The economy is on the road to recovery from the coronavirus pandemic, rattled by inflation or causing disappointment over job creation, depending on who you talk to.
It’s probably all three, and what is happening from month to month seems like a surprise. This element of unpredictability might be the most normal thing possible given the shock of the pandemic – the government’s extraordinary intervention to save the economy is unlike anything anyone alive today has ever seen .
It’s hard to decide how important just one thing is.
Let’s look at jobs today.
Government data released Friday showed the US economy gained 210,000 jobs in November and the unemployment rate fell to 4.2%. A low rate traditionally signals full employment, which means almost anyone who wants a job has one.
Most articles on the November jobs report described it as “disappointing” in the first sentence, but also as evidence that the pandemic recovery is advancing.
Why the disappointment? Tappe wrote: “Economists expected more than double the number of jobs created in November, forecasting a continued strong economic recovery over the past two months. Instead, November’s job gain was more reminiscent of the pre-pandemic economy, when employers added a smaller but constant number of positions, at least on the surface. “
At the same time, there is the good news. The jobs report suggests the pandemic recovery is progressing. The country has created more than 6 million jobs this year and labor market participation has risen to 61.8%, the highest level since the start of the pandemic.
“Very good household survey: unemployment down to 4.2% and labor market participation up while employment increases by 1.1 million,” he tweeted. “But the normally more reliable payroll survey shows that only 210,000 jobs have been added.”
He’s not sure what’s going on: “Some explanations may emerge, but it may just be a measurement error.”
Where do the expectations come from? Ahead of the monthly release, economists and banks are posting their own expectations of what surveys will find. If government data does not meet these expectations, disappointment ensues.
I spoke to Elise Gould, senior economist at the Economic Policy Institute, about what we learn and don’t learn from these reports.
She said they should be seen as bits of information, not the complete picture, in part because polls can overestimate things and ignore the changing composition of the workforce.
Revisions to employment reports in recent months have confirmed stronger employment growth than has been shown by surveys.
Still, it’s best to know the latest information, even though we know it’s subject to change, she said.
Also, the pandemic. There is also the pandemic element of confusing economic expectations, just as it has confused people’s lives.
“Everyone in this economy today and the people who are making those predictions have never experienced a pandemic that has hit the job market so hard,” said Gould. “And so their models don’t necessarily capture the ebb and flow of the pandemic.”
I asked David Goldman, editor of CNN Business, what he thought of the reasons why these reports seem to confuse expectations every month. He came back with three points:
- This is a particularly unusual environment. This makes predictions really difficult for economists. The labor shortage, the supply chain crisis, the energy crisis, inflation and the Covid-19 situations all combined into one is a delicate balance. We should give economists a break.
- Right for the long haul. Economists have in fact been proven correct over the past few months when we initially thought they were wrong. That’s because the reports continue to be revised upward in the following months, as Labor Department economists get more data. This is not only difficult for economists at Goldman Sachs and JPMorgan to understand, but also for the government.
- Don’t focus on expectations. The forecast isn’t the important thing here – it’s the actual data. And a month is not a trend. We’ve had surprisingly good employment data in recent months, and November hasn’t been that bad, but not as good as we expected.
“At this point the economy is very strong and inflationary pressures are high and therefore it is appropriate, in my opinion, to consider concluding the reduction in our asset purchases … maybe a few months earlier”, Powell said.
A key thrown into the economy has been the resilience of the coronavirus. We may not fully understand how the ramp-up of the Delta variant over the summer and fall halted progress.
Now that the Omicron variant is emerging, it too could send things in a new direction.