Don’t Let a Jobs Report Elect a President • Smart Trade With China

The strange influence of an erratic estimate

Would you let a random-number generator decide the next U.S. president? Something like that could occur following the Nov. 2 release of the government’s monthly jobs report. The change in nonfarm payrolls and the unemployment rate are front-page news in a nation searching for signs of recovery. A surprise of even 50,000 jobs can move markets. A big payroll number could tip the outcome in favor of President Obama. A poor report could be just what Mitt Romney needs to convince the nation it’s time for a change.

It’s bizarre that the jobs numbers wield so much influence, given that they often bear little relation to economic reality. The fact is, it’s difficult to measure in real time how many jobs the economy has produced in a month. When the Bureau of Labor Statistics estimates the change in nonfarm payrolls, for example, it’s trying to pin down a tiny shift — a matter of thousands of jobs — in a labor pool of more than 130 million.

The challenges of measurement translate into large margins of error. When the BLS says the economy created 100,000 jobs in the previous month, it actually means it’s 90 percent sure that the real number is somewhere between 9,000 and 191,000. The same is true of unemployment: If the reported rate is 7.8 percent, the true rate could be anywhere between 7.6 percent and 8 percent. A shift of 0.2 percentage points in unemployment — enough to jolt bond yields and set pundits jabbering — doesn’t even breach the threshold of statistical significance.

Revisions to the jobs numbers show how misleading the preliminary data — and the conclusions people draw from them — can be. In the first eight months of 2008, employment reports showed small declines of about 20,000 to 60,000 jobs a month, suggesting the developing financial crisis would be mild. The stock market held up, and economists raised their growth forecasts for the year. Now, revised numbers show the economy began shedding about 200,000 jobs a month beginning in April 2008, a drop that would have pointed to the deep recession the country was entering.

In early September this year the Labor Department reported that monthly job growth had slowed to only 96,000 in August. By early October, when the number was revised up to 141,000, hardly anyone was paying attention.

What to do? Recognize the preliminary jobs numbers for what they are: an early guess. Vote for the candidate you think can help repair the economy. Don’t let one month of fallible data change your mind.

Dancing — and leading — with China on trade

China manipulates its currency. By deliberately holding down the exchange rate of the yuan, it’s made its exports artificially cheap and done real harm to producers in other countries, including the U.S. Although the yuan has appreciated by 11 percent since Obama took office, the increase in China’s foreign reserves demonstrates that the currency is still cheap. The country’s rising dollar reserves also show how much China is helping to finance the U.S. budget deficit.

China isn’t alone. It just happens to be the biggest offender. Others include Japan, which is on track to edge out China as the U.S. government’s largest creditor.

Hence, the U.S. needs to take a fairer, more comprehensive approach in its efforts to restore global balance. Rather than singling out China, the U.S. should bring currency policy under more effective review, either through the International Monetary Fund or the World Trade Organization. Member countries should promise to allow movement of currencies toward levels that would reduce trade imbalances. The WTO could decide when and how to punish those who failed to comply — an approach that would insulate the process from such vagaries as the outcome of the U.S. presidential election.

The Chinese, for their part, should recognize that strong multinational oversight is in their best interests. The WTO and its predecessor, the General Agreement on Tariffs and Trade, were designed to help governments promote trade through exchanges of concessions: You lower your import barriers, I’ll lower mine. The idea that opening up to trade hurts your economy unless you’re compensated for it is bad economics, but it’s good domestic politics in that it helps curb protectionist passions. That’s why the international trade-policy system has worked so well. The WTO has been aptly described as a disarmament treaty for mercantilists.

Unfortunately, China — like many other WTO members — seems more interested in mercantilism than disarmament. Since it made the bold move of joining the WTO in 2001, its trade bureaucrats have settled into a narrow-minded litigating mode, seeking gains where they can, using delay to shield temporary trading advantages.

That’s a pity. China in the next few years has to rebalance its economy away from investment and exports and toward consumption and imports. Greater enthusiasm for the underlying purposes of WTO membership would help advance domestic economic reform and deflect the foreign criticism that China resents.

The global trading system suffers from a lack of leadership. The narrow U.S. focus on China’s bad behavior and its own agenda of preferential trade deals underscores the point. Although the multilateral system has survived the global economic slump better than many expected, it’s no thanks to the efforts of governments to strengthen it.

The U.S., as the WTO system’s architect, should reaffirm its commitment to the larger idea. So should China. Theirs is already the most important bilateral relationship in the world. They can help themselves — and everybody else — by forming a partnership to strengthen the multilateral trading system.

To read Jonathan Mahler on rotisserie baseball and A. Gary Shilling on rising stocks, go to:


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