Payroll jobs increased by 80,000 in June, according to the government’s survey of employers, marking the third consecutive month of tepid job growth. After revisions, job growth was 68,000 in April and 77,000 in May.
There are three economic and political questions that I think are most pertinent in the wake of the news.
1. Will the Federal Reserve act? The stock market reacted harshly to the report, with the Dow Jones industrial average off by more than 100 points at the opening bell on Friday. This was despite the fact that investors, looking at the weak stream of data this month, had pegged the number fairly accurately. Consensus forecasts from Wall Street had called for 90,000 to 100,000 jobs to be added. On average, preliminary Wall Street estimates miss the payroll number by about 70,000 jobs, so a miss of 10,000 to 20,000 jobs is quite modest.
The reason for the stock market’s sharp decline, instead, may be the market’s sentiment that, although the number is weak, it is not necessarily so weak to trigger additional stimulative actions by the Fed. I do not necessarily come to a judgment about whether the market is wise about anticipating Fed policy actions — but perversely, a somewhat worse number might have met a more tepid reaction from the stock market.
The Federal Open Market Committee meets next on July 31 and Aug. 1, at which point it could consider additional quantitative easing programs or other stimulative actions.
2. Is this the new normal? Before the June jobs report was released, most economists had expected the payroll numbers to revert to something stronger, perhaps 150,000 jobs per month, over the remaining months of the year.
Weakness in May and June had been observed in a number of economic indicators. But there were also glimmers of hope in measures that are arguably more forward-looking: some signs of a rebound in the housing market, a significant decrease in oil and energy prices, and relatively good news out of Europe.
Meanwhile, other indicators of job growth have been slightly stronger than the government’s payroll report. The government’s separate household survey, from which the unemployment rate is calculated, showed 128,000 jobs added in June, and 127,000 on average over the past three months — although the household survey is associated with a larger sampling error than the survey of employers.
The ADP report on private-sector payrolls has shown about 140,000 jobs added per month since April.
Discrepancies like these are not uncommon; the number of jobs in the American economy is a hard thing to measure. Revisions to the government’s payroll report are often quite substantial; since 1970, they have averaged 54,000 jobs per month. That means the margin of error on the jobs reports — enough to cover 95 percent of all possible cases, as would be reported if they were political polls — is even larger, in excess of 100,000 jobs per month.
Still, even if the government’s payroll numbers are underestimating job growth slightly, the job market is not doing much more than tread water. Perhaps 125,000 jobs are needed to keep up with the growth in the population.
3. Is this a political ‘game changer’? On Thursday night, I had written that a significant downside miss in the job numbers could change the prevailing sentiment about the state of the presidential campaign — with the conventional wisdom becoming that the election had reverted into being a toss-up, after a solid string of news and polling numbers for President Obama in late June.
As I mentioned, I am not sure this qualifies as a significant miss relative to the market’s expectations. Still, those expectations were quite low to begin with. These are certainly disappointing numbers as compared to what had seemed possible earlier in the year.
Before the January job numbers were released, I wrote that 150,000 jobs added per month would make Mr. Obama roughly break-even for re-election given his approval ratings at that time. Between the strong numbers in the first few months of the year and the weaker ones recently, almost exactly 150,000 jobs per month have been created so far in 2012.
However, Mr. Obama seems to have gotten the benefit of the doubt from voters. His approval ratings improved some early in the year, but have not yet declined much with recent jobs reports.
The June numbers, then, will represent another test of Mr. Obama’s resiliency. Mitt Romney should have an opportunity to turn the conversation back to the economy over the next few weeks. If he is not able to take advantage of it, then it might be more appropriate for conservatives to fret about the state of his campaign — concerns that seem a bit premature now.