Green Room

Negative job growth for 2009-2010, says OMB

posted at 10:06 am on August 28, 2009 by

I was thinking about Keith Hennessey’s post of Thursday on the implications of the OMB forecast on unemployment. The OMB forecast says that in the fourth quarter of 2010, the unemployment rate will be 9.7%. Inspired by Hennessey’s work, I decided to write a small spreadsheet. My goal: what does the forecast say about the number of jobs created? Here’s a screen cap of the spreadsheet:

Let me explain each column. The source of this data is the Current Population Survey from BLS. Data projected is italicized. The two bold numbers for unemployment rates are the projections from the OMB economic assumptions. My other assumptions, working left to right:

  • Population — estimated to grow on average at 0.8% per year over the next decade according to the Census. I just imposed that on this forecast.
  • Labor force population rate (LFPR) — in order to do this, you have to make an assumption about that rate. I looked at the rate coming out of the 2001 recession, which in fact continued to decline for a year and a half after the end in November 2001. It isn’t going to rise rapidly here in my opinion, but I let it slowly rise through 2010. Note that if OMB assumed no change in LFPR or continuing decline, the story of my subject line is worse — you would get net job loss. If you want to make a different forecast for LFPR, go ahead.
  • Labor force = LFPR times Population.
  • Unemployment rate. My projection had the two 4th quarter numbers given, the annual averages that were also in the MSR (9.3% for 2009, and 9.8% for 2010). The path was just smoothed to make the averages and endpoints work.
  • Unemployed = Labor force times unemployment rate.
  • Employed = Labor force minus unemployed
  • Emp/pop = Employed/Population, the ratio of the over 16 population that is working, or the employment ratio.

What we see here is that at the end of 2010, based on what I think are reasonable assumptions on LFPR and population, there are 152,000 fewer people employed than in the fourth quarter of 2008. The employment ratio stays below 60% through the period. Any effect of the stimulus now has to be “well yeah, we lost 152k jobs, but we’d've lost A LOT MORE if we hadn’t passed that stimulus package!” Hell is the place where you go to become an economist that has to sell that line. (SEE UPDATE BELOW.)

CBO has its own projections, and when I try to run those into the spreadsheet and when I run those in I have to assume something about 4th quarter unemployment (OMB gives you that number, CBO does not.) I do have their estimated average 2010 unemployment rate of 10.2%. I make that to give us a decline of employment over the first two years of the Obama administration in the range of 750-800 thousand workers, versus 152 thousand. Hennessey notes that this new CBO figure is down 2.3 million workers from estimates last March. But the range of difference in terms of jobs is much smaller than that, probably 600,000 or so our of 145,000,000.

Feel free to whip, chop or puree your own jobs report with this spreadsheet.

UPDATE: Thanks to a reader via Twitter, I found a typo in my population line for 2009:II, which is the worst place to have it because that’s what drives the projections. I’ve updated the file and re-cast the image. It makes matters worse: The size of the decline in jobs between the fourth quarters of 2008 and 2010 is now 1.96 million rather than the earlier figure. This makes sense given my earlier, higher population figures.

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All that aside, and all that is some good homework, we in Texas and the south central US, Oklahoma, Louisiana, and New Mexico, watch the price of oil to understand what the local economy will look like. Long term projections? Through 2009 the projection is for an average of $70/bbl; for 2010 this figure is estimated at $72/bbl. And this:

http://www.reuters.com/article/GCA-Oil/idUSTRE53T4E820090430

I’ve heard stories of this “stored” oil actually being bought by speculators and larger investors at as little as $20/bbl. And this:

http://www.arabianbusiness.com/559966-future-of-oil-price-to-remain-uncertain—report

It would seem to the average reader that at $70/bbl everyone makes money. And this is mostly true. But with a glut, $70 is actually an artificially maintained price. Not many wells are being drilled in the US currently, particularly in the Southwest, therefore there are a lot of roughnecks sitting around watching the sagebrush blow by. Not spending money at Walmart, not buying pickup trucks. Besides all this, the State of Texas, the state itself, gets a cut off each barrel pumped. With pumping down, state revenues are down, schools don’t get the state endowments, the coffers aren’t disgorging vast sums for infrastructure. Not that Texas is on the brink at all. The budget is balanced and the “rainy day” fund will grow by $2bn over the next few years. Strange math, huh?

But none of this translates into a robust oil economy. States with proven oil reserves, such as the California coast, could resolve some of their financial woes, and improve their economy for years, if they’d proceed with some drilling now. What with the price oil is today, the investor that takes advantage of an underemployed, well trained work force, lower costs of commodities such as the steel used in constructing an offshore rig, and the strategic advantage it would offer America in the long run, it seems foolish not to.

Robert17 on August 28, 2009 at 8:52 PM

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Ed Morrissey on August 30, 2009 at 11:16 AM