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February 5, 1993
January Non-Farm Payrolls gained a meager 106,000 jobs, at the weak end of expectations, while the Unemployment Rate enjoyed a misleading .2% improvement to 7.1%.
All other news described a different economy, one taking off into a robust recovery. The Purchasing Managers' Index surged to 58% from 55.4%, its highest level in five years. Leading Economic Indicators soared 1.9% in December (biggest single month gain in a decade), Factory Orders picked up a solid 5.3%, New Home Sales gained 6.3%, and New Auto Sales hit a two-year high.
What is going on here? The economy as a whole is growing at a 4% annual pace -- but nobody is getting hired.
Economists insist that this growth is "not sustainable," but every 90 days, out comes another report saying the growth rate is accelerating. California is a mess, and the Northeast is stalled, but the two combined are not enough to explain the lousy market for jobs.
There is one good explanation for growth-without-jobs: a record increase in productivity.
How's that? We thought poor productivity was the problem; and if we solved it, everybody would be in great shape. Now it's fixed, and we don't have jobs?
Right. In a report this week, labor productivity in 1992 gained 2.7%, a twenty-year high. But here is the problem: productivity is measured by dividing the dollars produced by the people doing the producing. If you have fewer people producing the production, you are more productive.
The early stages of a restructuring conjure Dickensian horrors: the sweatshop, the endlessly speeded up production line, and the dole. Or, just as bad, some arch-capitalist triumph of haves over have nots.
The drive to increased productivity does hurt, but it is inevitable, and beneficial. In the long run, the wealth of the nation can only grow with its productivity. The Clinton people are right to focus on upgrading the skills of the workforce, because that's the way we upgrade our future.
Other than providing training and a safety net, there isn't a thing government can do to speed up the restructuring; it must (and will) run its course. There is nothing that government can or should do about the IBMs, GMs, and Sears' who go off into some corporate naptime.
A weak job market will hold interest rates down -- but watch out for an assault on the Fed by impatient, job-demanding Congressional demagogues.
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