The real campaign for president is under way. There are many issues that will come up during the presidential campaign — including the current ones from the Middle East — but the economy is likely to remain right at the top of the list.
Former President Bill Clinton’s speech at the Democratic convention had an interesting idea that has stuck with me. Do the arithmetic. So let’s do some arithmetic.
Former Gov. Mitt Romney, the Republican standard bearer, frequently says there are 23 million people in the country out of work. So where does that number come from? It comes from doing the arithmetic using the labor force and what the Bureau of Labor Statistics (BLS) calls its U-6 unemployment rate.
The BLS keeps a list of “alternative measures of labor underutilization” of which the U-6 rate is the most extensive. It covers just about every situation. The U-6 rate includes “the total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force, plus all persons marginally attached to the labor force,” the BLS says.
In July, that U-6 unemployment rate was 15 percent. There are about 154 million people in the labor force. So 15 percent of that number is 23.1 million.
Romney is correct, according to the arithmetic.
The U-6 rate peaked in January 2010 at 18 percent. So in that month, the total unemployed, underemployed, or marginally attached to the labor force was nearly 28 million — the labor force stays fairly consistent around 154 million. Those were the darkest days of the recession when the unemployment rate was hovering around 10 percent.
Romney also said in his acceptance speech that 12 million new jobs would be added during a Romney administration. That would mean that beginning in January 2013, about an average of about 250,000 new jobs would have to be added each month to get to that level by the end of the 2016. That’s not an impossible number, but unlikely given the current sluggish pace of job growth faced by both candidates.
Most political pros say President Obama’s re-election chances would improve if the unemployment rate fell below 8 percent. There are only two employment reports left before the election – one is the Friday before Election Day— so there is not much chance of that happening. But using the jobs calculator at the Atlanta Federal Reserve Bank we can do some arithmetic and come up with a number. It would take the economy producing an average of 263,333 new positions a month over the next two months to get the unemployment rate to 7.9 percent.
With only 96,000 jobs added last month, getting to 7.9 percent unemployment is nearly mathematically impossible. As Clinton said, do the arithmetic.
Another element of the election that arithmetic can help us with is expectations. For either Romney or Obama to have much success with the economy over the next few years, the pace of job growth will have to accelerate considerably. The jobs calculator again helps us.
In order to get to 6 percent unemployment in the next two years, the economy will have to produce an average of nearly 232,000 new positions each month. To get to 6 percent unemployment by October 2016, when the next presidential race will be in full swing, the economy will have to produce an average of 168,000 jobs a month. As president, either candidate will face an uphill battle to do much about the economy and joblessness over the foreseeable future.
Of course, that presumes that presidents can even create jobs. Government generally can make changes in taxes and policies that can affect how businesses are run, but they rarely if ever affect how businesses grow. That’s largely the function of demand — consumers make up about two-thirds of the economy, so what consumers want has the largest impact on how and when businesses grow.
Paul Krugman had an interesting column in The New York Times on Thursday (Sept. 13) about the iPhone effect. Sales of the new iPhones could push gross domestic project up by half a percentage point or more in the final two quarters of the year. Demand for Apple products is what drives any increase in Apple employment.
The average monthly job gains have been about 139,000 so far this year. If payrolls expand at this pace for the rest of the year, 2012 job creation would stand at about 1.7 million jobs. This would be below the 1.8 million increase in payrolls for 2011, according to Washington state's Economic and Revenue Forecast Council.
The state’s economy is reflecting what is happening nationally, with a few important differences. On Wednesday, the state Employment Security Department said the unemployment rate for the state rose to 8.6 percent in August from 8.5 percent in July. The department also said non-farm employment dropped by 1,100 positions, the second month in a row for job losses. But at the state level, these numbers are notoriously shaky, often based on seasonal adjustments that might be out of whack for one reason or another.
The important difference for the state is that while the state lost employment, there were job gains in key industries — construction, manufacturing and financial services. The state’s report also makes the case for a demand-driven economy. Those areas dependent on consumer demand — wholesale and retail trade for example — were among the areas that showed large job losses in August.
The Seattle-Bellevue-Everett metro area also saw the unemployment rate rise to 7.7 percent from 7.5 percent in July. But the Seattle area itself may continue to do better than the rest of the state. Figures from the city of Seattle budget office show the city doing much better than the state and the nation as a whole.
“Since the end of the Great Recession, employment growth in the Seattle Metro area, which includes King and Snohomish counties, is up 6.6%, compared with the rest of the United States at 3.1% and the rest of the State of Washington at 1.9%,” according to a news release from the office of Mayor Mike McGinn. “Taxable sales growth from the First Quarter of 2010 to the First Quarter of 2012 in Seattle is 13.2%, compared with the State of Washington at 6.3%, King County at 8%, and Tacoma at 8.2% over the same time frame. Activity in the construction, technology, tourism and the housing sectors accounts for much of this growth.”
For the state, the Economic and Revenue Forecast Council said, “Recent developments at the state level have generally been a bit stronger than expected in the June forecast. Employment growth in recent months has slightly outpaced the modest growth we expected in June. Personal income is tracking above our forecast in early 2012 due mainly to very strong wage growth in the first quarter. Housing construction was stronger than expected in the second quarter and Seattle area home prices are now higher than in the previous year. The strengthening housing market is also reflected in the recent Seattle consumer price index data where rising rents are driving Seattle inflation above the national average. On the downside, Washington exports have weakened considerably due to slower growth overseas.”
That last item is important. One of the most overlooked recent stories that could affect the Washington and national economies was the buildup of inventory in China. There is a growing buildup of unsold goods that could produce a ripple effect throughout China and the rest of the world.
A slowing Chinese economy could affect more than just goods. Services could be impacted as well. Washington architectural and legal firms have done great business in China over the past two decades. Remember, selling an idea for a new shopping center in Chongqing can generate jobs and profits here as easily as selling a new airplane.
The latter is of course more about the calculus of the election than arithmetic. With China (and all Asia) slowing, the continuing slow-to-no growth in Europe, sluggish job growth, an economy growing at only about 2 percent a year, and the dreaded fiscal cliff, neither candidate can count on much economic growth this year and well into the next administration.
For both President Obama and Governor Romney it just doesn’t add up.