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A Skewed Holiday Picture
Why yearend data may be unreliable
With the economy roaring ahead at close to a 5% annual rate in the third quarter--far above what the Federal Reserve deems its growth potential--the financial markets are keeping a wary eye on economic statistics for the current quarter. Will the long-awaited slowdown materialize this Christmas season?
According to L. Douglas Lee of Economics From Washington Inc., the picture is likely to be ambiguous. "There's a good chance," he says, "that the data will point to slowing activity when the economy is really humming along."
The statistical fly in the ointment is that normal seasonal adjustments of employment numbers could give a highly distorted picture of labor-market trends in coming months. Each year, hundreds of thousands of additional workers are hired in November and December as the holiday season moves into gear. And each year, the Labor Dept. adjusts the raw employment numbers downward to offset this temporary surge and give an accurate picture of underlying employment trends.
While the seasonal adjustments for this year have not been released at this writing, during the past three years, they subtracted an average of more than 1 million workers from the raw employment numbers for November and 800,000 from those for December. Since the adjustment formula is heavily weighted by the pattern in recent years, it's unlikely to change much this year.
The problem is that 1999 is the first year in memory that the U.S. is entering the strongest hiring season of the year in the face of widespread reports of labor shortages. With the pool of potential workers (those counted either as unemployed or out of the labor force but willing to work) down by 1 million over the past year, merchants are having trouble hiring seasonal workers.
Thus, the normal seasonal adjustments this year may make the labor market appear unusually weak. Hiring levels constrained by a limited supply of seasonal workers, says Lee, could be translated into very small employment gains in both November and December.
That's not all. The shortage of retail workers suggests that shopping at normal retail outlets could prove unusually frustrating for consumers. And that, warns Lee, could spur a lot of shoppers to turn to the Internet. Although some Internet sales are picked up by government statisticians, he notes that private surveys of Web commerce suggest that the government may be missing a big chunk of the action--particularly by recently established sites.
The upshot is that data problems affecting employment and retail-sales numbers could paint a false picture of economic activity in the waning months of '99. "Hopefully," says Lee, "both the Fed and the markets will be able to see through the statistical fog."By Gene KoretzReturn to top
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Incentive for Welfare Moms
How minimum-wage hikes can help
With unemployment at a 30-year low and Americans enjoying the fruits of a buoyant economy, it's hard to argue against the proposed increase in the minimum wage from $5.15 to $6.15 an hour. Indeed, the only issue dividing Democrats and Republicans is whether to do it over two years or three.
Still, many economists and businesspeople continue to oppose the move and warn of its possible impact on the success of welfare reform. Standard economic theory indicates that a higher minimum acts to reduce employment among low-skilled workers. Thus, critics claim that it will actually tend to increase welfare rolls.
Others argue that the lure of higher wages will lead welfare moms to get off the dole. Even if employment opportunities decline a bit, they say, more welfare mothers will compete for--and get--the jobs that are still available.
A recent study by economist Mark Turner of the Urban Institute supports the latter view. The study analyzed the reactions of welfare recipients to minimum-wage hikes by the federal government and several states in the early 1990s, a period when unemployment was still relatively high.
Turner's analysis indicates that a 50 cents rise in the minimum wage induces about 2.5% of recipients to quit the dole. By that measure, the proposed $1 hike could cut welfare rolls by as much as 5%. In sum, fears that planned hikes in the minimum will impede welfare moms' transition to work seem exaggerated.By Gene KoretzReturn to top