Home > Economics > Called It. Six Months Ago.

Called It. Six Months Ago.

September 9th, 2012

The unemployment rate just dropped to 8.1%—and yet virtually every news source is saying this drop is due to more people dropping out of the workforce—not being fired, but quitting looking for work, which is even worse.

Maybe so, I’m not an economist. But then, how was I able to predict this drop back in March? On March 10, six months ago, I wrote:

The bad news for Obama is that, for the next 4-6 months, unemployment will not be so hot–it may drop a point or two over the next 4-6 months (numbers might show a drop in June or July more than other months), but may not really start to change again until just before the election–which is the good news for Obama. The rate should start dropping regularly come September, when we see the numbers for August.

That is more or less exactly what has happened. The rate drifted down by a point a few times, before drifting back up. I was right to be unsure about a pop in June or July, and I was right that for 4-6 months, the rate would stay flat.

But my key prediction was that the rate would start showing a drop come September, one with momentum. That momentum would be marked by a more significant change than a single-point drift like we have been seeing.

Well, the new jobs report is out, and guess what? the rate dropped by .2%. Changes of .2% or more generally indicate more than just a marginal, one-month shift. We’ll see more evidence on October 5 when the next report comes out; if it falls below 8%, then my prediction will be confirmed more surely.

Still, for the moment, I feel confident in saying “I told you so.” An Econ 101 teacher will tell you that unemployment is a lagging indicator, usually by 9 months.

Now, I may be mistaken about what it lags behind—it may lag behind other factors, and may be more in line with job gains or losses. However, I find it at the very least interesting that the unemployment rate so neatly falls in line with jobs reports like it has over the past several years.

The fact that I was able to predict the unemployment rate six months in advance after noting this has to be worth something.

Still, we have yet to see what happens. If my predictions truly bear out, we will likely see an unemployment rate of 7.8 or 7.9 percent (more likely the latter) a month from now, followed by another drop of .1 or .2% in November. Which makes me wonder, will the November numbers come out before or after election day? In any case, I expect to see the rate at 7.6% to 7.8% in November’s report—as I predicted back in March. We’ll see.

What Obama really needs, though, is not just the unemployment rate, but the jobs numbers as well. While it’s good that we got almost 100,000 new jobs last month, I will be much happier to see more robust growth next month, with a re-adjustment of August’s numbers, upwards of course. That, with my expected unemployment number drop from the low eights to high sevens, could give Obama a nice kick upwards, enough to cancel out the bad news this month.

Categories: Economics Tags: by
  1. Troy
    September 9th, 2012 at 17:11 | #1

    While it’s good that we got almost 100,000 new jobs last month

    http://research.stlouisfed.org/fred2/graph/?g=am0

    The red line is Clinton’s “peak economy” employment level of 2000 — jobs for 62% of working-age Americans.

    Bush sorta faked a recovery thanks to $5T of consumer mortgage bubble debt take-on 2002-2007:

    http://research.stlouisfed.org/fred2/series/HHMSDODNS

    but that all fell apart once the free money stopped flowing in 2007.

    http://research.stlouisfed.org/fred2/graph/?g=aoF

    shows how when mortgage debt (red line) topped out in late 2007 the hiring stopped and everything collapsed until TARP, ARRA, and the Fed’s QE in 2011:

    http://research.stlouisfed.org/fred2/graph/?g=aoH

    sorta got things turned around.

    But let’s zoom in on the first chart:

    http://research.stlouisfed.org/fred2/graph/?g=aoI

    shows if we had 62% employment, we’d have 148 million jobs, but instead we have around 133M — 15M jobs short compared to the best of the Clinton era.

    http://research.stlouisfed.org/fred2/series/CIVPART

    is another statistic that is telling the true story — jobs aren’t coming back.

    I don’t know what’s going to happen this year but the US economy is still very screwed up.

    We’re taking the Japanese course of massive deficit spending ($1.2T/yr!), but it’s different for us because we’re supposed to be the world’s reserve currency, plus we have massive trade deficits to figure out, too.

    I am, of course, not sanguine about the economy going forward. We have the “fiscal cliff” BS, plus another fight on the debt limit to go throw early next year.

    If Romney wins, I don’t know what’s going to happen at all, other than we won’t have divided government, especially if Republicans get 50 in the Senate, which is looking like it will happen.

    If Obama wins, things are really, really going to suck, even if he sells us out to reach another “Grand Bargain” with Republicans.

  2. Tim Kane
    September 11th, 2012 at 02:32 | #2

    The talk shows this morning were all about whether Hillary will run in 2016. That’s after the gestation that Obama got a bounce and Romney did not from the conventions. In otherwords, media types were already looking at 2016 because they were concluding that this election was arleady decided. On top of that, Obama pulled in more money than Romney in August – big money’s made the same conclussions and is staking position on an Obama win.

    This brings me to a conclussion I reached on Wednesday night after watching Clinton eviscerate the Republicans: he not only won the election for Obama, he also may have just won the 2016 election for Hillary. This means that the Republicans might be out of the White House until 2025. By that time the Koch brothers will probably be dead and in either case, one hopes they have found better uses for their money. This election then, is an existential election for Movement Republicans. They’ll linger for a while, but they’ll be gone by 2016, and Clinton will still be giving speaches at Democratic Conventions. We could see Bill and Barach’s mugs on Mount Rushmore at some point. Republicans will have to re-tool, and go back to pragmatism, cautious progressive pragmatism (versus the Dems agressive progressivism) if they want to remain as a party that has a shot at power in 2020 or 2024.

    Congrats on the prediction Luis, I was just hoping for a bigger swing – like .4% points. Because 3 of those in a row would have unemployment below 7% on election day. The next best milestone is below 7.4% which got Reagan elected. I’d hate to see O go into the eletion with anything above 7.4%.

  3. Troy
    September 11th, 2012 at 05:18 | #3

    uh, Boehner — or, worse, Cantor — is still going to be running the House next year.

    And the Dems need to win 2 out of MA, VA, CT, AZ

    http://www.electoral-vote.com/evp2012/Senate/Maps/Sep10-s.html

    to retain control of the Senate.

    There’s a real weird disconnect going on, between Obama’s EV count and the strength of the Republicans on the ground.

    What happened to all those 2006 wave voters? That election must have been about being lied into the Iraq War, I guess.

  4. Tim Kane
    September 11th, 2012 at 05:51 | #4

    The fact that media is already showing signs of moving on to 2016, and money is flowing to Obama, is an indication to me that Obama’s chances of winning have improved to the point that Romney’s chance of winning is highly improbable.

    Romney has no base. The republicans base, especially fundy christians not too keen on Mormon Mitt, and also southerners not too keen on Massachuesetts Mitt, if present trends hold true (a big if), are likely to be unethusiastic by November – and it could start setting in very soon, too. If they don’t show up on election day, this could lead to down ticket benefits for Democrats. There is even a possibility of an Obama mini-landslide. In Arizona, Mormons will be out in force, and I would expect them to rouse their politically kindred bretheren, so I wouldn’t look to Arizona to go Dem in the senate race unless Gabby Giffords has somekind of reflexive effect.

    I know I’m being very optimistic here, but why not?

  5. Troy
    September 11th, 2012 at 08:51 | #5

    Better to be pessimistic and pleasantly surprised, LOL

  6. Luis
    September 11th, 2012 at 11:14 | #6

    uh, Boehner — or, worse, Cantor — is still going to be running the House next year.

    Not necessarily. Polls show House Republicans losing support rapidly since mid-August:

    http://elections.huffingtonpost.com/pollster/2012-national-house-race#!minpct=25&maxpct=50&mindate=2012-08-01&smoothing=less

    In mid-August, Nate Silver predicted a possible even split in the Senate:

    http://fivethirtyeight.blogs.nytimes.com/2012/08/15/in-senate-races-politics-are-local-again/

    No word on how things have trended since then. But with Obama seeing a huge bounce, it will be interesting to see how this will affect Congressional races.

    As I mentioned before, if Republicans, for all their supposed fervor (which did not really show at the RNC), see Mitt not having a chance in hell come November, they may just as well stay home since they were never too crazy about him in the first place…

  7. Troy
    September 11th, 2012 at 12:53 | #7

    Pelosi needs 25 net seats. . . which is one out of 10 sitting Republicans.

    Not impossible, but this is a pretty red nation still:

    http://en.wikipedia.org/wiki/File:2010_House_elections.svg

    birth controlling and aborting loose women, gays, gun grabbers, welfare bums . . . the electorate still has a lot to vote against.

    as I say here every so often, too bad things aren’t any better in Japan!

    http://www.yomiuri.co.jp/dy/national/T120907004036.htm

Comments are closed.