A Look at Bright Side Of the US Economy

THE United States economy is stronger than Democratic presidential nominee Bill Clinton, or his acolytes in the fourth estate, would have you believe.

News organizations reported that "government figures showed ... American business and industry lost 167,000 jobs in August." That was false. Business and industry added 99,000 jobs last month - 85,000 in manufacturing, 25,000 in services, partly offset by small drops in mining and construction. Labor Department statisticians judged these increases to be less than normal. Therefore, the department said that on a seasonally adjusted basis, private jobs dropped 167,000. Businesses did not "lose jobs;" they hired fewer people than usual.

The August jobs report was clearly weak, despite the rise in jobs and a small drop in the unemployment rate. The main measures of employment - civilian workers, adult workers, full-time workers and payroll jobs - all posted modest seasonally adjusted declines last month. However, even with the August drop, the number of nonfarm workers rose 1.3 million in the past year. In 1993, nonfarm employment should go up another 2.4 million. Teenage jobs may continue to go down because of side effects from the shar p increase in the minimum wage in 1989 and 1990.

Reporting of economic news is a complex affair. To track the daily activity of more than 250 million individuals in the world's richest economy requires abstract measurements often far removed from the realities of daily life. As was the case with last month's job report, the alchemy of seasonal adjustment routinely transforms ups into downs and vice versa. Opportunities for bias and distortion are endless. A slanted story is hard to detect. By sending a garbled message, news people have helped ensure in appropriate policy responses. The Labor Department regularly publishes alternative statistics for nonfarm employment. The government bases one measure on the Census Bureau's monthly sampling of US households. This survey tabulates the number of workers, and is the source of the figures the Labor department uses to calculate the unemployment rate.

The Bureau of Labor Statistics also surveys more than 300,000 business establishments each month. The latter survey counts the number of jobs, as opposed to the number of workers.

The household survey was weaker than the establishment survey going into the recession and stronger coming out. This is a normal recession-recovery pattern. In the year ended August 1992, the number of nonfarm workers rose 1.3 million on the basis of the household survey. Nonfarm jobs went up 250,000 on the establishment definition. It does not take much imagination to figure which number was fit to print.

Media mavens say that America is not creating enough jobs. In a short-run sense, that is true. In the last two years, the number of adult Americans who say they looked for a job but could not find one rose by 2.5 million. By any definition, the pace of recovery from the 1990-91 recession has been disappointing.

In historical context, however, the US job market is robust. A record 112 million adult Americans are now working. Adult employment was 63 percent of the adult population last month. That was below the high of over 64 percent in the spring of 1990, but it was above any other period prior to mid-1987. It was far above the peak of 61.4 percent during the Carter Administration.

Slow as the recovery has been, the basic problem in America is not the number of jobs but rather how much US workers produce. For the last 20 years, US productivity (output per worker) has gone up at a rate of less than 0.5 percent, down sharply from the 1.7 percent growth trend over the prior 80 years. This is why real income has been stagnant in recent years. It explains why Americans are worried about a decline in living standards.

The cause of the slowdown is easy to find. A drop in profitability of US firms has cut the incentive for business investment. Substandard levels of investment have deprived US workers of tools they need to maintain their productivity and living standards. Stagnation will continue until disincentives to investment are eliminated. Investment is the key to growth.