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Haverford Prof: May’s Slow Job Growth an Economic Harbinger

A Haverford College economics professor interpreted the latest report from the U.S. Bureau of Labor Statistics for Patch.

An economist at Haverford College is fearful that the economy may plummet even more in the coming months, after reports late last wek showing a slowdown in U.S. job growth and the steady unemployment rate for May.

“The concern is not so much over the amount of increased unemployment this month as the apparent confirmation that the decline in unemployment (and growth in jobs) has stalled and a concern that the numbers may turn much worse in the upcoming months,” wrote Paul Cichello, a visiting associate professor of economics at Haverford College, in an email, rsponding to questions about reports on the U.S. economy.

The country gained 54,000 new, nonfarm jobs in May—significantly smaller gains than the prior three months, when new jobs per month averaged 220,000, according to a U.S. Bureau of Labor Statistics report that was issued Friday, June 3.

Unemployment increased slightly from 9 percent in April to 9.1 percent, or 13.9 million unemployed people, in May, the Labor Statistics report stated.

The number of non-farm jobs and the unemployment rate “are giving bleaker pictures than last month,” Cichello wrote.

“Both come from surveys with a bit of noise attached to them, so if one suggests slightly negative news and the other suggests stable/good news (as they did last month) then people might not [be] as nervous,” Cichello wrote. “But this month, unemployment suggested it was stable or worse and non-farm employment showed a large decline.”

Of the 13.9 million unemployed people reported in May, the number of long-term jobless workers—anyone who has been unemployed for 27 weeks or more—increased by 361,000 to 6.2 million in May.

Cichello said the state of the economy is cyclical, but he also implied that psychology plays a role in the economy’s ups and downs.

“The economy works in cycles," he explained. “If I am in business, I will hire if I think people are ready to buy more of my product/service. If I am worried they may not buy it, I [will be] less likely to hire on new help and may consider laying people off.

“But, when I pull back, that means fewer people are at work earning income and that makes the demand for my product and everyone else’s products go down just a bit,” Cichello wrote. “This makes other businesses nervous and can lead to a downward spiral.”

The rsult is that the economy may plummet even more in the coming months, Cichello suggested.

“A few months ago, the hope was that we were spiraling upward—with increased income and consumer spending and businesses investing and hiring more employees,” Cichello wrote. “The fear now is that we may be slipping into a downward spiral and the news next month will be even worse.

“We'll have to wait and see.”

Bob Guzzardi June 08, 2011 at 01:29 PM
How could I find the unemployment in Lower Merion?
Thomas J. Walsh June 09, 2011 at 02:11 AM
Good question, Bob. As it happens, I've been trying to find that out myself. The answers I get are all over the place, from 2 or 3 percent (because LM Twp. is such a wealthy area) to 15 to 18 percent (because LM Twp. is such a wealthy area and that people feel, if not somewhat ashamed to report they have lost their job, at least shy to deign to collect state unemployment benefits because their spouse makes good money). Like so many difficult-to-nail-down issues, my feeling is that this one is less politically oriented than class conscious. In other words, American as apple pie. What's your take?
Bob Guzzardi June 09, 2011 at 02:21 AM
http://www.lowermerion.org/Index.aspx?page=1124 is the township manager's report and it shows that as of September of 2010, unemployment was 5.8% and that this was a dramatic increase from previous years when unemployment seemed to be 2.5% in Dec 07. My sense is that no one is talking but I can't think that unemployment is up and earnings are down. Look at zillow.com which I posted at www.saveardmorecoalition.org to see decline in housing prices. Many are insulated because they have government or government subsidized jobs. I may be extrapolating from my own situation but incomes haven't gone up.
Thomas J. Walsh June 09, 2011 at 05:13 AM
Bob: Spot-on about your last point. Incomes are down across the board (except for CEOs, evidently). I would challenge you on real estate values, though. Zillow and sites like it have many figures factoring into estimates, among them "assessed" home values. Assessed value for taxes, and actual taxes collected, are very different, of course. But not nearly as different as an average seller's perceived value of their home (driven skyward from the bubble, still) and an average buyer's suspicion that prices will go even lower (driven by the rate of U.S. foreclosures). There weren’t many foreclosures in LM, though, and thank goodness. So despite the "buyer's market," homes for sale in healthy suburbs like ours are still bringing top dollar--in a bad economy, it is sort of the definition of a free market. While real estate values in LM have fallen in the last few years, they've only fallen slightly, from their peaks in '06 and '07. Big picture, a township resident who bought her house in '99, or '01, or even '04, is way, way ahead. Most Realtors would tell you that the numbers of people in the township who bought at the peak of the market are not exactly epidemic. Like everywhere, credit was as available here as a Wawa ATM. LM Twp. homes, though, were still pricey. A big, tacky, over-leveraged home was not unheard of. It's just that, in LM, it was still considered bad form, a fate much worse than bankruptcy. Overall, I'd say it's tough to say it's tough times in LM.
Bob Guzzardi June 09, 2011 at 10:12 AM
http://www.saveardmorecoalition.org/node/5835/lower-merion-housing-prices-slide-downward-march-2011-feb-2004 is the link to my post at Save Ardmore. Zillow seems to provide real world prices rather than assessed value and the trend is downward although, as you point out, not dramatically or catastrophically so. The decline is slow slide. 7 Year comparison March 2011 = February 2004 nominal prices unadjusted for inflation. Lower Merion Housing Prices Declined 5.1% Year to Year Ardmore Housing Prices declined 7. 5% year to year 19096 (Wynnewood) Housing Prices Declined 1.3% year to year 19066 (Merion Station) Housing Prices Declined 4.5% year to year 19044 (Bala Cynwyd) Housing Prices Declined 6.1% year to year 19035 (Gladwyne) Housing Prices Declined 6.4% year to year All tags:
Thomas J. Walsh June 09, 2011 at 12:52 PM
Looks like it's time to re-visit the whole thing for an updated story or two.
Bob Guzzardi June 09, 2011 at 01:03 PM
I was hoping you might come to that conclusion. My sense is that Lower Merion like the rest of the region is on a slow slide down and no reason to think it will get better. Pulling more and more money out of the private productive economy with increasing taxes and borrowing would seem to take buying power away from consumers and put it in hands of the government which does not seem to have, at least recently, a track record of efficient and productive spending. Here is lin http://www.federalreserve.gov/fomc/beigebook/2011/20110608/3.htm June 8, 2011 Federal Reserve Districts Third District--Philadelphia Growth of jobs, goods and services is slow and here is Martin Feldstein with a macro, nationa analysis http://online.wsj.com/article/SB10001424052702303657404576363984173620692.html?mod=WSJ_hp_mostpop_read I thought this was the salient point: " sustained expansion cannot be built on inventory investment. It takes final sales to induce businesses to hire and to invest." I would like to know what is happening locally. Architects are hurting. Thanks for being open to this.

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