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Still More on the Economy in 2011 – Jobs, Jobs, Jobs

I remain really curious as to where the expansion of jobs will come from in 2011. Bill McBride asserts that the economy will add at least two times as many jobs next year as the 1.2 million it did this year. “It now appears that job creation is picking up, and it also appears that the construction sector will add employees for the first time since 2006,” he writes. This will not be enough to significantly move the unemployment rate, and it doesn’t cut very far into the 15 million currently unemployed. But it would be a significant move upward.

As for the evidence, Hale Stewart thinks real personal savings can be a leading indicator for upticks in GDP and employment about 18 months down the road, and that we’re heading into that time frame. David Leonhardt combines some generally positive current economic data (he obviously went to press before yesterday, when consumer confidence plummeted and housing price data suggested a double dip) and the moves in Washington, from both the Federal Reserve and Congress, to arrive at his positive outlook.

Let’s take these from back to front. It’s a bit soon to tell whether quantitative easing is helping the overall economy. The tax cut deal, seen as a stimulus boost for the economy, isn’t finished yet. We have to wait and see where federal spending will hit (as Leonhardt notes) beyond March, to see if the stimulative properties will get blunted. In addition, there’s the significant problem with state and local budgets, an expected $118 billion dollar shortfall which by itself cancels out the stimulus from the tax deal. Nobody expects Congress to provide any fiscal aid to states and cities this year. As this chart shows, government job loss has been weighing down the total job rate for the past year.

About the only good thing you can say on this front is paradoxically a bad thing – stimulus money has not gone out the door quickly, which means that more will be available for 2011 than expected. Of course, that money, which mainly is devoted to new infrastructure projects, will have to actually get spent.

The positive economic data has negative antecedents. You can look at a good holiday shopping season and increased consumer spending and then the fallback in consumer confidence pronounced just yesterday. You can look at a reduction in first-time jobless claims and then the dip in housing prices, which could cause another spiral that will damage the economy.

Stewart makes the most compelling case here, but he also notes that the past several months have been unusual, with relatively average first-time jobless claims and relatively stubborn unemployment. Maybe the relationship between personal savings and GDP won’t materialize this time.

Of more concern is the fact that the jobless rate itself is not capturing the depths of the jobs crisis. The Bureau of Labor Statistics has decided to change its measurement of joblessness, by raising from two years to five years the amount of time someone without a job can still be considered “jobless.” This is the first such change in 33 years. It seems that this will cause a near-term jump in the jobless rate (UPDATE: this is more about how the statistics are collected and should cause no change in the jobless rate). But that’s only because it will be a more accurate measurement. There are millions of Americans without jobs but still struggling to feed themselves and their families, on the periphery of society. Those people matter and they need help. And there appear to be more of them than economic forecasts suggest.

We have to weigh all these factors before determining whether we will see positive changes in employment this coming year.

UPDATE: More from Meteor Blades on this subject.

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David Dayen

David Dayen