The Unemployment Report: Smiling on the Inside

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The bad news is, people are losing their jobs. The good news is, people are losing their jobs.

In the economic world, a dry world of charts and graphs and statistical reports that Alan Greenspan reads in the bathtub, good news and bad news have always been in the ear of the beholder. Traditionally, bad economic news for Main Street is celebrated by Wall Street — it means the Fed is more likely to cut rates — while a favorable economic report can be cause for investor alarm, portending monetary tightening down the road.

Before the productivity miracle of the mid-nineties, Greenspan himself was used to catching hell from politicians who always felt that the economy could grow faster — and employ more voters — without fostering inflation. Behind supposedly arid terms like "sustainable growth" is the assumption that for the economy to work at peak efficiency, a certain amount of people must be out of work.

"Labor costs"? Wages. They need to be low, so costs stay low for businesses and prices stay low for consumers — and the law of supply and demand requires some unemployment for that. Unfortunately that means that those consumers, when they punch in at work, arenít making more money. And other consumers donít have jobs at all.

Now, the Labor Department reported Friday that manufacturing, the sector of the economy unequivocably in a recession for a full year, cut 141,000 jobs — 141,000 workers from their payrolls in August. For the machinist who has to go home and tell his wife heís out of a job, thatís bad. And itís a sign of how glum everybody is that Wall Street sold hand-over-fist on the news — with the Dow shedding 240 points by early afternoon. (These days, investors are so strung out by this slowdown — and the Fed is easing so implacably — that most bad news is just plain bad.)

But for the economy, itís probably a good sign. The further employers cut costs — and two-thirds of those costs are their employees — the closer they get to profitability. The closer they get to profitability, the closer Wall Street gets to buying their stocks. And the higher their stock prices get, the closer they are to making capital investments — and getting this economy moving again. Thatís the business cycle.

Of course, cycles have a way of coming back and biting themselves on the ass, and the potential disaster lurking in the jump in the unemployment number is that it will scare the consumer into closing his wallet. (And unemployment, lagging indicator that is, could rise further even as a recovery gets underway.) A falloff in consumer spending, of course, is bad for everybody — without customer demand waiting for them, businesses will continue to cut costs but not make anything new, and this whole near-recession wouldnít be long in turning into a real one. Thatís the bad news.

The good news is that if you are shopping during a recession, everythingís on sale.