When Mark Twain popularized the famous line attributed to British Prime Minister Benjamin Disraeli about lies coming in three varieties, “lies, damned lies, and statistics,” a lot of people probably assumed that they were both thinking about politics and/or economics. But even people trying their best to examine an issue or situation objectively can interpret the same numbers differently, putting differing weights on differing factors.
Recent economic data are open to substantial interpretation—the upwardly revised 3 percent increase in gross domestic product, for example, and the unemployment rate, dropping in five of the last six months and remaining steady at 8.3 percent in February. Yes, the economy grew by 3 percent in the fourth quarter of last year. But almost two-thirds (1.9 percent) of that growth was created by businesses replenishing and building inventories, something unlikely to happen this quarter. Unusually mild weather may also be a factor. Statistics are adjusted seasonally, but a mild winter can “bring forward” some economic activity, stealing from the next quarter. Though the unemployment numbers have been good, the labor-participation rate has dropped. Fewer people 16 or older are working or actively seeking jobs. Since December 2007, the percentage looking for work dropped from 66 to 63.7. Wells Fargo Securities economics unit reported on March 6 that the rate is the “lowest since 1983 when women were still increasing in their participation in the workforce.” The Wells Fargo report continued: “If the current labor-force participation rate was equal to the average during the previous business cycle—66.1 percent—the unemployment rate would currently stand at 11.6 percent. This suggests that the official unemployment rate does not fully capture the severity of joblessness in this cycle.”
The economy is getting better, but recent improvements may not be quite as impressive upon closer examination. Cutbacks in spending and employment by local, state, and federal governments produced economic headwinds. Rising oil and gasoline prices, and the European debt crisis and recession, portend plenty of dark clouds on the horizon.
The consensus of the 55 top economists surveyed this month by Blue Chip Economic Indicators projects the economy to grow at 2.1 percent this quarter. It is expected to rise 2.2 percent in the second quarter and 2.4 percent in the third quarter, leading into the election. These are not horrible levels of growth, but they are very tepid. The forecast is for unemployment to remain at 8.3 percent for both the first and second quarters. It should improve by one-tenth of a percentage point to 8.2 percent for the third quarter. That is certainly better for President Obama than most of last year’s 9 percent was, but it isn’t likely to come down much this year.
Some say that the direction is more important than the level; when unemployment is rising, people who have jobs fear that they or those close to them may lose theirs. When the jobless level drops, people feel relief and are more upbeat. A relatively static and elevated level means that anxiety remains constant. In short, if the economists’ consensus is right, anxiety levels may remain about the same.
Citigroup’s Tobias Levkovich recently wrote, “One thing to watch carefully is the price of energy and specifically oil and gasoline prices.” Citi’s chief U.S. equity strategist added that “gasoline prices historically have provided a roughly six-month lead on consumer confidence and the recent uptick does not bode well for the summer months, with some suggesting per-gallon prices could go above $4.00.”
Friday’s unemployment figures are certainly open to various interpretations. Virtually all agree that the economy is looking better. How much better? Just how meaningful are the numbers that show improvement? This is subject to widely differing interpretations. But this isn’t just academic quibbling; the trajectory of the U.S. economy is the most important single factor in whether Obama is reelected. If the economy isn’t turning around, it will be a cudgel that Republicans will use to beat Obama, as well as any Democrat who comes within reach. If the economy is turning around in a meaningful way, Republicans have to figure out what their “Plan B” will be: How do they beat Obama (and Democrats) on other issues?
Understandably, much of the attention to Friday’s reports focused on the 227,000 new jobs created in February and on the upward revisions to the December and January numbers. Somewhat less focus was on the jobless rate, which had dropped for five straight months before leveling off in February. Putting aside that the unemployment rate is derived from separate surveys of establishments and households, which tends to make it a bit erratic, it still is the single-most-watched economic number. But economists are also watching carefully something else: the labor-participation rate.
In short, things are improving, but maybe not as much as people believe.
This article appears in the March 13, 2012, edition of National Journal Daily.