How could we boost American employment and GDP? One philosophy is to try to do more of what's already working.

Source: WSJ.

In January 2012, there were 4.7 million fewer Americans working than in January 2007. But one sector that has bucked the trend is oil and gas production. A story in today's Wall Street Journal notes that if you look at oil and gas extraction and its support activities, oil and gas pipeline construction, and oil drilling and machinery, you'll find 158,500 more people working today compared to 5 years ago, or a 33% increase.

The article goes on to point out that employment benefits extend well beyond those working in the oil patch itself:

There is no oil and gas production in Idaho, but that doesn't mean the U.S. energy boom has bypassed this bedroom community west of Boise. Fleetwood Homes of Idaho, a subsidiary of Cavco Industries Inc., has increased production by 25% since last fall at its Nampa factory, hiring 40 workers and adding hours for employees. It is building the extra-insulated "Dakota" model for shipment 1,000 miles east to the Bakken oil field in North Dakota.

And the cheaper natural gas brought on by new drilling methods offers a big competitive advantage to manufacturing firms locating near the energy source:

Last year, Nucor began construction on a new iron upgrader, just a few hundred feet away from the old facility in St. James Parish, La [closed in 2004]. It will cost $750 million to build and create 150 permanent jobs, which the company says will pay an average of $75,000 a year.

What changed? "Shale gas allows that natural gas to be more competitive, and more competitive natural gas enabled us to build this facility in Louisiana instead of building a second facility in Trinidad," says John Ferriola, Nucor's president.

I've been arguing that even in the midst of a deep recession, it still makes sense to be paying attention to the opportunities available to individual firms to create value added. The goal is not just to "create jobs" but rather to find a way to allow people to make something whose value is greater than the value they place on their own time. Looking at what the government could do to facilitate those opportunities should be on the list of options that the President considers for dealing with America's ongoing economic challenges.

Last week I had the opportunity to attend an IMF conference (organized by Olivier Blanchard, Krishna Srinivasan, and Hamid Faruqee) focusing on the critical issue of assessing the sources of the pre-crisis imbalances in systemically key countries. The proceedings also had a forward looking component, highlighting the difficulties of determining when external imbalances are problematic. The conference proceedings are here.

To place the topic in perspective, here is the graph of current account imbalances, from the September 2011 World Economic Outlook:

Figure 1: Current account balances, as a share of world GDP. Forecasts from 2011 onward. Source: IMF WEO (Sept. 2011).

Here is the conference agenda, with links to the presentations. More links are available at the IMF conference website.

Introductory and Welcoming Remarks
• Olivier Blanchard
• G-20 MAP Focus on Imbalances—Krishna Srinivasan
• G-20 MAP Indicative Guidelines: how/why 7 countries were chosen for deeper assessment of imbalances—Emil Stavrev

Session 1: What can explain large current account surpluses?
Moderator: Ashoka Mody

Case studies of China and Germany—presentations by Shaun Roache and Vladimir Klyuev
Discussants:
   • Nicholas Lardy [Presentation ]
   • Joshua Aizenman [Presentation ]

Case studies of Japan—presentation by Josh Felman
Discussant:
   • Joseph Gagnon [Presentation ]

Session 2: What can explain large current account deficits?
Moderator: Krishna Srinivasan

Case studies of United Kingdom and United States—presentations by Shaun Roache and Vladimir Klyuev
Discussants:
   • Jay Shambaugh [Presentation ]
   • Stephen Pickford

Case study of France and India—presentations by Joong Shik Kang and Josh Felman
Discussant:
   • Arvind Subramanian

Luncheon and Talk (HQ 2 Conference Hall 2)—By Invitation Only
John Lipsky—reflections on G-20 process, imbalances

Session 3: External Balance Assessments
Moderator: Jonathan D. Ostry

Presentation by Steve Phillips [Presentation ]
Discussants:
   • Menzie Chinn [Presentation ]
   • Joshua Aizenmann [Presentation ]

Roundtable—Imbalances and the Global Economy: Past, Present, and Future

Moderator: Nemat Shafik (IMF, Deputy Managing Director)

Panelists:

Olivier Blanchard, IMF, Economic Counsellor and Director

Maurice Obstfeld, University of California at Berkeley, Professor Presentation

Stephen Pickford, HM Treasury, Managing Director—retired; Associate Fellow, Chatham House

Paul Rochon, Canada, Associate Deputy Minister of Finance

Christian Broda, Duquesne Capital, Managing Director Presentation

Some of my thoughts on global imbalances here: [1] [2] [3]. And some assessment of the "blame it on Beijing" approach to explaining the financial crisis of 2008: [4] [5].

Actually, not even the footnotes -- just the text accompanying data releases (in this case it's the second paragraph, in a box, of the release). Although, I must admit, this long rant by FoxForum contributing writer Noel Sheppard just made me laugh and laugh and laugh, thus making an otherwise bleak Monday brighter. From "CNN's Crowley Does Two Segments on Jobs Numbers Without Mentioning Plummeting Participation Rate"

When I saw CNN's Candy Crowley on Sunday tease an upcoming State of the Union segment saying she'd be discussing Friday's unemployment report after a commercial break, I was hoping to see a complete analysis of the data provided by the Bureau of Labor Statistics.

Much to my shock and dismay, although she and her guests discussed the economy and the jobs market for eight minutes over two segments, there was not one single word said about the declining participation rate or the record 1.2 million one month increase in the number of people not in the labor force (video follows with transcript and commentary):

As discussed by Jim (and by CR), this misinterpetation arises because of a lack of understanding of how the numbers are calculated. In my view, these sorts of mistakes are common among those looking for the cheap thrills of exposing non-existent data conspiracies. If only Mr. Sheppard read Table C (page 7)of the release!

Of course, this is not the first (or likely to be the last) time such mistakes have occurred. See Brad DeLong's critique of Professor Robert Barro's Business Week column of January 2004.

By the way, doing the calculation Jim suggests indicates the "not in the labor force" number fell by 0.075 million...

Update, 2/7, 3:40 Pacific: From Goldman Sachs, "US Daily : Labor Force Participation: Cyclical Boost, Structural Drag" (Sven Jari Stehn, Feb. 6, 2012):

...Updated population estimates in the household survey--which mainly reflect the introduction of new information from the 2010 Census--imply that the labor force participation rate had declined by a cumulative 0.3 percentage point more since 2000 than previously reported. (Note that because official population and labor force estimates are not revised, the 0.3-point decline appears entirely as a drop in the January 2012 print of the participation rate.) The chart below provides a simple estimate of what the "true" labor force participation rate might look like by linearly interpolating the reported 0.3-point decline between January 2000 and 2010--when the decennial census estimates were compiled. At 63.7%, the participation rate now stands at its lowest level since May 1983.

To gauge the outlook for the participation rate, we update a model we developed last year. (For details see Sven Jari Stehn, " Labor Force Participation: Only a Small Rebound in Sight," US Economics Analyst, February 11, 2011.)

...

...our model suggests that the participation rate will remain broadly flat at 63.7% through the end of 2013 (see dashed line in the chart above).

Last week's data suggest that the U.S. economic recovery is continuing to gain some strength.

On Wednesday the Institute for Supply Management announced that its PMI manufacturing composite index rose to 54.1 for January, its highest value since June. A reading above 50 signals that more establishments experienced improvements than saw deterioration in key measures during January, and a value above 52.7 is a weak indicator of above-average real GDP growth. ISM's non-manufacturing index came in with an even stronger reading of 56.8.

Manufacturing PMI. Source: Calculated Risk,

Auto sales, another key cyclical indicator and early barometer for the economic effects of higher oil prices, were back up in January to the levels associated with the early months of the 2007-2009 recession. Four years ago, those levels were a drag on the economy, but compared to what we saw over the subsequent four years, they don't look so bad.

Source: Calculated Risk,

The most important monthly indicator is the BLS estimate of the number of Americans on nonfarm payrolls, which was up by 243,000 workers on a seasonally adjusted basis in January. The BLS estimate of the unemployment rate also continued to improve, falling to 8.3% in January. The 0.8 percentage point drop in the unemployment rate since August is somewhat surprising-- usually we'd expect to see stronger growth in real GDP and in nonfarm payrolls than we have in order to realize that much improvement in the unemployment rate.

Source: FRED,

The unemployment numbers come from a BLS survey of households that is completely separate from the survey of establishments on which the nonfarm payroll numbers are based. The household survey also produces its own measure of total employment, which is generally regarded as less reliable than the establishment-based estimate, though sometimes the household survey has been a little quicker to recognize cyclical turning points. To get employment numbers from the household survey, one needs not just the employment rates among respondents, but also separate estimates of the population. Each January the BLS updates its population estimates, this time incorporating an assumed population that is 1.5 million larger than that used for December. The result is that the reported December-to-January changes in certain categories were huge because they imputed to a single month some changes that in fact accumulated over the year. This led some commentators to misinterpret the January labor force report, a point clarified by Bonddad Blog and Calculated Risk.

It's worth noting that the BLS also reports an estimate of what the December-to-January change in employment would have been based on the household survey if there had been no population adjustments. That number turns out to be a monthly gain of 631,000 jobs-- a significantly more bullish estimate than the nonfarm payroll number.

But even if we ignore the household survey altogether, it is accurate to say that things are looking better than they did a week ago.