We've Been Jobbed!

The December 2016 jobs report - the last one that will print during President Obama's time in office - was a mixed bag: non-farm payrolls rose just 156k, less than expected, but there were upward revisions to the October and November gains.  The jobless rate edged up a tick to 4.7%, still very low historically.  The brightest spot was wage growth, which hit 2.9% year-over-year, the first decent number since the recession.

Yahoo Finance placed a different spin on the report.  It printed an article titled, "President Obama's Legacy Has Just Been Cemented."  Hmmm.  Rather than accepting at face value an attempt by a left-leaning internet "news" source to salvage one piece of the outgoing Democrat President's now-threatened legacy, let's look at the numbers and the facts, shall we?  Point by point, we'll debunk the Yahoo Finance (YF) puff piece.

"75 consecutive months of job gains."

Can't argue with that one.  However, read on.

"Wage growth acceleration."

To justify this assertion, YF presents a graph showing average wages since 1980.  They then unabashedly mine the data, showing that wage growth averaged just 0.1% per year from 1980 to 2007, but it's been 1.3% since 2012.  Sounds impressive, right?

Except the period from 1980-2007 included three full recessions and parts of two more, yet YF conveniently starts the recent growth trend well after the most recent recession ended.  Why not compare wage gains from the time President Obama took office?  Or compare the recent growth spurt to other periods of strong growth in wages?  The fact is that wage gains have been an anemic trouble spot for the labor market from the end of the recession until about 2014, and only then have they picked up.  When it comes to data mining, if you torture the data long enough, it'll confess to anything.

"Full-time job boom."

 Attempting to refute the claims that much of the job growth we've seen since the recession ended has been "lower-quality" jobs, YF presents a graph comparing growth in full-time vs. part-time employment.  They note that full-time jobs have grown by 13.7 million since December 2009 (again, conveniently excluding the decline in full-time employment from President Obama's inauguration until December), while part-time jobs have grown by only 420,000.

Not so fast.  Those who argue that the jobs we've added are of lower quality than those lost during the recession base that argument on the U6 rate, which by definition is "Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons."  In other words, it's not only those out of work plus those working part-time because they want full-time work but can't find it.  It's those that are flipping burgers at McDonald's when they'd rather be making mortgage loans, like they used to, which accounts for a large measure of job replacement and gains since the recession.

The U6 rate has definitely improved since the recession.  However, it remains at 9.2%, nearly double the headline unemployment rate (it was below 8% before the recession).  And, like the headline rate, a big part of why it's come down is that the labor force participation rate has fallen from 65.8% in February 2009 to 62.7% - the eighth-lowest level since 1978 - in December.

What does that mean, and why is it important?  It means that the percent of the population that is working or actively looking for work has declined by more than three percentage points during that span (that translates to about 7.3 million people).  Since the number of those working has increased, that means the number of those looking for work has declined precipitously.  Why?  Simple: they've given up looking, unable to find jobs.

Why is the number important?  It's a key determinant in any measure of unemployment.  The headline unemployment rate is those able and willing to, and actively looking for work, but unemployed, divided by all of those able and willing to work.  If you're not willing, you aren't counted in the participation rate, so you fall out of the jobless rate equation.  The same is true of the U6 rate.

In other words, as the number of discouraged unemployed - those who've given up looking for work - increases, driving the labor force participation down, both the headline unemployment rate and the U6 rate look better and better.  Statistics are like a bikini; what they don't reveal is often more interesting than what they do.

"Outpacing the rest of the developed world."

YF goes on to note that job growth in the U.S. has exceeded that in the rest of the G-7 combined (this point was also touted on CNBC Friday morning by the outgoing Labor Secretary).  Again, can't disagree.  However, it must be noted that the U.S. population is more than double that of the next-largest G-7 country, and is nearly equal to the combined populations of the other six members.  Still, it's true that even on a relative basis our job growth has outpaced countries like Japan, which remains depressed, and Italy and France, whose economies remain stagnant.  But it's a bit of a misleading argument without comparing the relative populations, labor force participation rates, and myriad other moving parts that influence one nation's job growth vs. another's.

YF led the piece with a statement that "Since the beginning of 2010, 15.8 million private sector jobs have been added to the economy."  "Since the beginning of 2010" - again with the data mining.  Let's look at some real numbers.

During the recession, a total of about nine million jobs were lost, counting only those months from July 2007 through September 2009 in which nonfarm payrolls declined.  During President Obama's tenure, the total gain in nonfarm payrolls was indeed about 15.8 million, counting only those months in which payrolls increased.  So we replaced the nine million jobs lost, and gained another 6.8 million.  That's very different from gaining 15.8 million jobs from a starting point of zero.  (The first 20 months of President Obama's tenure saw 16 months of job losses, totaling about 4.6 million jobs.)

If you average the net new jobs under President Obama's tenure over the 95 full months he's been in office, you get an anemic average monthly growth rate of about 71,000.  Hardly impressive.

However, none of my points above should be misconstrued as an argument that "President Obama hasn't created enough jobs."  Politicians don't create jobs, demand does.  There are three ways a President can foster job creation:

1.  Expand government employment, which brings with it a host of disadvantages, including larger deficits.  To his credit, federal employment has declined under President Obama - yet that actually makes him a job-cutter, not a job creator.

2.  Jawbone individual companies to hire workers or keep them in the U.S.  This is a pretty novel approach, and one that's been employed recently by President-elect Trump.  It's been somewhat effective, but it's a drop in the bucket.

3.  Foster an environment conducive to job creation.  Cut regulations, cut corporate and individual taxes, control health care costs, and otherwise get the hell out of the way of the private sector so it can do its thing.  Putting more money in individuals' pockets - whether from lower individual taxes or lower health care costs - will encourage them to spend, increasing demand, which increases jobs.  Cutting corporate taxes will make the U.S. more competitive relative to countries like Ireland, which has wooed away hordes of U.S. jobs since it slashed its corporate tax rate.  That's more employees in the U.S., with money to spend - again increasing demand, which creates even more jobs.  Cutting regulations (not to a ridiculous extent, just to a sane one) makes it easier for companies to do business, and if they can do more business, they'll need to create more jobs.

The first two means above are direct means, the third is indirect.  Regarding that point, has President Obama done any of those things?  Corporate and individual tax increases.  Increased regulation (Dodd-Frank, CFPB, etc., ad nauseum).  Obamacare, with its skyrocketing premiums.

Nope, nope and nope.

Can we really argue that the most business-unfriendly President of my lifetime has been the reason for any meaningful improvement in the business sector?

The bottom line is that it's fallacious to attribute job growth, stock market gains, GDP growth or any other economic metric directly to a President during his tenure.  There are too many moving parts, too many variables.  For example, do you think the Fed's zero interest rate policy and quantitative easing for nearly seven years might have something to do with economic and market performance under President Obama's tenure?

Also, there are lags between the implementation of policy (fiscal or monetary) and the effects of those policies.  The economy surged under President Clinton's watch, and the deficit turned into a surplus - in no small part due to the end of the Cold War under Reagan and Bush I, which paved the way for massive cuts in defense spending under Clinton.  It's taken several years for the Fed's low-rate policy to get the economy to the point where it can stand on its own, without life support.  And it's taken several years for the feared premium increases under Obamacare to rear their ugly heads.

So yes, we've seen considerable job growth since President Obama was sworn in, and a huge run-up in stock prices (even before the recent rally, which is a direct result of the market's hopeful expectations for a business-friendly administration).

But it's important to understand the distinction between coincidence and causation.  I've also gained weight since President Obama took office.  Does that mean he made me fat?