After looking over May's employment report, are you up from the floor yet? Yes, but I'm still a bit woozy. Here's another reminder that those consensus forecasts from economists that come out in advance of the government report are next to useless. No one expected the number of new jobs to be as low as 69,000. Or for the March and April revisions to be so much lower.
Is there any good news in this report? I suppose you could argue that a slight increase in the unemployment rate (8.2 percent from 8.1 percent) indicates that more folks are entering the labor pool - just as, paradoxically, a lower rate could indicate that more people have stopped looking. The Labor Force Participation Rate, which is the percentage of the working age population in the labor force, increased to 63.8 percent in May. But it's still well below the 66-67 percent level that has been been the norm.
You know there's renewed talk of a recession: That's predictable, but the chances of another downturn anytime soon are very unlikely. Economist Justin Wolfers says that there's been a "huuuuge overreaction" to this morning's report, and he pointed out that this month's paltry 69,000-job gain compares with an average of 11,000 jobs during George W. Bush's time in office. Just a little perspective. Chris Rupkey at Bank of Tokyo-Mitsubishi had some good advice: "Keep your head on."
Yeah, but the Dow is down more than 250 points. Obviously not everybody has their heads on.
All right, so what's happening? It largely comes down to two things: First, business owners and investors are unusually antsy about the future. Yes, people are spending money again (that's borne out by decent retail sales, higher consumer debt levels, and other metrics), but they don't seem to be having much fun doing it. This is not as silly as it might seem - shoppers' attitudes about their purchases provide an important clue to how an economy is performing. As a rule, recoveries start out slow, but this recovery is three years old. By now, consumer confidence should be a lot more positive. Economists will give you a thousand and one explanations for why folks aren't more bullish, but what's important to note is that it's happening - and it's put a drag on the economy.
And the other reason? The other reason is that many businesses operate differently than they did before the recession. Part of that involves greater efficiency through the use of technology (something as basic as replacing a receptionist with an automated phone system), and part of it involves lowered expectations about growth. You don't need an advanced degree to figure out that barring some miracle, economies in the U.S. and around the world will be under-performing for at least several more years. The end result won't necessarily be a disaster, but it won't match the kind of pace we saw in the boom years. Accepting that probability requires a different mindset, a different approach to your business.
In other words, a grayish kind of economy. That's right - and if there's one thing politicians, pundits, and media folk dislike it's gray. Nuance does not work very well on the evening news.
What's going on with Europe? If things fall apart over there, will the U.S. get hit? No one has a clue (so far, there's been very little impact), but as with the debt ceiling debacle in Congress last summer, everyone is freaking out at the possibilities. WSJ columnist John Bussey has a good take:
Measuring this kind of mega-uncertainty, and making rational decisions, is tricky for business. Research shows that, for better or worse, we still deal with risk chiefly through gut instinct. And what the gut is likely telling business in this instance is both time tested and not exactly inspiring: Suck it up and muddle through. Our "intuitive feelings are still the predominant method by which human beings evaluate risk," two psychologists, Paul Slovic and Ellen Peters, wrote in 2006. "Most risk analysis in daily life is handled quickly and automatically by feelings arising from what is known as the 'experiential' mode of thinking."
So what's the fallout for California and the L.A. area? It's kind of a muddle. Up until March, the state's job growth had been holding up quite well, but the April numbers were disappointing and May isn't likely to be much different. What's more, the governor's revenue estimates that have been used to project the deficit are consistently short, suggesting that the California economy, while still recovering, might be losing speed. By region, the Bay Area is likely to fare a bit better than Southern California. But here we are forecasting - and you know what happened to the economists who tried to do that in advance of today's dismal employment report. Kablooey.