[Sorry, the video for this story has expired, but you can still read the transcript below. ]
RAY SUAREZ: When the unemployment rate jumped 0.4% last month, it was the highest single-month increase in 15 years. One reason for the upswing, the 141,000 jobs lost in the manufacturing sector, which has seen its employment plummet by one million since July of last year. For more on these numbers, we turn to Jared Bernstein, senior economist at the Economic Policy Institute, and Mickey Levy, chief economist at Bank of America. Well, Jared Bernstein, let’s start with you. What is a four tenths of one percent one-month jump mean?
JARED BERNSTEIN: It means that the slowing economy has clearly caught up with the labor market. The American worker is now very much in the grips of a slowdown from his or her perspective, this looks like a recession at this point. Up until a few months ago it was possible to argue that the slowdown was isolated in a few sectors of the economy, particularly manufacturing, as you mentioned but also of course the high-tech sector with all the dot-com implosions we’ve heard about. At this point, weakness is quite pervasive throughout the labor market. We lost 26,000 jobs in retail sales last month, suggesting that the American consumer is clearly pulling back. The services, which has been the primary generating or of job growth over this recovery have been adding on average only 10,000 jobs per month since March. This is a sector that has, over the past few years, was adding over 100,000 jobs per month. The great American job machine has shifted into reverse, and the key difference between our view of the labor market now and, say, a few months ago is pervasive. Unemployment rates are up not simply for manufacturing workers, they’re up 2.2% for manufacturing workers, they’re also up .7% for professional workers, they’re up 1.1% for service workers. It’s very difficult at this point to find any sector in the economy in the labor market that’s been unscathed by the slowdown.
RAY SUAREZ: Mickey Levy is that pretty much the way you see it?
MICKEY LEVY: I think that may overstate the case. A key thing to point out here is the last thing employers do is lay off people. So there’s no question but that we’re in an economic slump. Businesses, in response to a slower demand particularly in manufacturing, have been slashing production so as to reduce undesired inventories. And now they’re cutting back aggregate hours worked in employment. The key point that I would make is that employment and the unemployment rate are characteristic of lagging indicators; that is, they reflect what’s been happening in the economy, but they don’t point toward further deterioration. And, in fact, if you look back at rebounds from recessions, like in 1990, ’91, the previous recession in the early ’80s, retail sales and consumption always reaccelerated and employment stayed rather weak for a full year. So, yes, the employment report does reflect the slump but it doesn’t point toward further deterioration. In this regard, I would say the decline in the stock market had perhaps more to do with the market’s concern about the future profits relative to expectations rather than continued deterioration in economic activity.
RAY SUAREZ: A lot of the reaction from the securities houses today said that this is a sign that things are going to go south in the consumer sector. Now not to minimize the terrible toll it can take on an individual when they lose their job, but how can a 1% shift in unemployment mean that much to the overall psychology of a consumer sector, Mickey Levy?
MICKEY LEVY: Well, one of the key determinates of consumer sentiment is job security or insecurity. So when you have increasing unemployment and people are worried about their job, then people become worried and they tend to save a little more and consume less. But here I think it’s important to point out that while consumer spending has slowed in its rate of growth, it’s certainly not declining and the most recent statistics show that it is not declining, will not decline, and a key point I would bring out is consumer spending tends to lead employment and the fact that the unemployment rate has gone up, which everybody should have expected because it’s quite natural, does not portend a fall in consumer spending.
JARED BERNSTEIN: Well, I think Mickey Levy and others will make a mistake if they somehow try to downplay or dismiss the magnitude of the increase in the unemployment rate. The fact that the unemployment rate is a full percentage point above where it was last fall, that recently it’s trended up quite quickly and that 1.4 million more people have been consigned to the ranks of the unemployed over this period. It’s very correct that unemployment is a lagging indicator, but what that means and what it’s meant in past recoveries is that the unemployment rate will now continue to rise even if the economy reverses pace and increases relatively soon. And there are actually no forecasts that see the unemployment rate coming down in the near term. In fact, virtually every forecast expects the unemployment rate to continue to rise. Now if you want to understand the importance of that point, I think you have to probably get away from Wall Street and think more about Main Street. Working American families saw the first gains in real wages and real incomes in decades when the unemployment rate hit 3.94%, when it… When we hit full employment in 1999-2000 and even at the early part of this year. Once the unemployment rate begins to climb and we leave that very important and beneficent condition of full employment, those real wage and income gains will be begin to tail off and the American working class is very likely to see a return to stagnant wages and incomes and increasing income and equality. The stock market is certainly an important component of this, but in my view more important are the wages and income of working families who depend on full employment. 4.9% unemployment, where we got today, is far from full employment. I’d say it’s a percentage point above that level.
RAY SUAREZ: Mickey Levy?
MICKEY LEVY: Well, two points here, yes, the unemployment rate is rising. It should be and it should come as no surprise. But I think a key point to bring out is, number one, wages are rising faster than inflation so workers are enjoying increase in real wages and disposable income is rising, not just due to higher wages but lower taxes. And another silver lining in this, if you will, is businesses, despite the slump and the sharp reduction in production, they have been maintaining productivity gains, which is quite surprising at this stage of a slump. One final point: While it’s very easy to look at all the negatives of the slump, I would say if you look at the Federal Reserve’s easy monetary stance, that is, their stimulus so far this year by lowering interest rates, the tax cuts and the lower energy prices, I think we… I do see the light at the end of the tunnel and I do expect the economy to start picking up. But I agree with the other speaker that even if the economy starts picking up, employment should be flat and the unemployment rate should drift up.
RAY SUAREZ: Does this also mean, the way the numbers are going, that if you lost your job last month, if you were part of this large number of new claims, that it will be a longer time before you get a new job?
JARED BERNSTEIN: Absolutely. It absolutely means that. The labor market of the latter ’90s was characterized by a high level of churning. That is, job losses were actually more common than we might have expected given how tight the labor market was. But folks found themselves getting rehired pretty quickly. That’s a function of a tight labor market where employers need workers. In the current labor market, that’s reversing. The average durations of unemployment are lengthening. We have more folks obviously coming into unemployment. And those folks are having a harder time finding work. By the way another indicator of that, which I think has been under appreciated in these numbers, is that the labor force has actually fallen over the last few months. Our labor force is 350,000 persons smaller now than it was in the first quarter of the year.
RAY SUAREZ: Which means what?
JARED BERNSTEIN: Which means that many workers are discouraged about their job prospects and are not even looking for work at this point. Therefore, they’re not showing up in the unemployment rate. This decline in the labor force, this decline in the rate of employment actually masked the increase in the unemployment. Unemployment would be higher, were these persons in the labor market unsuccessfully seeking jobs. It’s another indicator of just how pervasively weak labor demand is right now.
RAY SUAREZ: So quickly, Mickey Levy, if we are looking down the road, you mentioned that this is a lagging indicator, could we not see job increases net until the middle of next year or later?
MICKEY LEVY: I think that’s a fair estimate. Once again I think the factors are in place for the economy to rebound. And keep in mind, the economy is in a slump following three years of absolute boom. You don’t stay in a slump forever and the factors are in place for a pick-up in demand in the economy next year. But even if the economy rebounds, businesses are going to be very slow to rehire and so I think the unemployment rate will drift up and aggregate hours worked will stay at about their current level even as the economy picks up.
RAY SUAREZ: Mickey Levy, Jared Bernstein, thank you both.
JARED BERNSTEIN: Thank you.