Bizarre Jobs Report Aside, There’s Still Momentum for the Economy in 2014

Early signals show that this time isn’t another false start.

Black bull with bleeding muzzle charging in a bullring
National Journal
Catherine Hollander
See more stories about...
Catherine Hollander
Jan. 10, 2014, midnight

This time, it’s for real. Eco­nom­ists say 2014 could bring the comeback we’ve all been wait­ing for.

They also said this in 2013. And 2012. And 2011. Those times, bullish sen­ti­ment suc­cumbed to ag­grav­ated dis­ap­point­ment and a con­ces­sion that, yes, the dis­mal sci­ent­ists were wrong again. Now, though, some evid­ence ac­tu­ally backs them up, start­ing with across-the-board strength­en­ing in the data and a bet­ter-than-be­fore po­ten­tial for Con­gress to avoid fisc­al shenanigans for an en­tire year. An en­tire year!

Signs of a turn­around star­ted to ap­pear at the end of 2013. The Novem­ber jobs re­port was sol­id and stronger than ex­pec­ted — un­em­ploy­ment dropped to 7 per­cent, down from a crisis peak of 10 per­cent, and payrolls swelled by 203,000. Then came GDP, which pegged third-quarter growth at a sur­pris­ingly re­spect­able 4.1 per­cent. It was far bet­ter than the 2.5 per­cent growth in gross do­mest­ic product that the eco­nomy re­cor­ded in the second quarter. The Fed­er­al Re­serve Board felt so good about the in­com­ing data that it told Wall Street the cent­ral bank would be­gin tak­ing its foot off the gas, eas­ing back on stim­u­lus meas­ures.

A word, be­fore we pro­ceed, about the Decem­ber jobs re­port, which the Bur­eau of Labor Stat­ist­ics re­leased Fri­day morn­ing: It’s a head-scratch­er. On one hand, the un­em­ploy­ment rate dropped to 6.7 per­cent, the low­est level since Oc­to­ber 2008. On the oth­er, payroll growth — for which there is a mar­gin of er­ror of plus-or-minus 100,000 — was much lower than ex­pec­ted, the eco­nomy adding just 74,000 jobs, com­pared with fore­casts of roughly 200,000. More people left the labor force, and that’s part of the reas­on the un­em­ploy­ment rate, which is meas­ured based on people look­ing for work, de­clined. But the pre­vi­ous two months’ payroll num­bers were re­vised up by 38,000. The re­port was not a heart­en­ing way to start 2014, but it’s not quite clear yet what it means. Paul Ash­worth, chief U.S. eco­nom­ist at Cap­it­al Eco­nom­ics, wrote in an emailed note to cli­ents that the payroll miss was prob­ably largely due to “un­season­ably severe winter weath­er” last month. Joe La­Vor­gna, the chief U.S. eco­nom­ist at Deutsche Bank, called the news “bizarre.”

“It is such a in­con­sist­ent re­port in the sense that you’ve got the drop in the un­em­ploy­ment rate along with a weak­er em­ploy­ment num­ber,” he said. “The two al­most off­set each oth­er.”

And des­pite one bad re­port, the fisc­al news from Decem­ber was good and of­fers hope for the rest of the year. Law­makers passed a two-year budget deal, small though it was, that marked a sig­ni­fic­ant de­par­ture from the let’s-make-de­cisions-only-after-freak­ing-every­one-out ap­proach Con­gress has de­ployed re­lent­lessly since the debt-ceil­ing de­bacle of 2011. Then, the brink­man­ship drove mar­kets and con­fid­ence off a cliff and stripped Amer­ica of its gold-plated cred­it rat­ing. In 2013, the fisc­al cliff and se­quester did enough dam­age to slice 1.5 per­cent­age points off GDP growth, and the Oc­to­ber gov­ern­ment shut­down may have knocked half a per­cent­age point from the fourth-quarter’s growth. (Those ini­tially bullish eco­nom­ists blamed all of this stuff for their er­ro­neous re­cov­ery pre­dic­tions.)

In 2014, however, eco­nom­ists are cal­cu­lat­ing that sta­bil­ity in the data and a cam­paign-fo­cused, risk-averse Con­gress will yield the sus­tained re­cov­ery the coun­try’s been so-far denied. “That ini­tial phase after [the] fin­an­cial crisis is re­par­a­tion, and then we can start re­cov­ery,” says Mor­gan Stan­ley eco­nom­ist El­len Zent­ner. “I think that five years after the fin­an­cial crisis, that’s where we are” — start­ing a “real” re­cov­ery.

Of course, all pos­it­ive eco­nom­ic vibes come with caveats about un­fore­seen cir­cum­stances such as European sov­er­eign-debt crises, Ar­ab Springs, and tsuna­mis. And don’t for­get about the debt ceil­ing, which law­makers will have to grapple with even­tu­ally in 2014.

But the real po­ten­tial for bad news lies in what we already know: Des­pite slow im­prove­ment in the eco­nomy and a pos­sib­il­ity the re­cov­ery will pro­ceed at a faster clip in the next 12 months, the na­tion has a long way to go be­fore things are nor­mal again, par­tic­u­larly for the long-term un­em­ployed and oth­ers. Labor-force par­ti­cip­a­tion rates have con­tin­ued their de­cline in re­cent months, as well.

The be­lief in the real­ity of re­cov­ery doesn’t just mat­ter as a thought ex­er­cise. “If people don’t feel very good about their fu­ture fin­ances, they tend not to spend,” Zent­ner says. “Con­sumer spend­ing has been sub­par, and that’s why the en­tire re­cov­ery has been sub­par.” Meas­ures of con­sumer sen­ti­ment were up in Decem­ber — a good sign, but one that will need to be main­tained.

How poli­cy­makers un­der­stand and talk about the re­cov­ery, then, mat­ters. (See Jim Ol­iphant on “Why Obama Is Afraid to Tout the Eco­nomy”.) De­scrib­ing it as real and strength­en­ing could in­spire con­fid­ence in con­sumers, an un­deni­ably good thing. But it could also re­move the im­petus for tak­ing fur­ther ac­tions to shore up the re­cov­ery or help those af­fected by the fin­an­cial crisis. Chad Stone, the chief eco­nom­ist at the Cen­ter on Budget and Policy Pri­or­it­ies, wor­ries that a bet­ter-than-ex­pec­ted 2014 — while a good thing — might take pres­sure off eco­nom­ic poli­cy­makers, who he be­lieves can do more to help work­ers get back on their feet by ex­tend­ing fed­er­al job­less be­ne­fits.

“We can be com­pla­cent about the dir­ec­tion the eco­nomy is go­ing if growth picks up and em­ploy­ment picks up in 2014, but we have to, as I guess the Brit­ish say, ‘mind the gap’ — that there still is this gap between what we would be cap­able of pro­du­cing with stronger de­mand,” Stone says.

Hopes are already high for this month’s eco­nom­ic re­ports: Early signs point to GDP bust­ing past ex­pect­a­tions again for the fourth quarter. That, plus the jobs re­ports, will of­fer an early read on wheth­er eco­nom­ists are right this time around or wheth­er 2014 proves to be just an­oth­er year of missed ex­pect­a­tions. Ini­tial sig­nals are point­ing to the former, and that’s good news for every­one.

What We're Following See More »
TAKING A LONG VIEW TO SOUTHERN STATES
In Dropout Speech, Santorum Endorses Rubio
2 days ago
THE DETAILS

As expected after earlier reports on Wednesday, Rick Santorum ended his presidential bid. But less expected: he threw his support to Marco Rubio. After noting he spoke with Rubio the day before for an hour, he said, “Someone who has a real understanding of the threat of ISIS, real understanding of the threat of fundamentalist Islam, and has experience, one of the things I wanted was someone who has experience in this area, and that’s why we decided to support Marco Rubio.” It doesn’t figure to help Rubio much in New Hampshire, but the Santorum nod could pay dividends down the road in southern states.

Source:
‘PITTING PEOPLE AGAINST EACH OTHER’
Rubio, Trump Question Obama’s Mosque Visit
2 days ago
WHY WE CARE

President Obama’s decision to visit a mosque in Baltimore today was never going to be completely uncontroversial. And Donald Trump and Marco Rubio proved it. “Maybe he feels comfortable there,” Trump told interviewer Greta van Susteren on Fox News. “There are a lot of places he can go, and he chose a mosque.” And in New Hampshire, Rubio said of Obama, “Always pitting people against each other. Always. Look at today – he gave a speech at a mosque. Oh, you know, basically implying that America is discriminating against Muslims.”

Source:
THE TIME IS NOW, TED
Cruz Must Max Out on Evangelical Support through Early March
2 days ago
WHY WE CARE

For Ted Cruz, a strong showing in New Hampshire would be nice, but not necessary. That’s because evangelical voters only make up 21% of the Granite State’s population. “But from the February 20 South Carolina primary through March 15, there are nine states (South Carolina, Alabama, Arkansas, Georgia, Oklahoma, Tennessee, Kentucky, Mississippi, and North Carolina) with an estimated white-Evangelical percentage of the GOP electorate over 60 percent, and another four (Texas, Kansas, Louisiana, and Missouri) that come in over 50 percent.” But after that, he better be in the catbird’s seat, because only four smaller states remain with evangelical voter majorities.

Source:
CHRISTIE, BUSH TRYING TO TAKE HIM DOWN
Rubio Now Winning the ‘Endorsement Primary’
2 days ago
WHY WE CARE

Since his strong third-place finish in Iowa, Marco Rubio has won endorsement by two sitting senators and two congressmen, putting him in the lead for the first time of FiveThirtyEight‘s Endorsement Tracker. “Some politicians had put early support behind Jeb Bush — he had led [their] list since August — but since January the only new endorsement he has received was from former presidential candidate Sen. Lindsey Graham.” Meanwhile, the New York Times reports that fueled by resentment, “members of the Bush and Christie campaigns have communicated about their mutual desire to halt … Rubio’s rise in the polls.”

Source:
ARE YOU THE GATEKEEPER?
Sanders: Obama Is a Progressive
1 days ago
THE LATEST

“Do I think President Obama is a progressive? Yeah, I do,” said Bernie Sanders, in response to a direct question in tonight’s debate. “I think they’ve done a great job.” But Hillary Clinton wasn’t content to sit out the latest chapter in the great debate over the definition of progressivism. “In your definition, with you being the gatekeeper of progressivism, I don’t think anyone else fits that definition,” she told Sanders.

×