Friday, July 30, 2021

Thoughts on the Recently Stagnant National Unemployment Rate

Click here to read the original Cautious Optimism Facebook post with comments

4 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff shares a few observations on the recently stagnant national unemployment rate.

Earlier this month the Bureau of Labor Services reported the U.S. unemployment rate held steady at 5.9%.

The Economic Correspondent pulled the unemployment rate numbers going back to the beginning of the pandemic and found some interesting results.

March 20 - 4.4%

April 20 – 14.8% (beginning of initial and most stringent lockdowns)

May 20 – 13.3%

June 20 – 11.1%

July 20 – 10.2%

August 20 – 8.4%

September 20 – 7.8%

October 20 – 6.9%

November 20 – 6.7%

December 20 – 6.7%

January 21 – 6.3% (Biden enters White House)

February 21 – 6.2%

March 21 – 6.0%

April 21 – 6.1%

May 21 – 5.8%

June 21 – 5.9%


Of note is that in the nine months from the beginning of lockdowns to Trump’s departure from office the unemployment rate fell 8.5 points from 14.8% to 6.3%.

In the five months since Biden has taken office the unemployment rate has fallen 0.4 points from 6.3% to 5.9%.

That’s a 21.25 faster reduction in the jobless rate in 1.8 times the number of months or a near twelvefold faster reduction in joblessness:

Trump: 0.94 points per month

Biden: 0.08 points per month

That said there are several mitigating factors that can be cited:

1) Trump had a much higher number to start with. It’s easier to reduce unemployment quickly starting at 14.8% than at 6.3%. In fact it’s impossible to reduce joblessness by 8.5 points from 6.3% since the unemployment rate would have to be negative.

Of course reducing unemployment from already low rates is exactly what Trump did during his term—from full employment of 4.7% in January of 2017 to 3.5% in September of 2019—the lowest rate since the 1960's and a feat the media and the Left/Democrats never gave him credit for.

However Biden has taken five months to reduce the unemployment rate by just 0.4 points. In Trump’s last month in office the unemployment rate fell by 0.4% (one month!) from 6.7% to 6.3%. So even with lower numbers joblessness was still plummeting quickly in Trump’s last weeks compared to Biden’s tenure so far which has stalled out.

2) One could argue “Biden hasn’t really made many policy moves. This is still mostly a Trump economy, so how can you blame Biden?”

Well it’s true Biden hasn’t been able to raise everyone’s taxes yet although he has reversed many of Trump’s deregulations since he took office. But Biden did promise that his $1.9 trillion stimulus package—far more loaded with goodies and handouts to political allies than even Trump’s two 2020 packages after Congressional Democrats held them up to get their own pork added—"will strengthen our economy” and his Council of Economic Advisors Chairman Jared Bernstein argued it would “hasten the return to full employment.” (NBC News quote)

Well Biden got his $1.9 trillion package passed and unemployment is doing precisely the reverse of what he promised it would do. Instead of falling faster or even at the same rate as during Trump’s final month, the reduction in the jobless rate has not only slowed, it’s reduced to barely a crawl.

If anything where are the headlines?

3) BTW in a pre-emptive move Biden’s Treasury Secretary Janet Yellen sold the $1.9 trillion stimulus by arguing that without it the U.S. unemployment rate might not reach pre-pandemic levels (4.4% before the crisis) until the year 2025.

Well, talk about setting the bar really, really, REALLY low—giving themselves nearly five years to reduce the unemployment rate by just 1.9 points. 

Even during Obama’s snail crawl to full employment, the second slowest in over 200 years of American history and only four months faster than the Great Depression's, it only took 22 months to reduce joblessness by 1.9 points to full employment (6.9% to 5.0% from November 2013 to September 2015), but Yellen says it could be nearly five years from February 2021 to as long as December 2025?

Incidentally if Biden gets everything he wants—personal, corporate, capital gains, and estate tax hikes, a slew of new regulations, green infrastructure, debt forgiveness, $15 minimum wage, you name it—I’d bet money that we’ll never see pre-pandemic (ie. 4.4%) unemployment levels during his tenure with just one exception: he lucks out and the Fed is able to blow another temporary asset superbubble such as the dot-com stock market bubble of the late 1990’s or the housing bubble of the mid 2000’s, or the Go-Go stock market bubble of the late 1960’s—three of the only four times unemployment has fallen to or below 4.4% since Eisenhower, the fourth being during Trump’s presidency when there was no obvious superbubble.

And we know what happens shortly after the Fed blows up temporary superbubbles. The late 1960's stock market, 1990's dot-com, and mid 2000's housing bubbles all burst and sent the country into recession, the 1970's and 2008 being particularly harsh ones.

But back to Yellen lowering the bar, obviously the plan was in case their “recovery” package underdelivered they could argue an unprovable counterfactual: “Well without it we wouldn’t have reached pre-pandemic levels until until 2025.” 

2025: by which point they would either be safely back in power for another four years or kicked out, in both cases when it would no longer politically matter how wrong they were. Meanwhile the “no pre-pandemic employment until 2025” scenario was just made up out of thin air to pad any potentially dismal performance.

4) One could also argue “Well a lot of people have left the workforce so the unemployment rate really isn’t as low as 5.9%.” 

The Economics Correspondent wont’ argue with that, but the pandemic and lockdown-related phenomenon of driving people from the workforce was already well in play during the Trump administration as well as during Biden’s first five months so both presidents have had to contend with it fairly equally. Yet under apples-to-apples conditions unemployment plummeted in Trump’s last nine months and is stagnant under Biden.

5) Also Trump didn’t have the advantage of mass vaccinations that have helped America regain a great, if not complete semblance of normalcy. 

Shots were just beginning to go into arms in December of 2020, yet by June of 2021 nearly half of all Americans—including the lion’s share of the most vulnerable ones—were fully vaccinated and over half had received at least one dose.

Things have been a lot closer to normal and much more open under Biden, but the job results are worse.

One more observation: The BLS also publishes unemployment rates by state + District of Columbia.

Of the ten states + DC with the highest unemployment rates, all ten are solid blue:

New Mexico (7.9%)

Connecticut (7.9%)

Nevada (7.8%)

New York (7.7%)

Hawaii (7.7%)

California (7.7%)

New Jersey (7.3%)

Illinois (7.2%)

DC (7.0%)

Pennsylvania (6.9%)

Of the ten states with the lowest unemployment rates, eight are solid red, one is a battleground state (New Hampshire), and one is blue.

Nebraska (2.5%)

Utah (2.7%)

New Hampshire (2.9%)

South Dakota (2.9%)

Idaho (3.0%)

Vermont (3.1%)

Alabama (3.3%)

Kansas (3.7%)

Montana (3.7%)

Oklahoma (3.7%)

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