Experts were, it is reported, surprised by the latest unemployment figures released by the Department of Labor Thursday. The consensus view was that first-time claims for unemployment benefits would drop slightly to 550,000 after last week’s modest rise. Instead they clocked in at 576,000. And the four-week running average, which smoothes out the volatility in the weekly figures, rose to 570,000. Continuing claims also rose slightly.
Does this mean a reversal of a downward trend in claims that’s been going on since March? Or is it just a hiccough? Depends on whom you ask. Last week, the Federal Reserve Bank of Philadelphia released its Third Quarter Survey of Professional Forecasters. Results? Better prospects for growth, but a more sluggish labor market. While the forecasters expect GDP to rise more than 2% in each of the next four quarters, they also see unemployment averaging 9.6% through 2010 and 8.9% through 2011. This is the epitome of that insult to language and good sense called the "jobless recovery."
If you really want to know where the economy will be a year or two from now, you might just as well ask a palm reader as a stock trader, statistician, banker, investment counselor or economist. Because even the most data-rich predictions ultimately add up to educated guesswork. We know this because so many forecasters - professionals and amateurs - are so often wrong. Few, for instance, predicted the current recession arising out of the housing and credit bubbles. Fewer still predicted how bad it would get. According to Wharton finance professor Franklin Allen, "It's not just that they missed it, they positively denied that it would happen."
They weren’t quite as off-target as bubble deniers James Glassman and Kevin Hassett, the two guys who published their incredible fantasy - Dow 36,000 - about five minutes before the dot.com bubble burst. But we did have high muckety-mucks mouthing nonsense six months after the Great Recession began.
Here was Treasury Secretary Henry Paulson on May 7, 2008 : "The worst is likely to be behind us."
And here was Fed Chairman Ben Bernanke on June 8, 2008: "[T]he risk that the economy has entered a substantial downturn appears to have diminished over the past month or so."
As always, some people – a handful in this case – did accurately predict our predicament, at least in outline form. Dean Baker, for one, wrote The Run-Up in Home Prices: Is It Real or Is It Another Bubble? in 2002. As did Paul Krugman in 2005.
But even those who got it right before can’t be counted on to get it right every time. Past performance is no guarantee of future bullseyes.
That’s not to criticize every observer who tries to figure out where we’re headed, nor of those who have been optimistic recently about economic indicators. Calculating the trajectory of the global economy is a tad more difficult than balancing a checkbook, and those who make the effort in good faith don’t deserve dissing.
It is, however, another story for those who base their predictions purely on cheerleading or ideology, the pollyannas and the propagandists. Take a gander, for example, at the crackpots at the Cato Institute and the American Enterprise Institute – Glassman and Hassett among them – who boasted that financial deregulation would deliver us to economic paradise. Moreover, some predictors resolutely refuse to look at things like structural unemployment, environmental limits, and the volatility of psychology in determining how humans will behave economically.
Others may take all this into consideration and still miss the mark. Skilled observers can make perfectly plausible cases for, say, a "V"-shaped recovery, a steep downturn followed by a steep recovery. The problem is, a "W"-shaped recovery – that is, one that starts vigorously but soon tumbles into recession again – looks very much like a "V"-shaped recovery in its early stages. In May, Financial Times columnist Gillian Tett gave us a new choice for the shape of recovery, which looks like the shorthand version of bank:
Face it. Nobody knows for certain what’s going to happen.
What is known for certain on the employment front is that we’re still losing jobs in the hundreds of thousands each month. Some of the out of work who were lucky enough to have had unemployment benefits have now exhausted them. Some are no longer counted in the statistics because they’ve become discouraged and stopped looking for a job. Some are stuck in part-time jobs because they can’t find full-time work. Altogether that’s around 30 million unemployed and underemployed Americans.
What is also known for certain is that many of these people are spending down their savings, seeing their unemployment benefits exhausted (or never having had any to begin with) and facing foreclosure even though their mortgages were not subprime. For them, despite the conventional wisdom heard daily throughout the media, the worst is yet to come.
And something else is certain. During Bill Clinton’s eight years in office, the economy created an average of 222,000 new jobs each month, a record. It would take 30 consecutive months like those on Clinton’s watch to replace the 6.7 million jobs officially lost so far since the Great Recession began in December 2007.
Assuming we were to start that climb in October and keep at it steadily – a most optimistic view – we won’t again reach the numbers of Americans who were employed in December 2007 until April 2012. That’s 52 months. The longest previous time to return to peak job numbers came after the 2001 recession, 47 months.
To reiterate: This is the optimistic view, which obviously isn't shared by the above-cited forecasters interviewed by the Federal Reserve Bank of Philadelphia. They don't see net job losses ending for a year. If they're right, it could be 60 months before the previous job peak is reached.
None of this takes into account the discouraged workers or the estimated 127,000 additional jobs needed each month to keep up with population growth. Nor does it say anything about the quality of jobs or stagnant wages. Nor, obviously, of the fact that from the time jobs returned to their previous peak after the 2001 recession, it was less than three years before the next recession began.