The Obama administration is out touting the Stimulus as causing a recovery, or at least averting a worse disaster. Is it time for Obama to declare Mission Accomplished? Perhaps he should have instead applauded the ability of the US economy to pick up from a deep drop, and kept himself out of the story. He risks jumping the shark.
Let’s first give him his due. We can all debate who gets credit when – my view in general is the prior administration gets tagged for the first year of the new one, so Bush was still to blame until a month ago! Yet the chart he put out is pretty interesting. It shows monthly job losses bottomed in January (the last red bar is actually Jan 2009) and began recovering. We are still losing jobs, just not as fast. A curmudgeon might note that the worst months started in Nov 2008 when Obama was elected, arguing businesses anticipated a change an policy and fired faster; but more likely it shows decisions made previously taking effect.
You will see a lot of Keynesian cheerleaders out, such as Brad Delong arguing the $100M a day interest cost of the Stimulus is really only $40M a day given the hypothetical Keynesian Multiplier effect (you’ll have to follow his logic to get there). Obama still claims he “saved” 2M jobs even as 8.4M have been lost so far, and well more than 2M have been lost since his blue bars above began shrinking towards zero monthly losses. His people can find only about 600K of them, most in Q4, which is similar to a hard estimate by the CBO of 640k new or saved jobs, although the CBO can “find” a possible million more by using those vaunted Keynesian multipliers in their estimates. This is certainly a better position to be in then their original claims of how the Stimulus would keep unemployment below 8%:
The problem with this cheerleading is it is premature. The data remain mixed. We seem to have what Forbes calls Two Economies: we have continued drop in employment and long-term unemployed that does not appear to be turning; and we have recovery of spending among the employed that is helping GDP. Total employment to population is not yet turning – it isn’t even flattening. See chart:
John Mauldin has taken to calling it the Statistical Recovery – in the case of unemployment, the chronic unemployed who drop out mean the statistical base of potential employed shrinks faster than job losses, so the rate improves!
My take is we have a W that starts as a V. Evidence of the V is mounting, including a continued increase in industrial production. We shall have to wait a couple of quarters to see if this is still inventory rebalancing or the start of a real recovery. ECRI has been bullish on the V for a bunch of months (they publish a leading indicator index) but now they see growth “throttling back” by summer 2010, the Summer of Disillusionment. They do not yet see a double dip.
Japan too claimed their stimulus “saved” them from a depression, but they still haven’t found a recovery going on twenty years. Let’s hope all the cheerleading does not put lipstick on bad policies that lead to a twenty year flat patch.