The new unemployment claims report is out, and the Labor Department says new claims “unexpectedly” rose last week by 26,000. Last week, they were down by 31,000, and the four-week average is still at a two-year low, according to the Associated Press.
The other big economic story this week is the success of Black Friday and Cyber Monday, the biggest retail and online shopping days of the year. Most major retail and online outlets reported stronger than expected sales over the weekend. Reuters quotes Craig Johnson, president of Consumer Growth Partners, as saying “It’s like a perfect storm for a good holiday. The 83 percent of people with full-time jobs are starting to spend again.” He attributes strong Black Friday sales to “pent-up demand following two anemic holidays seasons coupled with growing consumer incomes and lower savings rates.”
How to reconcile these two economic statistics? The contrast illustrates the difference between long-term and short-term economic activity.
Consumer spending of various forms makes up about 70 percent of the economy, so strong retail sales are often touted as evidence of a general economic recovery. However, Black Friday and Cyber Monday shopping is more spontaneous, and less well-planned, than any other portion of the retail market. The whole point behind those eye-popping Black Friday deals is to pull hordes of sleepy, confused shoppers into stores before the crack of dawn, and make them struggle through aisles of merchandise, where they will hopefully grab discounted items for everyone they can think of. It is an economic device designed to concentrate sales at the moment of greatest consumer vulnerability. I’ve never seen a poll asking Black Friday shoppers how much they spent on unplanned purchases, as opposed to the advertised specials they came for, but I’d be interested in the results.
Holiday spending in general tends toward the irrational, as most of us realize with horror when our credit card bills come in. For most people, there is no spending less carefully planned and budgeted. Remember the days when people socked away a little money from each paycheck in an interest-bearing Christmas Club account, and spent little more than they had allocated? Visa and MasterCard are our Christmas Clubs now.
Job creation, on the other hand, is one of the most long-term investments a business can make. The popular image of rising unemployment involves people getting fired from collapsing companies, but as James Sherk pointed out in a December 2009 analysis for the Heritage Foundation, most unemployment in a recession comes from anemic job creation. The problem is not a blizzard of pink slips from panicked managers who will settle down when the media reports good retail sales as a sign of economic stability. Instead, it’s a lack of new jobs, caused when companies look at the big picture and regretfully decide the time is not right for expansion.
Hiring someone represents a tremendous investment of time and money for an employer. It takes a long time to prepare new employees to handle complex duties, so hiring is planned well in advance. No manager can afford to hold off on hiring until a mob of customers is pounding on his doors and demanding service. Likewise, they cannot afford to beef up their staff in anticipation of new business opportunities that never materialize. There are also labor laws to consider, which distort the cost of employment with minimum wages, mandatory benefits, and legal provisions that make it difficult to fire employees who don’t work out.
This is why unemployment does not respond to ephemeral, short-term stimulus plans, such as tax rebates for new hires. A sale on wedding rings does not produce a surge in marriages. The long-term commitment of employment weighs far heavier than short-term incentives. Business forecasts for fiscal year 2011 matter more than perky retail sales for the third week of November 2010. Retail managers hire part-time and temporary staff to get through November and December, but they’ll be thinking about February and March when they decide whether to offer any permanent positions.
Elevated spending is a nice bit of short-term economic news. Investment is a long-term proposition. Investors confidence is not improved when they notice the long-term bad news is always “unexpected.”