The Policy Absurdity of the Monthly Jobs Report byMohamed El-Erian1There is one thing worse than addressing a problem with...
The Policy Absurdity of the Monthly Jobs Report byMohamed El-Erian2securities – and this despite the fact that central ban...
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The Policy Absurdity of the Monthly Jobs Report by Mohamed El-Erian

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In the next few hours, politicians from both parties will take to the air to comment on this morning’s numbers and use them to undermine those on the other side of the aisle. What we will not hear, however, is a much needed and detailed call to action. And this amplifies the worries that some of us have about the extent to which joblessness is getting embedded in the structure of the economy, rendering the subsequent solutions even more difficult.

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Transcript of "The Policy Absurdity of the Monthly Jobs Report by Mohamed El-Erian"

  1. 1. The Policy Absurdity of the Monthly Jobs Report byMohamed El-Erian1There is one thing worse than addressing a problem with imperfect solutions. It is notaddressing the problem when better solutions are available. Yet this is what seems tohappen every month in reaction to the highly-watched employment report.This morning’s data confirmed the central message of prior monthly reports: the jobs pictureis improving, but not fast enough given the damage created by the Great Recession –especially for those of us who worry about unemployment problems getting structurallyembedded into the economic system and, thus, becoming even much harder to solve.According to this morning’s report from the U.S. Bureau of Labor Statistics, 175,000 jobswere created in May – a solid but not great number. Private sector jobs growth amounted to178,000, with gains in professional and business services, food, retail and health care.Government jobs declined by 3,000.Some of the major components of the employment report are still flashing yellow. Averagehourly earnings were essentially flat in May while unemployment ticked up to 7.6%.Even more worrisome, there are still 4.4 million Americans that are long-term unemployed,the teenage joblessness rate is stuck at 24.5%, and the employment-education gap speaksto the more general problem of excessive income and wealth inequalities (theunemployment rate for those with a bachelor’s degree is 3.8% compared to 11.1% for thosewith less than a high school diploma).Another notable issue pertains to the pattern of reactions. It is not changing fast enough inorder to improve future employment reports.Three elements are particularly noteworthy.First, the numbers have been, and remain a direct input for Federal Reserve policydeliberations – particularly how it should continue supporting the economy using highlyexperimental (and invariably imperfect) tools.Today’s numbers will cause the Fed to think again about its desire to taper its buying of
  2. 2. The Policy Absurdity of the Monthly Jobs Report byMohamed El-Erian2securities – and this despite the fact that central bankers are increasingly recognizing thatthe hoped-for “benefits” of unconventional measures come with “costs and risks” (that is,collateral damage and unintended consequences). In other words, they are stuck withimperfect policy tools.Second, financial markets are obsessed with the monthly numbers because they speak tohow Fed policy is influenced by such data. Remember, the central bank’s highly-experimental actions have inserted a significant wedge, disconnecting sluggishfundamentals from more buoyant asset prices (at least until recently).But market reactions are no longer as predictable. Developments in the last couple ofweeks, including Japan’s massive volatility, have started to shake some investors’unquestioned faith in the power and effectiveness of central banks.Third, the reactions of the Fed and markets stand in sharp contrast to what happens onCapitol Hill.For Congress, the monthly jobs report does not really serve as an input into policymaking.This is unfortunate and frustrating on two counts: the United States still faces anunemployment problem notwithstanding the steady improvement of the last couple of years;and Congress is in a position to deploy many better tools than the one being used by theFederal Reserve.This does not mean that there are no responses on Capitol Hill. There are, but they focuson political statements rather than policy actions.In the next few hours, politicians from both parties will take to the air to comment on thismorning’s numbers and use them to undermine those on the other side of the aisle. Whatwe will not hear, however, is a much needed and detailed call to action. And this amplifiesthe worries that some of us have about the extent to which joblessness is getting embeddedin the structure of the economy, rendering the subsequent solutions even more difficult.

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