Track the Stimulus

 

It looks like unemployment is turning a corner: October's unemployment report showed a gain of 151,000 jobs, driven by a net gain of 159,000 in the private sector.  For the year the private sector has created over 1.1 million jobs.  Total job creation for the first 10 months of the year now sits at 874,000 as state and local governments have laid off 241,000 employees due to budget cuts.  The unemployment rate is 9.6% - the unemployment rate has held steady for the last three months.  All things being equal the unemployment rate should have increased the last three months as only 109,000 net jobs were created and approximately 400,000 people should have entered the workforce; what made it possible for the unemployment rate to hold at 9.6%  was an increase in the number of discouraged and marginally attached workers no longer counted among the unemployed.  

 

To gain a clearer picture of the job situation in the country, one needs to take a look at the under-employed, and the chronically unemployed.  These include those working part-time because they can not find full-time work, or those who have given up looking for work because they are unable to find it, the total unemployed plus underemployed jumps to 17.0%.  This recession has seen the highest levels of labor under-utilization on record.  Long-term unemployment is complicating the employment picture, 41.8% of all unemployed have been unemployed 27 weeks or longer.  While Congress has extended unemployment benefits to a record 99 weeks, many have already exceeded this level.

 

Most states in the Union have seen improvements in their unemployment situation; labor department figures at the state level for September, 2010 show that only 16 states saw unemployment rates increase, while 31 states show them decreasing with respect to last year's levels.  Twelve states have unemployment rates 10% or above as compared to 18 states in September of last year.  The situation is definitely improving, but the pace of improvement is generally slow.    For more on the unemployment picture see our "How is the Consumer Doing" page.
 

The stimulus plan intended to provide a jolt to the economy to reactivate the private sector, which in late 2008 and early 2009 had in the midst of a liquidity and consumer demand crisis.  Tax cuts and tax credits were designed to spur spending by letting people keep more of their money.  Investments in infrastructure, education, agriculture and others whether directly coming from the federal government or through the states had the purpose of saving and creating jobs, and in turn generate secondary demand for jobs to service the recently employed.  Furthermore, by providing funding for unemployment benefits, and delivering assistance to the most needy through food stamps and other social programs the stimulus package aimed to put money in the hands of those that will spend it immediately and provide demand in the economy (of course, in addition to helping maintain the fabric of society in areas where unemployment was pervasive).

Tax-cut driven demand, plus the stabilization of spending/consumption, plus the new funded programs were hoped to generate new jobs and stop people from being laid off in other areas of the economy.  While at the time few expected the stimulus to turn the economy overnight, the hope from its proponents was that it was going to provide a catalyst for an eventual recovery to come later in the year or next year.  As important as the actual number of jobs created directly by the program is to change the psychology of people that had turned considerably pessimistic and generated a rather vicious negative cycle.  

 

 

Perhaps more important than estimating correctly the number of jobs, was making sure that the funds disbursed find their way into the economy rapidly.  While the timelines for appropriation of funds were very aggressive, the ability of federal, state and local governments to spend the funds rapidly was very much suspect.  The Congressional Budget Office (CBO) put forward an analysis of the original version of the House bill (click here for the CBO analysis document).  One can debate each one of the assumptions made, the main argument made by the analysts that historical spending in the programs funded has taken a much longer time than the two years anticipated by the government is one worth taking notice.

So, how is the stimulus bill doing when it comes to creating and saving jobs?  The latest analysis from the Congressional Budget Office (CBO) provides what is perhaps the most authoritative analysis on the subject given its reputation for impartiality.  As of June 30, 2010, the number of direct jobs created by the ARRA and reported to the government were 750,000; however this does not take into account subcontractor jobs, and all the other indirect jobs created (those that service the direct ones, from accountants, to food services employees).  CBO estimates that the ARRA increased the number of employed people by 1.4 to 3.3 million, and increased the number of full-time equivalents (FTEs - this includes the additional hours worked by people moving from part-time to full-time roles and the hours of people working overtime) by  2.0 to 4.4 million.  The net effect was a reduction in the unemployment rate of between 0.7% and 1.8% (at current levels that would have meant that unemployment would have been at 10.3 to 11.4%.  There is certainly plenty of dispute on whether these estimates are accurate (most of it tainted by the flavor or the analyst's own political inclination); nevertheless, they are in-line with estimates of most private sector economist.  Whether one considers these figures a success or failure in large part depends on ones perspective; while the stimulus and other measures prevented a deep recession from turning into a depression ala 1930s, the unemployment rate remains very high, and Americans are readjusting to a world where the value of the equity in their homes has dropped considerably, their wages have stagnated and their 401Ks balances have decreased.

Approximately 72% of all stimulus dollars have already been paid out; which means that only about a quarter of the funds are left to be spent in fiscal 2011 and beyond, with little probability of further government stimulus (at least the kind of large influx that the ARRA represented), the private sector now needs to pick up the slack.  The good news is that, slowly, private sector hiring activity is picking up, driven by strong profits (due to cost containment) and high cash balances, and the growth of global (mainly Asian) demand for goods and services.

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Only this year has the private sector started creating jobs.  While  at 159,000 private sector job creation is still weak given the depth of the recession, it is a start. As the table below shows while the manufacturing sector expanded its payroll by 135,000 over the first 10 months of the year, all of the gains were in the first half of the year, and the last three months saw a net decrease of 35,000.  The healthcare industry has seen as steady pace of job creation throughout the year.  Professional and business services have picked up steam over the last three months; unfortunately most of the jobs in this sector have been temporary jobs.  Retail as well as wholesale jobs saw a sharp increase in October with respect to the previous months. 

The financial industry is not where you are going to find a surge of jobs; for the year the industry lost 82,000 jobs.  Another beaten down sector, construction, is seeing some signs of life; after loosing 100,000 jobs in the first part of the year, the last three months saw this category add 31,000 jobs.

Job Creation by Industry
					% Jobs Created
Sector	2010		Last 3 months		in Last 3 months
Education & Health Services	324,000		116,000		36%
Professional & Business Services	307,000		103,000		34%
Temporary Help Services	264,200		81,200		31%
Leisure and hospitality	178,000		58,000		33%
Other Services	88,000		50,000		57%
Retail Trade	128,300		45,900		36%
Construction	-71,000		31,000		NM
Mining & Logging	79,000		22,000		28%
Wholesale Trade	36,400		13,300		37%
Transportation & Warehousing	29,400		12,300		42%
Utilities	-4,300		0		0%
Information	-33,000		-2,000		6%
Financial Activities	-82,000		-6,000		7%
Manufacturing	135,000		-35,000		NM
Government	-241,000		-300,000		124%
Source: Bureau of Labor Statistics

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