- Last Updated: 11:56 PM, July 7, 2012
- Posted: 12:04 AM, July 7, 2012
President Obama has a big problem — bigger than even he could imagine.
As you already know, the Labor Department reported that only 80,000 jobs — seasonally adjusted — were created by the US economy in June. Wall Street had been expecting 100,000 until late last week, when the clueless optimists in the financial community suddenly started ratcheting up their guesses to 125,000.
Well, the “experts” were wrong again.
And their excessive optimism didn’t go unpunished. Stock prices plummeted yesterday when the actual June employment figures missed the bloated expectations.
A weak stock market this close to the election is trouble for any incumbent president. If the slide continues — and there is every reason to think it could — President Obama’s hopes will dim even more.
On top of the sour job news is the fact that the Federal Reserve is unable to perform its typical election year heroics — cutting interest rates to improve the economy, which usually helps the president slide into another term. The feckless Fed should be causing panic in the White House.
Borrowing costs are already as low as they can go.
Now I’m going to get to the really bad news: the employment stats are likely to get uglier over the next three months even if the job market shows modest signs of life. I warned readers last winter that this was coming.
Now it’s here.
To understand the White House’s dilemma you have to understand two statistical oddities. The first one is seasonal adjustments.
Remember, I said above that the seasonally adjusted growth in jobs during June was just 80,000. Well, the actual, unadjusted job growth was 391,000, according to the Labor Department.
You can find these figures for yourself in Table B-1 of the report.
The number of jobs in this country went from 133.725 million in May to 134.116 million in June. Adjustments for the seasons try to smooth out statistics so they account for things that are expected to happen each year.
That’s how 391,000 new jobs ended up as just 80,000. June’s tepid jobs report closed out the worst quarter for private sector job-seekers in two years.
You might think that’s unfair, especially to the president. But he benefited earlier this year when seasonal adjustments changed horrible drops in the level of jobs into gains.
This is the economics version of what goes around, comes around.
And there’s no reason to think that the seasonal adjustments for the rest of the summer months are going to be any kinder to the statistics. In fact, if the excessively hot weather throughout the country causes employers to hold back creating new jobs, then the seasonal adjustments could go absolutely bonkers against the president.
What goes around, comes around — the warm winter weather helped the economy look better than it really was earlier this year.
The second statistical problem for the president: the Birth/Death Model.
My regular readers already know about this. Each spring the Labor Department adds hundreds of thousands of jobs that it thinks, but can’t prove, are being created by newly formed businesses that are taking advantage of the nicer weather.
This Birth/Death assumption makes the employment data look better in spring, even when the job market is weak.
Then, around this time of year, the Birth/Death Model suddenly stops adding all those jobs. For instance, in May the Department guessed that 140,000 jobs were added by newly formed companies. In June’s figure the guesstimate was just 5,000.
The Model is a bit more generous to August’s job picture before turning negative in the September figures, which are the next to last ones reported before the election.
Of yesterday’s announcement of 80,000 new jobs, President Obama said “It’s still tough out there” but added that the report was a “step in the right direction.”
The next step for the president’s re-election could be off a cliff if he doesn’t wise up soon.