What We Don't Know About the Recession and November
This winter, economic analysts explained that 5.6% annualized GDP growth in the last three months of 2009 was not as good as it looked. This fall, economic analysts will explain that 2010's sticky, high jobless rate near 10% is not as bad as it looks.
Projecting seven months forward, monthly job additions will rise and GDP will have reached a full year of positive growth. But as more discouraged workers currently considered outside the labor force re-enter, they will inflate the unemployment ratio denominator, making it harder for economic observers to see proportional change in the official unemployment rate. This will make it look like the economy is treading water even as we're churning out hundreds of thousands of jobs a month.
There was an interesting exchange that touched on this subject Sunday between former Labor Secretary Robert Reich and the Washington Post's George Will on ABC's "This Week." Reich said:
REICH: And, look, the key point, I think -- and the Democrats are hoping for this -- is that, despite the high level of unemployment, which is almost inevitably going to be with us going into November and possibly also with us going into the general election, that the direction is correct and that the public is looking and will look more at the direction of the economy than at the absolute level of how bad it is. We don't know. We don't have data, because we haven't been here before, as to whether that hypothesis is correct.
Exactly right. Much hay has been made of the historical correlation between unemployment and midterm losses in the House and Senate. One statistically significant conclusion is: unemployment doesn't matter, but real income gains do. (Even that is bad news for the Democratic majorities.) The responsible answer is: we have no idea how joblessness will press the scales. Unemployment has only been over 7 percent in only one midterm election in the last 50 years. Reagan, with an approval rating of 41%, lost 26 House seats as unemployment swelled over 10 percent. That's the thing about historic recessions: it's difficult to find historical parallels that offer guidance.