as a nation are going to be poorer and have a lower standard of living than we’ve had the past 30 years. We can no longer finance the illusion of prosperity on the backs of our children. We should all brace ourselves for a disappointing economic future.

    • As long as Democrats are kept in office, we’ll see nothing but a gradual decline, one that need not happen.

      Our betters in government have virtually no understanding of free market economics. This is evidenced by their insistence upon more and more intrusion and regulation. Ironically, it’s the stiflers of capitalism who are the first to complain that it doesn’t work.

      We got ourselves into this mess in part by electing the wrong people. The “Income Inequality” crowd has been proven to be wrong and a large overweening government hasn’t made things better for anyone except those who inhabit it.

      Hopefully, we will wake up before it’s too late.

      • It look like they fooled you if you think that Democrats are solely responsible for the mess we’re in.

        BackwardsBoy: appropriate

  11. Perhaps someone can correct me, but the accompanying chart doesn’t jibe with the author’s narrative. I don’t see where the October 2009 rate is near 10 percent (although I know that it, indeed, surpass 10 percent).

    • The chart at top is the Obama administration lie chart. That’s why you don’t see the 10% unemployment historical.

  12. The stimulus bill was passed at end of Feb 2009. (it was much more modest than Obama wanted) Unemployment rate in March of 2009 was 8.7%. Does Pethokokous naively believe that the stimulus funds would flow into the economy in a “step function”? If you give it 6 months to settle in you see that the unemployment rate in sep 2009 was 9.8%. If you use the new set point of roughly 10% as the max (versus the initially projected 8%), the projected effect of the Recovery Plan was actually pretty accurate. Pethokokous knows full well that the math done for the Obama projections was done in Fall of 2008. The economic disaster that was Bush’s last 6 months proved to be far greater than even his opponent could predict.

  13. It’s more than just the part time adjustments from ObamaCare

    - new regulatory compliance costs
    - new taxes
    - mandates
    - implicit uncertainty
    - higher healthcare costs for younger/healthier workforce

    all of these are creating headwinds to Main Street business hiring and have for some time now….many business owners/managers try to anticipate the future when they hire.

  14. And the immigration “reform” enthusiasts say we need even more immigration, when we can’t employee our own people. Not one sane person can possibly believe that more $8 per hour workers will magically fix our economy. The political theater over immigration is a farce directed by the self-serving elites.

  15. I love this – for five years, the Right has been doing everything it can do to sabotage the economy – causing a downgrade in the bond rating, and opposing any spending that could encourage job creation (and, yes, when Government spends money to build roads, bridges, etc., it stimulates job creation) – and now, the Right wonders why unemployment is only decreasing slowly.

      • Okay.

        In the first 4.5 years of the Obama administration federal expenditures rose 11.2%. It rose 41% during the final 4.5 years under the Bush43 administration.

        What say you?

        FRED chart

          • Only if you dump all the spending from 2009 onto Bush’s lap, including Obama’s stimulus spending

            Wrong. The expenditure chart is indexed to Q42008. ARRA was not signed into law until March 2009. Next narrative! If you think Bush43 was horrible on spending, you should look up Reagan.

    • The lion’s share of job creation has always been the purview of the private sector. Until now. To suggest government spending on reconstruction projects would be sufficient to result in the numbers of jobs created to fuel any recovery is fantasy. The “right” knows exactly why the economic recovery is anemic: Obama’s war on energy and the private sector through increased regulation and taxation. Banks aren’t lending and corporations aren’t spending directly as a result of the Anointed One’s policies that strangle economic growth.

  16. At least 1 percent unemployment is being fostered by the lunatic reactionary policies of the Republican House

    The balance is a structural issue

    And to the ideologue who claimed that Obama “promised” 5 percent, where is the money we made on cheap oil by invading Iraq?

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