The state of the economy is dependent on who’s doing the talking — the politician or the economist. Personally, I’ll take the word of the economist anytime.
The politicians will invariably paint the rosier picture in an effort to make himself look good. On the other hand, what economists tell us should also be accepted with a bit of caution at times. One must be especially alert for conflicts in the statistics they give us.
A case in point jumps out immediately. In my research for this week’s column, I found a glaring conflict of information regarding the unemployment rate in the Mountain State. One document articulates an unemployment rate of 5.2 percent, while another from the same source says it is at 4.1 percent. Which do you believe? I suppose it all depends on how optimistic you want to be.
As I compared the documents closely, I also found several other conflicts in the information, all of which supposedly came from the same office and were compiled for January 2008. Oh well, guess we can’t all be perfect.
The “big debate” now is whether or not we are in a recession. Leading economists tell us that we never know whether we are in one until we’re already in and have been for a couple of months.
A recession, as defined by the National Bureau of Economic Research, a private non-profit research organization, is a sustained, diffused and significant decline in the level of economic activity. Let’s take a closer look at each of the key terms.
Sustained: A recession must be sustained for some minimum period of time, which is left unspecified by the NBER. The gist of this requirement is that a recession must last longer than a month or two. In practice, the shortest national recession during the post-World War II period lasted six months— from January 1980 to July 1980. The average recession during the post-World War II period lasted 10 months.
Diffused: A recession must be diffused through most sectors of the economy. Thus, a downturn in one industry (i.e. construction) would not be sufficient. The impact of this requirement is that the NBER uses a variety of indicators of aggregate economic performance, such as total jobs, real income, production and spending.
Significant: A recession must involve some minimum degree of decline, which, also, is left unspecified by the NBER. In practice, this means that in order for an economic downturn to be classified as a recession it must be at least as large as the smallest previously defined recession.
Level: In defining a recession, the NBER looks for a decline in the level of economic activity. Thus, a growth slowdown, such as a decline in the growth rate from 4.0 percent to 2.0 percent, would not qualify as a recession. Anyone understand this?
By these standards, are we there yet? Let’s look at the information disseminated in the latest West Virginia Business & Economic Review, published by the Bureau of Business and Economic Research, as well as some information from other sources around the nation.
According to the BBER, the goods-producing sector (sum of mining, construction and manufacturing) lost 1,000 jobs during the past year, while the service-producing sectors combined to generate 5,700 new jobs. Job losses in the goods-producing sector were driven by 1,500 job losses in manufacturing. Construction employment was flat and natural resources and mining rose by just 500 jobs. Growth decelerated significantly in construction during the last year, as the state began to feel the effects of the housing correction. Job growth in natural resources and mining also decelerated during the last year, as coal production and employment responded to slowing national growth, rising costs, regulatory uncertainty and increasingly challenging geological conditions.
Manufacturing employment continued to decline during the past four quarters, with job losses concentrated in durable goods. However, nondurable manufacturing jobs declined as well. Manufacturing job losses are related in part to slowing national growth as well as intense competitive pressure from rivals around the country and around the world.
The BBER forecast predicts that only 2,600 jobs will be added over the next year, which is dangerously close to no growth and suggests that the state will flirt with recession during the next year. It also states that job growth in the goods-producing sector is expected to decelerate significantly. The forecast calls for coal mining jobs to remain in the neighborhood of current levels — 19,000 and 18,000 during the next five years — with coal production to remain in the 150 million to 153 million tons per year range, also for the next five years.
As usual, the forecast predicts the service-providing sector to drive net employment gains. The largest job gains are expected to come in health care, leisure and hospitality, and professional and business services. These three sectors combined are expected to add 3,900 jobs per year during the forecast period. Government, trade, transportation, utilities and financial activities are also expected to add jobs during the next five years, although at slower rates.
According to David Leonhardt, a news analyst for the New York Times, the national unemployment rate fell to 4.8 percent in February from 4.9 percent in January, but only because more people stopped looking for work and thus were not counted as unemployed by the government.
Over the last year, he wrote that the number of those officially unemployed has risen by 500,000, while the number of people outside the labor force — neither working nor looking for a job — has risen by 1.3 million.
According to the Labor Department, employment has risen by 100,000, but even that comes with the caveat that there are 600,000 more people working part time because they could not find full-time positions.
On March 7, the Labor Department estimated that the nation lost 63,000 jobs in February. It was, according to the report, the second consecutive monthly decline and the third straight drop for private-sector jobs.
Now, are we in a recession or not? It would seem to the untrained that we are. The politicians say we aren’t, for obvious reasons. Most economists say if we aren’t, we’re very close. Others say we very well may be but won’t know for sure for a while yet.
I suspect there is little doubt in the minds of those who have lost their jobs and are desperately searching for work — any kind of work.
While we’re on this gruesome subject of our economy, here are some more gut-wrenching numbers. According to the National Debt Clock, the outstanding national public debt as of Wednesday at 2:26 p.m. was $9,399,585,133,725.46. The estimated population of the United States is 303,608,940, making each one’s share of this staggering debt $30,959.51. The national debt has increased an average of $1.69 billion per day since Sept. 29, 2006.
According to The American Economic Alert Web site, at 10:40 a.m. Wednesday our U.S. trade deficit stood at $138,732,111,144.85, and increases at a rate of about $23,000 per second. We keep hearing so much hype about our trade deficit — is it any wonder it’s so staggering when everything is made outside the United States?