Euquant

Dr. Boston is the CEO of EuQuant, an economic and statistical consulting company as well as a professor of Economics at the Georgia Institute of Technology.

The economy is gaining strength as reflected in the third quarter GDP figure which shows growth of 3.5%. This is the most significant figure to come out over the last few weeks. It is important because it reflects the overall temperature of change. The new monthly unemployment figure is troubling not because it is 10.2%, but because it increased by 4/10 of one percent in a month. I expected the rate to top 10% but the speed at which the increase occurred gives me some concern. In looking over the categories of unemployment, it appears that teenagers experienced a significant proportion of this new unemployment gain. Unemployment among racial minorities remains very high but it has not increased significantly over the last several months.

•     In looking over the change in unemployment categories, it appears that the largest percentage increase occurred among teenagers. That is, while the overall unemployment rate increased by 4/10 of one percent, the unemployment rate for teenagers increased by 1.7 percentage points.

•     Sectors experiencing gains in employment were business and professional services, education and health services. Sectors experiencing the greatest loss in jobs were construction, manufacturing and retail.

•     The overall size of the labor force did not change much which means that workers who have dropped out of the labor market have still not began to move back into the workforce. At present, there are 2.4 million workers who have dropped out of the labor market because they could not find jobs. They are not counted among the unemployed. There are also 9.3 million workers who are under employed; that is they work part-time but would like to work full-time.

•     The total number of job losses in October was 190,000. In September the number of job losses was 219,000 and in August the number was 154,000. The 190,000 job loss figure for October is likely to be revised downward by about 20% because the 190,000 represents a non-seasonally adjusted estimate. Therefore, the real estimate of job losses is probably around 152,000. This means that the job loss figure is getting slightly better every month.

•     The initial claims for unemployment insurance decreased by 20,000 to its lowest level since January -- 512,000.

•     While the unemployment figures are the troubling, many other signs in the economy show increasing growth, particularly the GDP increase for the third quarter which was 3.5% following a second-quarter decrease of 7/10 of one percent. Others signs of renewed growth include productivity increases (9.5%), increases in consumer spending, and increases in housing purchases. In the third quarter the economy also experienced gains in inventory investments, increases in exports and government spending. The significant increase in productivity to 9.5% - following a second-quarter increase of 6% - primarily reflects the fact that businesses are cutting costs and cutting workers to increase profitability. As a result, the economy is experiencing the unusual outcome of having rapid productivity growth accompanied by rising unemployment.

The economy is gradually improving but it will be a long and slow process. Furthermore, it is unlikely, within the next five years, that we will reach the normal rate of unemployment the economy achieved over the last decade-- even when the economy has fully recovered. Large corporations have downsized significantly and our analysts do not expect them to reemploy the workers they have terminated. The greatest employment generator looking forward will be small businesses. The President's New Emphasis on Small Businesses is very important; however it is focused too much on loans and not enough on the kinds of contracts that will generate work for small businesses. Most small businesses that are in trouble financially probably will not be able to qualify for a loan and those that are not in trouble may not need one. Small businesses currently account for three quarters of all new jobs created in the economy and they employ close to 60% of the workforce. Look for increase activity in the policy arena around efforts to promote small business growth.