EMPLOYMENY NUMBERS WITHOUT SPIN

Comstock Partners, Inc.

Employment Numbers Without the SpinMarch 10, 2005

Last Friday the report that February payroll employment increased by a monthly 262,000 was greeted with great enthusiasm by the stock market and most economists. This was the 39th month since the official recession bottom in November 2001. The following is an attempt to put this number into perspective without the spin.

In the previous five expansionary economic cycles the average increase in employment over the first 39 months was 10.1%. In the current cycle the increase is 1.5%.

If employment had climbed by 10.1 % since November 2001, we would have added 13.2 million jobs instead of the 1.9 million actually reported. That’s a difference of 11.3 million jobs.

If we did add 13.2 million jobs on the current cycle, the average monthly increase would have amounted to 338,000. Instead the monthly average increase has been only 50,000, and we have exceeded 300,000 in only three separate months out of the 39.

How about the last 12 months when the economy added about 2.4 million jobs? That amounts to a rise of 1.8%. In the previous five cycles, however, employment increased by an average of 3.4% over the last 12 of the 39 months. Had we done that in the current cycle, the increase would have come to 4.5 million, a difference of 2.1 million.

In the last 12 months the economy added an average of 198,000 jobs a month. In the prior five cycles the economy added an average of 370,000 a month in the last 12 of the 39 months.

The sub-par employment growth is reflected in comparable below average growth in wages and salaries. Consumers, however, have maintained their spending patterns by running down savings and racking up debt aided by record monetary and fiscal stimulus, resulting in the twin trade and budget deficits. A careful reading of Chairman Greenspan’s recent speeches and testimony indicates that he is concerned about these problems as well. Please see our comment, “What Keeps Greenspan up at Night” (February 17, 2005).