Expect jobs figures to be bleak. But the US economy is showing signs of life

http://www.guardian.co.uk/business/2012/nov/01/jobs-figures-us-economy

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On Friday, the October employment numbers will be revealed, and they are not expected to be particularly good. In four days, Americans will vote on a president.

The connection of these two events cannot be ignored. The political punditry has widely speculated that no matter how the economy is going, voters will make their decision for a new president based on their views of the economy – that President Obama will have a harder time if the jobs numbers are bad, and Governor Mitt Romney may get a boost.

This would be a mistaken way to cast a vote. In economics and psychology, there is a phenomenon known as "recency bias," which we've all experienced even without knowing it: the most recent thing that happens seems to have the greatest effect on the future, whether it is actually important or not. For instance, if your brother-in-law borrows money and pays it back every time except the last one, it's the last time that will influence you to think that perhaps you would be unwise to lend money to your brother-in-law. In other words: our whole view of track records is skewed.

So by election day, the most recent jobs report has a psychological impact that is pretty big, because it's the last thing about the economy we will remember as we go out to vote.

There is little doubt that tomorrow's jobs report will be negative news, even if it adds jobs, as many expect. (Barclays, for instance, advised its banking clients to expect a modestly positive jobs report this week.)

The news will be negative, no matter what, because the employment snapshot of America, as a whole, is so bleak. As University of Maryland professor Peter Morici pointed out in a report this week, "the jobless rate has fallen mostly because 6 milion adults have chosen not to look for work. [Except] for this phenomenon, the unemployment rate would still be 9.7%. More than 8 million part time workers would like full time work but can't find it. Adding in those folks, the unemployment rate is 14.7%."

What is remarkable is that the employment statistics stay stubbornly low while, elsewhere in the economy, there are signs that a true recovery may be stirring. Barclays analyst Pierro Ghezzi wrote a note this week titled "Tentative Signs of a Recovery," which concluded: "On balance, recent global economic releases have been stronger than expected, appearing to confirm that global economic activity is picking up, albeit modestly." He included the US in that estimation, saying that the economy was "at a crossroads," but that there were positive signs of growth for the next three months.

There are other economic indicators that give us a clearer view of the U.S. economy as a whole and how it's doing right now.

These indicators tell us that the labor market is strengthening as productivity increases and workers pick up high-wage jobs as well as the low-wage ones; that consumers and businesses feel more optimistic; that they're looking to buy real estate and cars and going to banks for the money to borrow to make those purchases. They tell us that manufacturing - brought low earlier this year – is rebounding a bit; that personal income is increasing at the fastest pace in six months; that consumers are spending money in stores, resulting in better retail sales; and the housing market is strong enough that homebuilders are seeing their stocks rise and new home sales are rising fast.

Of course, not everyone's in on this recovery surge. Businesses have been putting in lower orders for good. Other indicators also tell us that companies have been holding back in other ways this year, worried about issues like the fiscal cliff and the outcome of the election. The vastly different political implications of an Obama administration or a Romney one have caused some companies to hit the brakes until they decide how to proceed. Companies have not been growing their earnings like they used to. Peter Tchir, of TF Market Advisors, summed it up: "Earnings suck. I was looking for a kinder word, but I think 'suck' works. Companies are missing the already lowered expectations and are almost universally less excited about next quarter."

While that doesn't sound like good news – and it isn't, for those who own the stock of those companies – it does indicate, if you're an optimist, that there's lots of room for improvement. Tchir, for instance, pronounced himself reluctant to go "bearish," or have a negative view on the economy. Barclays believes that economic growth will continue, and many other economists and analysts agree.

The improvement in so many other economic indicators, while employment numbers remain dismal, may be an indication that the employment numbers don't really help us judge our current economy as well as we wish they would.

Employment numbers are what is known as a lagging economic indicator, because they don't indicate how the economy is doing now; they indicate, at best, how it was doing, a month ago or even a few months ago. The reasoning for calling employment an lagging indicator is easy to understand: by the time people lose their jobs, things are already pretty bad. And when things start to pick up, jobs aren't the first sign that things are changing.

It also doesn't help that the actual jobs and employment numbers are infamously vague and not tremendously informative. There are two main sources: the bureau of labor statistics, which is the much-watched government report, and payroll provider ADP, which is generally seen as a supplement to the BLS report but is taken less seriously.

These numbers could make your head spin with their unreliability. ADP, for instance, released its employment report today. It said that in October, the economy added 158,000 jobs. That seems like good news, particularly because the prevailing expectation was for 135,000 jobs.

But in that same report, ADP said that it had revised September's numbers, and they were much more disappointing than it had first thought.

ADP said they were only 88,200 jobs added in September, after previously saying there were 162,000 jobs added. That's a big error.

Similarly, the Bureau of Labor Statistics says it can regularly be off the mark by 100,000 jobs in its monthly estimates. When the economy is barely adding that many jobs in the first place, that's another huge area of potential error.

But perhaps the biggest economic data point that voters can take into the voting booth is this: the president, while having tremendous power over legislation, does not control the economy alone. He (or some day, she) depends on Congress, the Federal Reserve, small-business owners, corporations and even other countries to help support the American economy.

The biggest fallacy of any election is that one man can cause, or fix, all of our economic ills.