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Are they the only choices?

I don't believe official unemployment numbers. A change of less than half a percent doesn't really mean anything. There are all kinds of reasons for a .4% fall, and many are irrelevant or misleading indicators of recovery.

I suppose by analogy to the market and natural rate of interest, I think in terms of the market and natural rate of unemployment. It seems clear to me that the market rate of unemployment is significantly above the natural rate (even though the natural rate is perhaps higher than usual), but by precisely how much I have no idea.

Both views may be correct. The economy is improving, and more workers are discouraged. SSI disbility filings are up, suggesting more workers are permanently leaving the workforce.

Bernanke says it will take years to restore jobs, so that means we need the $600 billion QE2. By that logic, there should be a QE3, QE4 and more. He has actually suggested as much. Apparently he bleieves you can print jobs.

I think an individual over-the-month movement in the seasonally adjusted number like this could reflect the limitations of the seasonal adjustment methodology. Seasonal adjustment relies on historical data trends to work, and the recession may be causing trouble with those trends.

Consider this scenario. A seasonal industry routinely lays off most of its employees in December due to slack work, and those individuals enter the job market looking for work to bridge the gap until the seasonal industry rehires. This raises unemployment and decreases employment, but, since this is routine, seasonal adjustment will adjust unemployment downward and employment upward to reflect the fact that this is a normal seasonal change, leaving the unemployment rate unaffected by the event.

However, if the seasonal industry were to be wiped out by a recession, there would be no employees to lay off. The seasonal adjustment methodology, relying on historical data, would still expect the old seasonal trend for the current estimate. It would adjust unemployment and employment such that the seasonally adjusted unemployment rate is lower, even though the real seasonal event informing the adjustment did not occur.

Seasonal adjustment for the components of the unemployment rate is more sophisticated than my simple explanation, so I'm not certain how well it may account for this type of scenario. Here's more information about seasonal adjustment as used for these statistics:

As a side note, these last few months of the year also tend to be the most subject to revisions coming next month from updated population counts used to control this survey.


Where did Bernanke say that?

@Lee -- I will check to see I still have the article.

One possibility: the unemployment benefit extension was not passed until Dec. 17, which is the end of the "reference week" for the CPS (Dec. 12-18). Extended UI benefits had expired at the end of November. This may have induced many unemployed workers in the previous two weeks to either find a job (and become "employed") or stop looking (and become "not in the labor force") since this is a requirement of receiving benefits. Both effects are visible in the data, employment increasing and labor force decreasing, by about 300K each.


The reference is to a December 2010 interview of Bernanke. That sounds like his 60 Minutes appearance.

What about seasonal hirings? Many places hire people through the Christmas season.

I will go with the bad news view. The unemployment rate fell, but as you say, because of a reduction in the labor force. There was some over the month gains in employment in the household survey, but this was a statistically insignificant increase in employment.

Payroll employment increased by 103,000, not exactly great numbers but steadily improving numbers since -175,000 in June (with the exception of October at +210,000). So, the good news, if there is any, is that payroll employment has steadily improved. Whether this mini trend continues I would only hope so. I would also note that this trend began before the election. However, the outcome of the election was probabaly known earily as June.

“2. It's also possible that, because this is December data, it reflects genuine employment growth as businesses see the November election results as producing two years of gridlock that will check the anti-business rhetoric and anti-market policies of the Obama Administration. This is the good news view.”

What does the potential political ideology of the business community have to do with economic theory? I don’t pretend to know what businessmen are thinking, or whether they’re liberal or conservative (and therefore either support or oppose Obama’s policies), but I find this sort of “economic analysis” somewhat laughable. This is the method employed by various know-nothing political pundits on CNBC (Kudlow, etc) and it’s emphatically un-Austrian (ad hoc and unsystematic).

If the unemployment rate is falling it’s either because (a) a dwindling labor force, (b) mal-investments have been purged and are continuously being purged (despite government intrusions), or (c) government counter-cyclical policy has inflated another bubble (maybe a bond bubble) and is propping up the malformed capital structure.

I would distinguish between anti-business and anti-market policies. The Obama Administration has been corporatist from the get-go. Charles Gasparino details the unholy alliance between Obama and Wall Street in "Bought and Paid For." Witness Bill Daley making the smooth transition from JP Morgan Chase to the West Wing.

Big Business benefits from big government and CEOs are often liberals. Think Warren Buffet, Jamie Dimon, Bill Gates, etc. The banks had a family tiff with Obama over Dodd-Frank, and now they are going to kiss and make up.

I'm happy to see Paul Ryan, Heritage and other conservatives wake up to the fact that Obamaeconomics is crony capitalism, a point I made in a WSJ op ed.

Meanwhile, economic policies continue to be anti-market. Small business and blue collar America suffer together from this.

@Sheri: if you don't think the political environment matters for the economic decision making of entrepreneurs, including their willingness to hire, you might wish to read some economic history. You can start with Bob Higgs's work on "regime uncertainty" in the 1930s as well as his recent blog posts on the same problem in the present day.

It's not the ideology of business people that matters, but how they perceive their rates of return in an environment characterized by bad or uncertain policies. That's just good old Austrian subjectivism right there.

Recognizing that expectations matter is not only not "un-Austrian," it's VERY Austrian.

According to this graph,

In july/august unemployment rate were 9.5%, today they are 9.4%. They have been around the 9.4-10% bracket for nearly 18 months now. I think we need several months of failing unemployment to speak of genuine recovery.

@Dr. Horwitz

This sort of analysis is riddled with rational expectations quackery. It implicitly assumes a level of knowledge amongst the ‘business community’ which exceeds that of many mainstream neoclassical economists. It expects us to believe that the ‘business community’ is not only aware of the effective demand doctrines that support Obama’s interventionist policies, but are also entirely aware of the various refutations of it. Only with this sort of absurd assumption is possibility #2 even remotely feasible.

Again, it’s one thing to claim that the continuous extension of unemployment benefits has created all sorts of profound rigidities in the labor market, but to claim that the ‘business community’ is aware of the fact that Obama’s policies are self-defeating and will lower the rate of return on investment in the future, is another thing altogether. The latter resembles certain arguments which assert that the ABCT is incoherent because ‘investors can’t be fooled by the same trick twice.’

Sound economic theory does not require such assumptions, and does not speculate about the 'sentiments of the business community.'

Sheri, you misunderstand my point as well as Bob Higgs's work.

We are not making an RE argument that businesspeople know the relevant theoretical arguments. All that's being argued is that they see that current policies are either making their cost of doing business higher and/or that the ideology of those in power is hostile to private enterprise, making their future returns more uncertain than they already are.

Neither of those requires any understanding of macro theory. Both simply require that businesspeople pay attention to all the factors that affect their local bottom line.

Once again, you would be more persuasive if you would explicitly respond to the evidence Higgs has gathered about this phenomenon during the Great Depression as well as in the last year or two. What he offers is not "speculation" but empirical evidence that businesspeople were reluctant to expand because of the policy regime that was in place.

This is not mere speculation; it is good empirical history.

I read in a British newspaper that the BLS had changed their unemployment survey questions since the previous month. I know from British unemployment statistics (which modifies definitions of the unemployed almost annually) any such change tends to be a politically expedient one (ie artificially lowers the unemployment rate by comparing yesterdays 'apples' with todays 'oranges'). I would be surprised if the current BLS changes were not also favourable to incumbents.

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