JULY 5, 1996
The 5.3 percent jobless rate announced by the Labor Department today marks the lowest unemployment level for the current economic recovery, which is now in its sixth year. And in another indication of economic vigor, Labor Department data show almost 240,000 jobs were created in the month of June. Our economics correspondent Paul Solman of WGBH-Boston is joined by two analysts to discuss what these figures mean.
July 3, 1996: Paul Solman looks at the role of the Federal Reserve in today's economy.
June 7, 1996: the NewsHour reports on what kinds of jobs are reflected in the job creation numbers.
May 3, 1996: Margaret Warner talks to experts about what positive employment and income figures mean about the state of the US economy.
More NewsHour coverage on the economy.
PAUL SOLMAN: Joining me to discuss these numbers and what they mean our Roger Brinner, chief economist at DRI McGraw-Hill here in Boston and in New York Audrey Freedman, an economist with a management consulting firm there. Thank you both for coming in. So Roger Brinner, first to you. There were two numbers that came out today, the payroll survey and the household survey. First, just explain to us what those numbers are.
ROGER BRINNER, Economist: (Boston) A household survey and the payroll survey both come from the Labor Department. The payroll survey asks employers how many new people are working for you, and they responded, just under 240,000.
PAUL SOLMAN: So how many people are on your payroll? That's why it's the payroll survey.
ROGER BRINNER: That's right.
PAUL SOLMAN: Okay.
ROGER BRINNER: So American families responded to a different set of surveyors and said just about 150,000 more of us are at work in June than were at work in May.
PAUL SOLMAN: Well, now Audrey Freedman, with the second number from the household survey, they go around and ask people, are you at work or not, and here we had a plunge today of unemployment, i.e., from 5.6 to 5.3 percent. What's that about?
AUDREY FREEDMAN, Economist: (New York) Well, we also had a plunge in the number of people who said they were either looking for work or working. So the labor force really isn't growing this month, although it's been growing all year. But the unemployment rate isn't the most important one. It's the payroll data, and payrolls added almost 240,000 jobs. That was much more than it was expected. Most of those jobs were in services, all kinds of services. I think mostly those jobs were connected with tourism, and they tell me that there's a great deal of consumer optimism also in the economy right now.
PAUL SOLMAN: But let's stay with, if we can, the unemployment number, because that's where at least on the wires the big news is huge drop and lots of people look at that number. Now you may well be right that it's not the number we should be looking at, but a lot of people are going to look at it. Roger Brinner, what does this 5.6 to 5.3 mean or not mean?
ROGER BRINNER: It tells us that students were still at school, and when the surveyors came to their homes and asked the mother or father how many workers do you have in your household? They said we only have one, my son or daughter is still at school. Now the seasonal adjustments that our Labor Department does take out a whole number of new workers that are supposed to show up in June because the survey came a little before the end of school this year which was unusual. It didn't find these students unemployed, waiting to start their next job or looking for a job. It went ahead and subtracted a huge block of unemployed teenagers, and so it said that the number of teenagers in the labor force fell sharply from May to June. In fact, the decline in the number of teenagers was bigger than the decline in the whole labor force that Audrey talked about.
PAUL SOLMAN: Now, just wait a second. So you mean this--the number that we hear is a seasonally adjusted number, but they seasonally adjust it for something that didn't happen in this data season?
ROGER BRINNER: That's right. June was an exceptional month in 1996, and we didn't pick that up, so actually the unemployment rate moved down artificially. It will probably correct in July, and the stock and bond markets should not have panicked.
PAUL SOLMAN: Well, let's--we'll get to them in a second. I just want to make sure. Audrey Freedman, is that correct, what Roger Brinner is saying?
AUDREY FREEDMAN: Perhaps it is. In fact, the Labor Department already said about a month ago that they thought that labor force participation of young people was going to be lower this year than it was last year. So their seasonal adjustment is taking account of something that didn't happen. In other words, people aren't entering the labor force maybe because they stayed in school in the second week of June, which is unusual, as Roger says.
PAUL SOLMAN: Well, we had a lot of snow days.
AUDREY FREEDMAN: And maybe they're less encouraged to look for work this year as the Labor Department suggested last month.
PAUL SOLMAN: Yeah. We had a lot of snow days, certainly in New England, we had lots of snow days, and I know my daughter's school was extended a couple of days.
AUDREY FREEDMAN: And school may have extended, well, I don't know about a couple of days, but this survey's taken the second week of June. If kids were still in school and not looking for work, they were not in the labor force.
PAUL SOLMAN: And so they would have been adjusted for but they shouldn't have been?
AUDREY FREEDMAN: That's right. They were there but they weren't.
PAUL SOLMAN: So--
AUDREY FREEDMAN: They should have been there, were expected to be there, but did not come into the labor force yet.
PAUL SOLMAN: So no big deal to go from 5.6 to 5.3, and yet the stock market drops, what, 115 points today. It was abbreviated trading. I mean, it ended at 1 o'clock because of vacation, but is the stock market just nutty?
ROGER BRINNER: I think the stock market was following the bond market, which saw this decline in unemployment, expected inflation to follow a tight labor market, expected higher interest rates to follow higher inflation. The stock market said with higher interest rates, the prices of shares will go down. So there was a ripple effect based on a misunderstanding of that unemployment rate. That unemployment rate decline does not signal substantially higher inflation. It was a fluke.
PAUL SOLMAN: A fluke. Those are strong words. But we're talking about something, almost a 2 percent drop in the stock market, and that's--I figure out if you have $100,000 in a pension fund or something, that's $2,000 you lost today. Audrey Freedman, a fluke?
AUDREY FREEDMAN: Well, there's another element in the fluke, and that is the very big increase in payrolls.
PAUL SOLMAN: Right.
AUDREY FREEDMAN: And people look at that and say, well, now what's the Federal Reserve going to do? And they expect tightening, but actually that's good news and it's not going to lead to bad news in my mind. It's good news because it tells us that consumers have a good deal of confidence in the economy. As I said before, those were service jobs, they were temporary help jobs, they were engineering and management services jobs, which tells us that manufacturers are, in fact, continuing to contract out maybe even more. There may even be growth in manufacturing work but there are people working for temporary help firms, and so they're counted as service employees. Also there was a lot of tourism employment, a lot of growth in restaurants and bars and hotel employment and air transportation employment. All of that suggests that the economy is doing well and people are confident that it will continue to do so.
PAUL SOLMAN: Well, two nights ago we had a discussion on this show about the Federal Reserve and whether it should or shouldn't have tightened. It did not--it did nothing in its last meeting the other day. Does this mean that the Federal Reserve was wrong, or the Federal Reserve was smarter than Wall Street and realized that numbers like this wouldn't mean anything, and so they shouldn't be tightening to anticipate inflation?
ROGER BRINNER: I think they should have tapped the bricks after their July meeting, raised short-term interest rates by 1/4 percentage point because a 5 1/4 to 5 1/2 percent unemployment means we've got a seller's market, that wages are going to be rising more rapidly than they should.
PAUL SOLMAN: Seller's market for your labor union.
ROGER BRINNER: That's right. Your employer, potential employer is going to be bidding aggressively, because there aren't that many unemployed around.
PAUL SOLMAN: Well, we don't want to go back to the Wednesday discussion about the Fed, I don't think, but, Audrey Freedman, let's get you in. Do you think that this--today's numbers have any implication for what the Fed did or didn't do--didn't do on Wednesday and maybe should have done?
AUDREY FREEDMAN: Well, we, of course, do have a tight labor market for some kinds of occupations in some parts of the country, and, yes, of course, employers are going to raise wages for those particular jobs, like say truck drivers in the Midwest. They have to bid them back into truck driving or get them out of unemployment, whatever. But this doesn't affect all the other workers for that company, and it doesn't affect people all over the country. We don't have the wage imitation that we had two decades ago. When there is a shortage, yes, there will be raised wages just for those workers. It is not infectious. It doesn't infect the rest of the economy. I think the Federal Reserve knows this. And in addition, the Federal Reserve's motivation right now would be to duck any appearance of being political or being influential in the economy to the extent of having an effect on the election next November. So, you know, their inclination is not to do anything and just sit tight, unless something really serious occurs in the economy.
PAUL SOLMAN: All right. Well, that's all the time we have. Thank you both very much for being with us.
ROGER BRINNER: Glad to join you.
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