TOPICS > Economy

Reading the Signs: Unemployment Numbers

August 2, 2002 at 12:00 AM EST
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MARGARET WARNER: Today’s July unemployment figures capped a week of disheartening government reports on the state of the U.S. economy. Among them: Gross Domestic Product rose just 1.1 percent from April to June, a sharp comedown from the robust five percent growth in the first quarter. Consumer confidence fell sharply in July to its lowest level in five months. What’s more, revised figures show GDP fell for three straight quarters last year, not just one as originally thought. So, is the economic recovery in trouble?

We put that question to Ed Montgomery, professor of economics at the University of Maryland; Sandra Shaber, senior economic adviser at DRI WEFA, an economic consulting firm in Philadelphia; and Ellen Frank, professor of economics at Emmanuel College in Boston. Welcome to you all.

Professor Frank, beginning with you, what do these numbers taken all together tell you? Is this economic recovery stalling?

ELLEN FRANK: Well, taken together, these numbers are very disappointing for those of us, all of us, who were hoping for a recovery and a robust recovery. The numbers are not good, and there are a lot of very disappointing aspects to them. Probably the most disappointing is that for really the past five quarters, until this recent quarter, business investment has fallen and has fallen rather significantly. This quarter was the first quarter in which investment was up just slightly thanks to some more robust purchases of business equipment. But the numbers still don’t look good. And without a real revival of business investment, it’s difficult to see what’s going to pull the economy out of this slump.

MARGARET WARNER: Professor Montgomery, what is your overall take on all these numbers?

ED MONTGOMERY: I’m concerned that this is very bad news for us. We have been carried by the consumers for much of the last year, which has kept the recession from being bad. Consumer confidence has fallen, consumption expenditures haven’t grown as quickly in this last quarter as they had before. We’re still not seeing any turnaround in the unemployment numbers, the stock market remains depressed. I’m worried that the consumer is going to start to retrench in the near future.

MARGARET WARNER: Sandra Shaber, do you share this bleak assessment?

SANDRA SHABER: There is no question that the signs are weaker lately. In fact, it reminds me of what we were calling in the early ’90s, the jobless recovery. I mean, technically we are still in a recovery but it certainly isn’t very strong. There are a few brighter signs though. Even though consumer spending weakened so much in the second quarter, June was a strong month. That half-percent gain in consumer spending in June is a pretty strong number. Retail sales were up in June, and even better, after the devastation in the stock market in July, consumers responded to that zero financing and they went out and bought cars in July at near record numbers.

So if we’re counting on the consumer, consumers are still holding up. And then, of course, even though the state and local governments are in deficit and not spending much money, the federal government still has some — probably has some pretty heavy expenditures ahead. So we’re going to look at federal expenditures, consumer spending. Even the decline in the dollar makes exports more affordable worldwide. So there are a few grains of hope here.

MARGARET WARNER: Let’s look at a couple of these signs in more detail. Professor Montgomery, let’s look at the unemployment numbers that came out today. Unemployment basically flat at 5.9 percent; but job creation pretty flat, too. Who’s got jobs? Who doesn’t have jobs? Help us understand that number a little more.

ED MONTGOMERY: The overall employment grew by about 6,000 jobs. That was on the positive side. We saw about 50,000 gained in the service sector; that’s hospital services, public relations, auto repair. Those were the gaining sectors. Manufacturing continued to decline. It lost about 7,000. I guess the good news on that is that it was losing in the 15,000, 20,000, 30,000 a month — now it only lost 7,000. Construction also lost about 30,000. We have a very mixed picture.

MARGARET WARNER: Ms. Shaber, help us look at the consumer confidence number. You said that in July they went out and bought these cars but that’s the same month that they told surveyors that their confidence was way down. How do you explain that?

SANDRA SHABER: Ordinarily consumer confidence is driven mostly by what happens in the job market. If you can’t find a job, or your neighbors can’t find jobs, then that certainly makes you pretty pessimistic, but the world is full of very unusual events now — everything from corporate fraud to CEOs being led away in handcuffs, worldwide terrorism, all of these things I think are making for some disconnects between ordinary relationships; despite these falls in confidence, for example, people are saying it’s a good time to buy a car and to buy a house. The other– there are some other good things going for consumers.

MARGARET WARNER: Let me first just jump to Professor Frank and look at this other number from this week. The GDP number being down to 1.1 – that is the economic growth number — way down from the first quarter. How do you explain that?

SANDRA SHABER: Well, the GDP number is up is 1.1 percent, which means we are not officially in recession. But the problem is that 1.1 percent growth is really not rapid enough growth to give — to provide job opportunities for people. And we’ve– it’s interesting that these numbers came out just a day before the unemployment report. And then what the unemployment report is showing us is indeed people are not finding jobs.

The economy is not creating jobs. We’ve lost 1.7 million jobs over the past year in the United States thanks to this recession. And in the past couple of months about 350,000 people have left the labor force, which is the only reason that the unemployment rate isn’t higher. So these numbers show a very, what we would call a stagnant you, a period of stagnation in the U.S. economy, which is really worrisome because it does presage, as your previous speaker said, a return to the jobless growth of the early ’90s. We have to remember that there were almost three years of economic growth with no job creation and very high unemployment rates in this country.

MARGARET WARNER: So, Professor Montgomery, we are starting to read in op-ed pieces and analysis pieces on the business pages at least speculation about a double-dip recession. What are the signs of that? And do you see the signs now?

ED MONTGOMERY: Well, the last time we had a double-dip recession was in 1980 – was when we came out of President Carter in to President Reagan.

MARGARET WARNER: And just explain that briefly.

ED MONTGOMERY: A double dip recession — a normal recession the economy goes down and then comes back into what we generally call something of a v-shape, a fairly sharp decline and then a fairly sharp rise, rebound, recovery for the economy. When people worry about a u-shaped recession, rather than going sharply down, we go very slowly down, more like a u-shape and then the economy doesn’t have enough momentum quite to get over the hill and to have a strong recovery and then slips down at the second dip. You can think of it sort of like a roller coaster ride.

A steep down brings a steep recovery; a slow decline can lead to risk of a double dip. The concern here is with the slowdown in growth and in GDP, the consumer confidence, the decline in the stock market, the concern about what’s happening abroad. Remember Latin America is embroiled in currency problems in Brazil and Argentina. And so there are lots of risks that we won’t quite have the momentum to make it over the hill and have the upward climb in the economy.

MARGARET WARNER: Do you see the danger Ms. Shaber, of a double-dip recession here?

SANDRA SHABER: Certainly the last couple of weeks the signs have been weaker and weaker. Manufacturing, for example, is a big disappointment. The recession in that sector started long before the overall recession. And it looked for a while as if factory jobs were being added; there were other signs of vigor in the manufacturing sector, but no more. There are weak signs now. So there is a bigger risk now of extended weakness and even the double dip that Ed was describing. Things do look more precarious than they did a few weeks ago.

MARGARET WARNER: Professor Frank, one, assess the risk of a double dip here and also, what will tell us if we are really heading into that?

ELLEN FRANK: Well, I think there’s a good possibility of a double dip and if not a real another dip, then at least a period of stagnation and low growth. One of the problems I see is that business investment, as I said earlier, is very weak with the situation in the stock market, with all the corporate scandals, banks are afraid to make loans, the financial markets are very skittish, and that doesn’t bode well for a return to high investment levels. A lot of industries that were fueling the investment boom of the late 1990s are now in serious trouble, like the telecom industry and electronics and the dot-com industry.

So I see a lot of possibility for a period of stagnation. We add to that the fact that we’ve just begun to feel the effect of cuts in state and local government budgets, which are just now actually doing the layoffs and cutting the spending in the past couple of months as they get their budgets together. So we could see quite a bigger effect from that in another three to six months down the road, and that would certainly slow the economy down if business investment doesn’t pick up.

MARGARET WARNER: Professor Montgomery, how do these numbers and the rather gloomy assessment from all of you jibe with what Alan Greenspan, the Fed chairman, said just two weeks ago when he said that he felt that fundamentals are in place for a return to a sustained economic growth, that we thought we were poised to have 3.5 to 4 percent growth through the end of the year. Are the fundamentals something different from what we are talking about here? Have things deteriorated?

ED MONTGOMERY: I think the fundamentals that Chairman Greenspan would point to are very strong productivity grow, low inflation, relatively low interest rates. All those are positive things; those are the kinds of things that in the long run give you sustained kind of growth. Whether those kinds of signals are enough in the next month, quarter, six months, to turn us around to avoid that second dip, I’m not an optimist. He is an optimist.

MARGARET WARNER: Ms. Shaber, is that the difference that you see, that he may be talking about more long-term factors?

SANDRA SHABER: I think there has been deterioration in the last few weeks since Alan Greenspan spoke. I would like to pick up on a couple of things that Ed said, and it helps explain some of the paradoxes we’re seeing in the economy. We have almost deflation in some sectors, in goods, for example. We have extraordinarily low interest rates. That’s one of the things that is helping consumer spending hold up.

Those people who have jobs, who have been able to keep their jobs, or find new ones, have had a very strong gains in purchasing power. And with low interest rates and home refinancing, home equity loans, zero rate financing in the car market, that is holding consumer spending up. And I think it’s at least a sign of some reason for optimism in the next few months. But I agree with everybody else. The economy looks much shakier than it did just a few weeks ago.

MARGARET WARNER: All right. Thank you all three.