Explaining Poor Job Growth in January: You Can’t Have It Both Ways

Sledding Instead of Shopping

Sledding Instead of Shopping

The monthly jobs report for January from the U.S. Bureau of Labor Statistics (BLS) was disappointing for the second straight month.  It said employment grew by 113,000 in January, well short of what is needed to just keep pace with population growth. This wasn’t a buried story. Hardly! But in depth, thoughtful coverage addressing causes of the disappointing report, without partisan blame, was not easy to find, as is the case these days for just about anything.  Here is one good effort by Wall Street Journal (WSJ) reporters (as distinguished from WSJ editorialsts), which has some useful insights.  Today’s post amends some of the WSJ point.  Lets look at four aspects of the January jobs report:

Freezing Weather.  BLS officials are now saying that weather was a big cause of the poor job growth numbers for December, but not a factor in January.  So, now BLS is not only in the game of revising numbers all the time, but it’s now revising explanations. Nothing necessarily wrong with that. In fact its refreshing to see an umpire change a call when it’s wrong.  

But this flop flop does bring into question the BLS assertion that weather was not a factor in the January job numbers at all,  an unusually definitive call by the cautious BLS.   That argument is based on the monthly household survey conducted by the Census Bureau indicating that 260,000 people said they couldn’t go to work in January due to bad weather.  That is not unusual for January, thus the argument that weather was not a factor in low job growth for the month.

Fair enough.  Except that it doesn’t take into consideration other, fairly obvious, reasons why poor weather might have inhibited hiring.   When temperatures are sub zero, mobility is severely impaired, not just for folks traveling to work, but for everyone else, including consumers. You postpone elective shopping when roads are dangerous. If it feels like the freeze will continue for awhile, are you inclined to hire more workers?  Are job candidates even able to reach your store or factory for the interview?  None of those behaviors  affected by weather are probed in the Census Bureau survey, just whether or not you stayed away from work due to poor weather conditions.  

2) Austerity.  Even though we backed into it, the U.S. has — no mistake about it —  pursued considerable “austerity” to address the nation’s debt problems.  We have not gone as far as Republicans proposed or as many European countries have tried (with mixed results), but we have been (materially) austere.  We surely haven’t adopted the prescriptions of economists like Paul Krugman who believe the “Obama stimulus” was half of what it should have been,  and that this is the time to ramp up government spending, not dampen it.

In January, total public sector employment (across all levels of government) dropped by about 30,000.  Normally, without an austerity policy, government jobs would grow by about 40 to 50 thousand each month, which is a swing of up to 80,000 from the normal.   Add that to the 113,000 job gain figure for January, and you have a respectable jobs number for the country, about the amount economists were predicting.

Of course, Republicans say it’s a good thing we shed another 30,000 government jobs, just what’s needed to bring down the debt. Democrats say the shrinking of the public sector ought to proceed more gradually; and that the U.S. sovereign debt problem is due as much (or more) to soaring health care costs (in the past), imprudent tax cuts, and a bloated military, than to growth in government sector jobs. 

So, Republicans can’t say, on the one hand, that it’s good to shed public sector jobs;  but on the other, that the Democrat’s economic policies are (entirely) responsible for weak job growth.  But they say it anyway.   Democrats can’t blame the bad job numbers entirely on the other side either – i.e., on Republican forced austerity. Even at 200,000, monthly job gains have been a slow recovery. 

3) Drop in Health Sector Jobs.  One of the big contributors to the booming economy in the 1990s, was sky rocketing growth in health care related jobs.  Jobs in this sector grew even during the “dot.com crash” and the Great Recession, providing a crutch (covered only by good insurance plans)  for the collapsing economy. 

While the overall economy was practically in free fall during the 2007-09 period, the health care sector added over 400,000 jobs.  That’s amazing.   But, recently, and particularly in January, the BLS reported an absolute employment decline in that sector.  Both Republicans and Democrats agree that health care costs needed to be reigned in.  So, if the Affordable Care Act (ACA) is causing hospitals to shed jobs that were not truly essential for patient care, that’s what everyone said they wanted.  So, you can’t decry weak job growth and applaud higher productivity in the health care sector at the same time.  Again, as in the case for shedding government jobs to reduce debt, you can’t have it both ways.   That said, there is still much that is unclear about the loss of health care jobs in January.

4) The ACA and Business Uncertainty.  There are plenty of anecdotes, but no hard data, on whether businesses are keeping a lid on hiring, while waiting to see how their costs are affected by ACA.  There are lots of anecdotes. 

There are also many examples of robots and software replacing human workers, because businesses don’t have to buy health insurance for machines or computer code, or pay a penalty for not doing so.  But using technology to perform tasks that humans would normally do has been happening since well before the ACA.  Indeed, technological change is probably an even bigger reason for the loss of manufacturing jobs in the U.S. than outsourcing,  or other manifestations of free trade and globalization.  U.S. production in manufacturing has budged little over several decades, while job losses in those sectors have been steep.  That’s due to technologically induced productivity gains.

I don’t have any hard data to refute the possibility that ACA contributed materially to the poor December and January job numbers.  But, even the WSJ analysts didn’t go there.  And why did jobs fall off the cliff suddenly after November, when panic has been spread for several years about the “catastrophic effects” of ACA on business?   The ACA may help explain why the recovery, prior to December, was slow, but not why we fell off a cliff the last two months.

The equity markets, and smoke signals from the Federal reserve, have mostly shrugged off the weak job numbers as blips, data anomalies, or a temporary pause in an otherwise improving economy.  I’m not entirely sold on that, but its always heartening to hear your doctor say he’s not worried about the latest uptick in your cholesterol numbers. That five minute consult will cost you (or your insurance carrier) a thousand bucks. 

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