The extreme decrease in national jobs growth this summer has economists questioning the accuracy of the seasonal adjustment factor. Seasonal adjustment attempts to eliminate variances in economic conditions resulting from seasonality to provide more stable (and reliable) data.
Unexpected deceleration in the creation of new jobs over the summers of 2010, 2011 and 2012 suggests a trend. While this possible pattern has only a three-year duration and has not been validated, several economists have surmised that the extreme swings in the job creation rate since the 2008 recession were skewed by inaccurate seasonal adjustment — ironically, the very condition the seasonal adjustment was designed to prevent.
A truer representation of the rise and fall of the jobs creation rate throughout the course of a year is likely less volatile and instead more moderate — a little weaker than reported during winter boom months, a little stronger in the supposed summer droughts.
Whether or not the recent jobs growth assessments perfectly reflect their actual state, the typically pronounced June 2012 decline following January’s surge is discouraging and indicates progress towards full recovery remains lethargic. It also muddles the Federal Reserve’s (the Fed’s) economic forecasting abilities, unhelpful to their decision of whether more economic stimulus is needed.
first tuesday take
This Lesser Depression will not last forever. The decrease in jobs growth during the summer months of 2010, 2011 and 2012 is not a pleasant contemplation for those frustrated with the current new jobs growth and unemployment rate.
However, some context of the larger improving trend is needed to put this data in perspective. The observed progression from 12.9% California unemployment in January 2010 to 10.4% unemployment in May 2012 is undeniably encouraging for the economy as a whole.
The moral of the story? The recovery may be slow, but it is nonetheless a recovery.
Agents disgruntled by what seems to be a summer rewind button for the economy must simply be patient and await the forthcoming healing of the jobs market.
California is currently experiencing a brief swell in home sales, fueled by speculators, but sales will soon ebb with investor cash. True stability will not return until employment gets going and owner-occupants get some money in their pockets — which first requires jobs. Until then, the residential real estate market will continue to shift toward rentals as unemployed and under-employed buyers deplete their savings accounts and wait to accumulate enough money for a down payment.
The historical point of stability for California’s homeownership rate is 55%, very close the current rate of 55.3%. However, homeownership rates will likely fall further — 4% below their historical point of stability — before the housing market rebounds and occupancy rates between rental properties and owner-occupied homes stabilize, most likely in 2016. As of now, committing to a 30-year loan is not attractive enough (or financially viable) for many to transition from renting to owning their homes.
Dear agents: hold on a little longer. California’s economy may not be as prone to fluctuation as the greater national economy (which also may not be as mercurial as previously thought), but its housing market will not gain enough traction to stabilize and grow for another few years—likely 2016. Until then, “In your patience, possess ye your souls.”
Re: “On the now-traditional summer swoon” from the Economist