Author Topic: Did the sequester or payroll-tax holiday expiration hurt job creation in March?  (Read 408 times)

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Offline mystery-ak

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Did the sequester or payroll-tax holiday expiration hurt job creation in March?
posted at 3:21 pm on April 5, 2013 by Ed Morrissey

We’re certainly hearing plenty of excuses about today’s jobs report coming from Obama administration apologists. Almost immediately, some — including former Obama adviser Austan Goolsbee — blame it on sequester cuts that have barely had time to take effect, and that mostly impact government operations. A quick check of BLS data (Table B-1, seasonally adjusted) after today’s update shows that the entire government sector lost only 7,000 jobs, after growing by 14,000 in February. In January, long before the sequester took place, the public sector lost 16,000 jobs, as well as losing 5,000 in December, 9,000 in November, and 57,000 in October. The loss in March in the public sector was mild, comparatively speaking, and certainly didn’t depress private-sector hiring.

Jim Pethokoukis pops another hole in this theory:

So what’s the problem? The payroll tax hike? The sequester? (As IHS Global Insight notes: “It is hard to blame the sequester for March’s disappointment. Federal employment did drop by 14,000, but most of that was in the US Postal Service, which isn’t affected by the sequester.”)

As Jim notes, another excuse that has been floated today is the expiration of the payroll-tax holiday.  Retail lost 24,000 jobs in March, which caused some analysts to point fingers at the loss of income — roughly $20 per week per worker — in the expiration of the FICA reduction.  But that reduction took place at the beginning of the year, not in March.  If that was the proximate cause, then we should have seen significant reductions in consumer expenditures in January and February, when this tax “hike” hit.  According to the Bureau of Economic Analysis, we actually saw consumer spending grow in both months after the PTH expiration, in both nominal and real terms, even with income declining:

    Personal income increased $143.2 billion, or 1.1 percent, and disposable personal income (DPI) increased $127.8 billion, or 1.1 percent, in February, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $77.2 billion, or 0.7 percent. In January, personal income decreased $513.5 billion, or 3.7 percent, DPI decreased $498.3 billion, or 4.0 percent, and PCE increased $40.8 billion, or 0.4 percent, based on revised estimates.

    Real disposable income increased 0.7 percent in February, in contrast to a decrease of 4.0 percent in January. Real PCE increased 0.3 percent in February, the same increase as in January. …

    Real PCE — PCE adjusted to remove price changes — increased 0.3 percent in February, the same increase as in January. Purchases of durable goods increased 0.1 percent in February, compared with an increase of 0.4 percent in January. Purchases of nondurable goods increased 0.5 percent in February, the same increase as in January. Purchases of services increased 0.3 percent in February, compared with an increase of 0.2 percent in January.

I mean, it’s not difficult to find this out. The data is on line, which makes it a lot easier to avoid poor assumptions.  Apparently, some economic pundits would prefer to rely on conjecture rather than data.

So what happened in the retail sector?  Even though people may be spending more now, they’re not spending enough to cover the escalating costs of employment — and part of that, economist Mark Zandi suggests, is the pending implementation of ObamaCare and the mandates it imposes on employers:

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Retail trade number, that is consistent with the… I don’t think the sequester is in here at all, I think it’s way too premature for the sequester having an impact, but the retail trade number would be consistent, not only with the payroll tax, but again I think healthcare reform might be having an impact. Remember the ADP number? It said for those companies with employees, with 50 to 499, that’s the group that would be affected by the healthcare reform, we’ve seen a rather sharp slowing in job creation. 43k in January, 20k in February and -5 in March.

If we want more hiring, we should be making it less expensive and simpler, rather than more expensive and complicated.  As we keep moving to the implementation date for ObamaCare, this will be a larger and larger drag on job creation.

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