Here’s the quote from The Wall Street Journal:
The U.S. unemployment rate in April hit 8.9 percent, its highest in a quarter-century, the Labor Department said Friday. But the pace of job losses slowed, in new evidence the economy was no longer deteriorating as quickly as it was earlier this year.
The labor force lost 539,000 nonfarm jobs in April, down from March’s 699,000 decline. A 72,000 rise in government jobs, mainly new workers for the 2010 census, helped narrow the gulf.
“We’re heading in the right direction, but this is going to be a long, hard slog,” said Zach Pandl, economist at Nomura Securities.
That is a stunning number, being the highest unemployment rate since 1983. Yet almost every commentator says it’s good news because the rate is decreasing. Here’s what they see:
But is it really decreasing? If you look at the numbers, the federal government hired 66,000 workers as temporary workers to do the 2010 census. Government workers as a whole comprise about 17 percent of the total workforce. I don’t count this as employment since they are paid with tax dollars and these workers do not generate wealth, as do private employees. Without private workers there would be no government workers.
Other commentators have noticed this fact, as well as the fact that the “seasonal adjustment” deducted about 65,000 workers from the unemployment figures. Will April’s numbers be readjusted as well? The commentator on Naked Capitalism noted that:
Now notice how, once again, previous months’ figures have been readjusted. This time, the readjustments weren’t so bad — a mere 30,000 more unemployed in February, turning that month’s official totals to 681,000, and another 30,000 for March, making that month’s official number 699,000, just shy of that magic 700,000 monthly number.
Is unemployment rising or starting to rise less? Could it be that the Bureau of Labor Statistics is trying to make things look better and then readjust them when they think no one is looking? I will stick to my guns and say it will continue to rise.
I think this recession has more shoes to drop. There is still a substantial amount of debt out there, mostly held as Asset Backed Securities that is going into default. The numbers on this are huge and are just starting to stick their heads up, especially commercial real estate loans.
The very big assumption is that fiscal stimulus will create jobs. If the government spends the many billions of dollars that it says it will spend, it will result in higher employment in certain areas, mainly in civic construction. But the problem with these jobs is that they also must be looked at as being temporary. That is, when the spending stops, these jobs will eventually go away because they don’t result in a permanent creation of wealth. This has been the result in most countries that have tried to revive their economies with Keynesian stimulus. The main example, and the one that best resembles our current programs, is Japan.
The impact of government spending is what economists call the unseen versus the seen. If I tax away your money, or borrow so much on the open market that I cause interest rates to rise and “crowd out” private capital, what we don’t see is what you would have done with the money I spent. We can see the bridge that the government built but we don’t see the lost opportunities of the private sector that would have created real wealth and real jobs. These are real economic consequences noted by Adam Smith, Frédéric Bastiat, and many other classical economists.
Don’t be fooled by these “preliminary” numbers.
— Jeff Harding is a principal of Montecito Realty Investors LLC. A student of economics, he has a strong affinity for free-market economics. This commentary originally appeared on his blog, The Daily Capitalist.