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Job creation is one of the growth indicators featured on the Bush Institute ticker. The most familiar data in the monthly headlines on job growth comes from a Labor Department survey of established businesses. In a second monthly survey, the Labor Department phones and writes households to ask how many people are working. This household survey gets at the critical job creation occurring in new and small businesses and in self-employment earlier than the establishment survey (which is revised for years as information comes in). The establishment survey showed strong job growth at the beginning of 2010 and 2011, which then faded. It also showed early 2012 labor gains. Unlike in 2010 and 2011, the 2012 job gains are being picked-up even more strongly in the household survey and should be more sustainable than in 2010 and 2011. In February, the household survey showed 428,000 net job gains. With an increase in the labor force of 476,000, the unemployment rate stayed at 8.3%. In addition, the full-time/part-time split in the household survey shifted toward full-time (80.6% full-time in February, up from 80.4% in January). By contrast, the establishment survey showed only 227,000 gains in February with 61,000 in upward revisions to the December and January data. This brings job gains over the past 12 months to 2.3 million in the household survey and 2.0 million in the establishment survey, with private sector payrolls up 2.2 million workers. Over the last six months, the household survey showed a gain of 2.1 million jobs (adjusted for population and seasonality). In that time frame, the establishment survey has shown a weaker 1.2 million job gains overall and 1.3 million in the private sector. The credit environment in the U.S., Europe, and China has relaxed, helping boost job growth in the latest upturn. This is critical because global capital markets have shifted from a price-based allocation of credit to a top-down regulatory allocation of credit. In 2010 and 2011, credit policy in the U.S., Europe, and China was tight, and bank loan growth was still weak. However, starting in late 2011, there’s been a major credit relaxation in Europe (forbearance) and in China (lending quotas increased and bank reserve requirements were reduced). Relaxation signals in the U.S. have coincided with the strong growth in bank lending. There are still major disappointments in the labor environment. At 8.3%, the unemployment rate is higher than at any time from 1984 to 2008. The household survey found that the underemployment rate is still at 14.9%, partly due to people wanting to work more hours but not being able to do so. In February, average hourly earnings from the establishment survey rose only 0.1%, to $23.31. Average hourly earnings have increased 1.9% over the last 12 months. This slow rate of growth lags behind the inflation rate of 2.9%. However, other data sources are confirming the strengthening of the labor environment found in recent household surveys. Initial jobless claims have seen a welcome decline, and recent reports from Automated Data Processing are showing the same strength in small business employment as the household survey. The February ADP report showed 216,000 private-sector job gains, with small businesses adding 108,000 jobs, medium-sized businesses adding 88,000 jobs, and large businesses (those with more than 500 employees) adding 20,000 jobs, a normal pattern in a strengthening expansion. We think there may be upward revisions to the establishment survey and personal income in coming years to reconcile them with the stronger labor environment showing up in the household survey. In the “jobless recovery” of 2003 and 2004, which was characterized by weak job growth at existing establishments but stronger job growth among households, the establishment survey received major upward revisions years later that brought it more into line with the strength in the household survey. Historically, data on wages and salaries have been revised upward when the household survey has been stronger than the establishment survey. We think income gains are probably somewhat stronger than recent data on personal income has been indicating. While the unemployment rate may have upward reversals at times in 2012, we think the downtrend is a realistic reflection of the weak, but improving, labor environment. There should also be downward pressure on the unemployment rate as 99-week jobless benefits are exhausted or allowed to expire.
2012 Economic Growth Fellow
David Malpass is president of Encima Global, and chairman of GrowPac. He writes a regular Current Events column in Forbes magazine, and his opinion pieces appear regularly in the Wall Street Journal. He sits on the boards of the Economic Club of New York and the National Committee on U.S.-China Relations. Formerly, Mr. Malpass was chief economist of Bear Stearns. Between February 1984 and January 1993, he held economic appointments during the Reagan and Bush Administrations. He was Deputy Assistant Treasury Secretary for Developing Nations, a Deputy Assistant Secretary of State, Republican Staff Director of Congress’s Joint Economic Committee, and Senior Analyst for Taxes and Trade at the Senate Budget Committee.Full Bio