Fed Reserve Bank President: We've Got Full Employment and Job Market Downturn is Due to Labor Shortage

Wednesday, September 26, 2007 at 08:15 PM

The head of the St. Louis Federal Reserve Bank, William Poole, had a message for the folks at the European Economics & Financial Centre Conference in London on Sept. 6, 2007: not only has the US economy "clearly generated jobs to replace those lost because of imports," but the U.S. economy is at "full employment." And "Rather than being a sign of a weakening economy, the recent slowdown in the rate of job creation is almost certainly related to a slowing of labor force growth as the baby-boom generation reaches retirement age."

His evidence? Beats the hell out of me. The boldfaced claim above is outrageous, and you'd have a tough time convincing me that he actually believes that. "Almost certainly" no less?

He does give vague cites to various esoteric, not easily found studies, and he points to the employment rate being less than 5%. But then I don't have a lot of faith in the officially announced unemployment figures, given how they're computed. Here's the relevant chunk of Poole's good news:

On this opposing view, trade destroys jobs and lowers wages, especially among the most vulnerable members of society. On its face, the job destruction issue cannot be correct for the U.S. economy, which has clearly generated jobs to replace those lost because of imports. The U.S. economy is fully employed, with an unemployment rate below 5 percent.

... Overall, most indicators suggest that the U.S. labor market is strong. Following a period of sluggish growth between June 2000 and August 2003, a period that saw payroll employment in the United States fall by more than 2 million, the U.S. economy has since created, on average, 167,000 net new jobs per month. This figure translates into an average growth rate in the number of non-farm jobs in the U.S. of approximately 1.6 percent per year, which is not substantially different from the average sustained during the second half of the twentieth century. The current unemployment rate is below 5 percent, compared to an average of 6 percent over the past quarter century.

Just looking at 2007, the numbers have not been quite as robust, but they are far from slow. Between January and July of this year, the U.S. economy has averaged a job creation rate of 132,000 jobs per month, or about 1.2 percent at an annual rate. Given that the unemployment rate has hovered around 4.5 percent since January, and has remained below 5 percent for much of the last two years, the economy seems to be operating near full employment. Rather than being a sign of a weakening economy, the recent slowdown in the rate of job creation is almost certainly related to a slowing of labor force growth as the baby-boom generation reaches retirement age.

Recent figures on earnings are also positive. Within the last 12 months, average hourly earnings in the private, non-farm sector have increased by nearly 4 percent in nominal terms and 1.7 percent after accounting for inflation. This development is particularly encouraging following a four-year period in which average real hourly compensation showed essentially no growth.


The evidence clearly points to a largely favorable labor market. Given that, over the past four years, U.S. trade volumes have steadily increased, with the sum of imports and exports rising from 24.7 percent of GDP in the third quarter of 2003 to 29 percent in the second quarter of this year, the data do not support the claim that trade is destroying American jobs. More precisely, U.S. employment is high, despite significant job losses in industries impacted by imports. Employment security is high, even though job security in industries affected by imports is not. In a strong aggregate job market, displaced workers soon find new jobs.

What's he smoking? Or injecting? Or as Lewis Black said about people who think George Bush is a good president (paraphrasing), "where do you go to find a drug that strong?" A quick dissection of the spin:

To show that the NUMBER of jobs is good, we start at the point just after the massive loss of jobs, and do not adjust our rosy scenario to take into account the lost numbers of jobs. To show that wages are good, we look at an even smaller period of time, again picking up at the end of a very very bad period and, again, do not adjust to account for the bad period. We also look at average wages, rather than a finer breakdown, despite having already acknowledged that we are seeing a sharp increase in inequality. As such, "averaging" can show good growth (only during our carefully selected time period, of course), but represent 10% growth among the uppermost half of the employed population, and a 2% DECLINE among the bottom half, "netting" out to an average of 4% gain.

And Mr. Poole is no dummy:

Dr. Poole was born on June 19, 1937, in Wilmington, Delaware. He received an A.B. degree in 1959 from Swarthmore College and an M.B.A. in 1963 and a Ph.D. in economics in 1966, both from the University of Chicago. Swarthmore honored him with a Doctor of Laws degree in 1989.

Dr. Poole began his career at the Board of Governors of the Federal Reserve System in 1964 and worked as a senior economist there from 1969 to 1974. In 1974, he joined the faculty at Brown University, Providence, R.I., twice served as chairman of the economics department, and for five years directed the university's Center for the Study of Financial Markets and Institutions. He was the Herbert H. Goldberger Professor of Economics there when he joined the Federal Reserve Bank of St. Louis.

Throughout his career, Dr. Poole has served as a visiting scholar and an adviser at numerous institutions. From 1970 to 1990 he was a member of, and became senior adviser to, the Brookings Panel on Economic Activity, and from 1982 to 1985, he was a member of the Council of Economic Advisers and a member of the Academic Advisory Panels of the Federal Reserve Banks of New York and Boston. From 1985 until his appointment to the St. Louis Bank, Dr. Poole was an adjunct scholar at the Cato Institute and a member of the Shadow Open Market Committee. From 1989 to 1995, he served on the Congressional Budget Office Panel of Economic Advisors. In addition, he has been an adviser and consultant to the Federal Reserve Bank of Boston, a visiting scholar at the Federal Reserve Bank of San Francisco, and a visiting economist at the Reserve Bank of Australia.

University of Chicago. Cato Institute. Shadow Open Market Committee. No dummy. Maybe a bit of an ideologue, though, huh?

Funny that Poole should deliver such a wildly optimistic review of the economy 5 days after Gary Chaison, professor of Industrial Relations at Clark University, published a column proposing that the government treat areas that have been devastated by manufacturing job losses as disaster areas, the same as if they had been hit by floods, or earthquakes. Chaison calls for "A massive nationally coordinated and community-focused relief program for job losses in manufacturing," and describes the state of things in these devastated areas this way:

The causes of manufacturing employment decline are well known. Companies lose market share to foreign low-cost producers (in the tool and furniture industries) or move their operations overseas in search of lower wages (in textiles and electrical appliances) or apply production techniques that require fewer workers (in steel and chemical industries). During the past 20 years, according to the US Department of Labor, 4.8 million jobs were lost in manufacturing, while only 200,000 were gained. Thirty-seven states lost manufacturing jobs.

Massachusetts - down 375,000 jobs - was among the hardest hit.

For residents of communities where jobs are lost, the consequences are catastrophic. Workers settle for low-skilled, low-paying jobs, often in retail and healthcare. The younger workers and their families leave. Older workers, less mobile and less employable, draw heavily on community assistance. A death spiral begins: Teachers and firefighters find their jobs threatened because of a shrinking tax base. Community infrastructure becomes neglected.

From full employment with job growth slowed only by lack of workers to a "death spiral." Now that's what I call a range of opinion. Yes, I know that Chaison is talking only about manufacturing jobs. But give me a break, could things be any where near the paradise described by Poole if Chaison's description is any where near accurate?

How insulting the Poole pitch is to the millions of Americans sliding sharply down the ladder, bruising their butts on each rung. Those bruised butt globalization losers, of course, are unlikely to ever hear Mr. Poole speak, or even read about his words in their local newspaper. And too many of us who are not bumping downward will choose to hear his words and believe them.


Nice to know the fed prints more than dollars, they also seem to turn out rolling papers....

Jobs manufacturing anything other than instruments of death have gone the way of the Dodo in the US by and large. The low unemployment numbers made available have been unreliable (to put it kindly) fer some time now. The McJobs that have cropped up to replace the manufacturing jobs are by no means an adequate trade off. William Pool is a frickin' fool. Anybody buying into his pollyannaisms needs a serious dose of reality stat.

Be Well.

It's so nice to know I haven't really been unemployed since June. It's all been just a dream.

We're all familiar with how they fudge the unemployment numbers by now. Once your unemployment benefit runs out and you're off their rolls, they simply don't count you as unemployed anymore.