Called It. Six Months Ago.
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.