October Jobs Report Belies Obama Claim that the Shutdown Hurt the Economy

The White House is making some startling claims about the government shutdown’s cost to the economy.

Essentially, evil Republicans have sabotaged growth and cost tens of thousands of jobs:

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October’s 16-day government shutdown will cut into fourth-quarter GDP growth by 0.2 to 0.6 percentage points, according to a report released Thursday from the White House Office of Management and Budget. That hit to GDP is in line with many economists’ estimates. The shutdown also meant 120,000 fewer private-sector jobs created in the first two weeks of October.

If those projections are correct, it could mean the shutdown delivered a meaningful blow to the national economy. Third-quarter GDP growth was at 2.8 percent, the Commerce Department reported Thursday. Even if that pace holds steady through the fourth quarter, it could mean that the shutdown brought moderate economic growth down to more sluggish levels.

Likewise, a subtraction of 120,000 private-sector jobs could bring October job growth to a crawl. September’s job growth was only at 148,000, and average monthly job growth for 2013 is at roughly 178,000. However, consensus estimates for private job growth in October stand at 128,000, according to Bloomberg. More data on how the shutdown affected the October jobs numbers will come Friday morning, when the Labor Department releases the October employment report.

The White House also estimates it paid $2 billion to furloughed employees for their days off the job, and that the total compensation bill, including benefits like health insurance, came to $2.5 billion.

OMB Director Sylvia Mathews Burwell told reporters in a Thursday afternoon conference call that those estimates are “conservative.”

“It does not represent the total cost, because the other thing it does not cover is all the preparation leading up to and what happened post [shutdown],” she said.

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Unfortunately for the White House, this scary report came out a day before the actual jobs numbers were released. Given that the BLS reported that 202,000 jobs were created in October, does anyone seriously believe that the shutdown cost us another 120,000 jobs for the month? That would mean that October’s “actual” numbers would have been 322,000.

For the record, the highest number of jobs created in a month during Obama’s time in office was 241,000 in April of this year.

James Pethokoukis finds  evidence that the shutdown had a minimal effect on real job creation:

The federal government shutdown may have distorted the US employment report for October — but not the US economy.

Blowing away expectations, the Labor Department reported a surprisingly large 204,000 gain in October non-farm payrolls vs. a 125,000 consensus. Add in a combined a 60,000 upward revision to job gains in August and September and the three-month average is 202,000 vs. 154,000 in the August-October period in 2012. Capital Economics:

Apparently, the near three-week Federal government shutdown had little, if any, impact on payrolls. Manufacturing increased by a healthy 19,000, construction increased by 11,000 and retail increased by 44,000. … the US economy appears to be overcoming a summer swoon.

Now those numbers are from the establishment survey, which counted furloughed government workers as employed. The smaller household survey did not, and it showed. The unemployment rate ticked up to 7.3%, while the labor force participation rate and employment-population ratio fell sharply. But as Capital Economics points out, “With those Federal employees back at work now, however, all of this will be reversed in November’s report.”

So for this monthly only, Republicans will look to the bright side of the monthly jobs numbers — “See, the government shutdown was a non-event” — the Democrats the opposite. Of course the counterfactual here, one Democrats will try and sell, is that even more jobs would have been created without the government shutdown. Indeed, the Obama White House seems to like counterfactuals. Recall the “jobs created or saved” metric to judge the stimulus.

It should still be noted, however, that even at 202,000 jobs a month, it would take more than 5 years to return to prerecession employment levels, according to the Hamilton Project. As the Economic Policy Institute points out:

We need 8.0 million jobs to get back to the pre-recession unemployment rate, and at the average rate of growth of the last 12 months, that won’t happen for another five years. … There are currently roughly 6.1 million missing workers, and if these workers were in the labor force looking for work, the unemployment rate would be 10.8 percent instead of 7.3 percent.

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Economists are very fond of the “ripples in the pond” theory of the velocity of money. The problem with it is when they deliberately use a  stone the size of a small mountain to gauge this ripple effect when a pebble would have been just fine. I exaggerate to make a point, but its not hard to make the impact of an event on the economy look better or worse simply by jiggering a few numbers.

One thing is certain; the White House guestimate of 120,000 jobs lost in October because of the government shutdown is a political number and has little basis in fact.

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