December Jobs Report Weaker than It Looks

January 12, 2018

https://www.bls.gov/news.release/empsit.nr0.htm

The headline number from the December employment report (link above) was a bit disappointing.  The economy added only 148,000 jobs vs. expectations for approximately 191,000 and vs. 252,000 added in November – especially disappointing considering that this was the peak of the retail shopping season.  Unemployment held steady at 4.1%.  (But not really.)

Look into the details and the report is even weaker.  The employment level, a figure taken from the household survey (vs. the establishment survey, which is where the 148,000 jobs figure comes from) rose by only 103,000.  But that’s not the worst part.  Employment and job creation numbers are meaningless without the context of population.  December is the month when the Census Bureau updates its estimate of population (during non-census years).  This time around it boosted the population by 549,000 (to just under 327 million people) vs. a normal monthly increase of about 170,000.  Of course, the population didn’t jump by that much in December.  It just means that the Census Bureau discovered that it has been underestimating population growth during 2017.  That means that growth in the labor force has been underestimated for the purposes of calculating unemployment.  If the actual size of the labor force was used in the calculation, instead of estimating it based on how many people were looking for work, unemployment actually rose in December by 0.1% to 7.2%, the third consecutive increase in that number.  And per capita employment has fallen for the third consecutive month.  Check the chart:  Per Capita Employment.  And the number of unemployed Americans rose for the third consecutive month to over 12 million.  Here’s the chart:  Unemployed Americans.

Enthusiasm over the Trump administration’s policies will only carry the economy so far.  Without the kind of meaningful trade policy reform that Trump promised during his campaign, it’s going to stall out.  This data may be an indication that that’s beginning to happen.

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Economy adds 228,000 jobs in November, unemployment holds at 17-year-low rate of 4.1%, but wages are stagnant. Why?

December 9, 2017

Yesterday morning the Labor Department announced that the economy added another 228,000 jobs in November and the unemployment rate held steady at 4.1% – the lowest rate in 17 years.  Yet, wages remain stagnant.  Everyone – economists, the Federal Reserve, business analysts – everyone, seems totally baffled by this phenomenon.  Why isn’t this supposedly strong demand for labor beginning to drive up wages as employers compete for workers?

The answer is that the unemployment rate isn’t really 4.1%.  It’s 7.1%.  The Labor Department would like you to forget that the rapid drop in unemployment following the “Great Recession” in 2008 was fueled in large part by its “mysteriously vanishing labor force” trick, claiming that vast swaths of workers were simply dropping out of the labor force, so they were no longer included in the unemployment calculation.  Take a look at the following chart.  It’s a little confusing, so I’ll explain.

Labor Backlog

Look first at the blue and orange lines.  The blue line tracks the actual growth in the labor force due to growth in the overall population.  The orange line tracks the labor force growth as reported by the Labor Department.  Note that in all but three of the past ten years did the Labor Department’s reported growth in the labor force exceed the actual growth.  It usually significantly under-reports that growth.  The result is a growing “backlog” of unreported workers, represented by the yellow line on the chart.  That backlog peaked at 6.4 million workers in 2014 and fell to 5.1 million in 2016 but, so far this year, has actually begun to rise again, hitting 5.2 million workers in November.

Now, look at the green line, which is the growth in the employment level.  If that growth matches the growth in the labor force, then unemployment will hold steady.  If it exceeds that growth, then unemployment will fall.  Compared to the blue line – the real growth in the labor force – it has consistently exceeded that blue line by a small amount each year, beginning in 2011 – the start of the recovery from the “Great Recession.”  But if you compare the green line to the orange line – the fake growth in the labor force reported by the Labor Department – it has beaten that growth by a significant amount every year beginning in 2010.  The result of that growth in the employment level relative to the fake growth in the labor force is the Labor Department’s reported unemployment rate, represented by the purple line.  Note that it has fallen precipitously to its current bogus level of 4.1%.

That’s why wages are stagnant, because there is a huge, unreported backlog of labor force which eagerly snatches up any extra jobs that are created each month.  The labor force is still pretty grossly out of balance with the demand for labor.  Until that backlog of workers is employed, wages will remain stagnant.

Just to drive home the point about how phony the official unemployment rate is, take a look at these next two charts:

Per Capita Employment

Unemployed Americans

The first chart tracks the employment level relative to the total population.  It’s analogous to what the Labor Department reports as the “participation rate.”  As yo can see, it’s been very slowly recovering from the 2008 recession, but still hasn’t gotten back to its pre-recession level in 2007.  (You can see that, even then, it was already plummeting.  I can’t tell you what it was before that since I didn’t begin tracking it until then.)  In November of 2007, per capita employment was at 48.4% and the unemployment rate was 4.7%.  Last month, per capita employment was at 47.2%, but the unemployment rate was 4.1%.  How in the world could unemployment have fallen at the same time that per capita employment fell?  Sounds pretty bogus, doesn’t it?

The second chart above shows a similar phenomenon.  It tracks the number of unemployed, assuming that the labor force grew along with the population.  In November of 2007 there were 7.2 million unemployed workers.  Last month there were 11.8 million.  And yet the unemployment rate fell?  Baloney.

While some see nothing but good news in yesterday’s employment report, I see some warning signs.

  • The employment level grew by only 57,000, far less than the reported growth of 228,ooo jobs.
  • Per capita employment fell slightly for the 2nd month in a row.
  • An honest accounting of unemployment (one that’s honest about growth in the labor force) finds that unemployment rose for the 2nd month in a row to almost 7.2% after reaching a low of 6.8% in September.  That’s a notable jump.

So now you know why wages are stagnant.  The demand for labor hasn’t caught up to the backlog of unreported growth in the labor market.


Trade Deficit in Manufactured Products Hits Record in April

June 2, 2017

The Department of Commerce released the April figures for international trade in goods and services this morning, and the trade deficit rose again to its worst reading since January – $47.6 billion.  Imports were up and exports were down.  But you can’t even find the worst news in the report – the deficit in manufactured goods.  The Commerce Department doesn’t even bother to calculate it.  But I do.  By subtracting from the overall deficit the figures for services, foods, feeds, beverages and petroleum products, you can arrive at a pretty good estimation of trade in manufactured goods.  The news is bad.  The deficit in manufactured products rose to $63.4 billion, beating the previous record set in March, 2015 by $0.1 billion.  Imports rose to a record level and exports fell to their lowest level in five months.  Here’s a chart:  Manf’d Goods Balance of Trade.  As you can see, the deficit in manufactured goods continues to worsen at the same pace that it has since 2010, more than doubling in seven years.

Separately this morning, the Bureau of Labor Statistics released a weak employment report for the month of May.  Unemployment dropped, but thanks only to the old “mysteriously vanishing labor force” trick used so often during the Obama administration.  The employment level actually fell by 133,000 workers.  An accurate reading of unemployment would have had it actually worsening by two tenths of a percent.  Manufacturing employment fell yet again by another 1,000 jobs.  No surprise, in light of what’s happening with the trade deficit.  Add this data to the extremely weak first quarter GDP and you have a picture of an economy that’s stalled and might be on the brink of something worse.

So President Trump now owns the worst performance in manufactured goods of any president.  He vowed to “Make America Great Again.” The first step in that process is to stop it from getting worse.  That hasn’t happened yet.  Talk and optimism will only carry you so far.  There’s been little action.  There’s no border tax.  NAFTA still stands.  Jobs are still heading to China and Mexico.

To be fair, it’s still early in his administration, and the Republican congress has done nothing either.  But I fear that the opportunity to “make America great again” is being frittered away.


Economic Data Still Stuck in “New Normal” of Globalization

May 6, 2017

Three major economic reports were released in the past week, each of which I usually write about separately.  But there was nothing particularly noteworthy about any of them.  Taken together, however, they paint a picture of a U.S. economy that’s still stuck in the “new normal” that characterizes globalization (trading freely with all nations, regardless of whether it makes any sense) – stagnation, an imbalance in the supply vs. demand for labor that puts downward pressure on wages, and a host-parasite relationship between the U.S. and the overpopulated nations of the world.

First quarter GDP was announced last Friday, and it came in at a measly 0.7%.  Expressed in per capita terms, it rose only 0.09%.  Over the past ten years, per capita GDP has risen at an annual rate of only 0.6%.  That’s very close to no growth at all and explains a lot about Americans’ sense that the country is headed in the wrong direction.  Population growth and free trade with much more densely populated nations has become a significant drag on the economy.

Speaking of trade, that data was released Thursday.  Here’s a chart showing the monthly balance of trade in manufactured goods:  Manf’d Goods Balance of Trade.  The deficit in manufactured goods continues to hover near its record worst level.  In fact, it was the second worst quarterly figure ever, down by only $1 billion from the record level of $177.1 billion set in the previous quarter.

The April employment report was released yesterday.  The headline numbers were that the economy added 211,000 jobs and unemployment fell to 4.4%.  No one noted that the employment level rose by a more modest 156,000 and unemployment fell because, once again, the growth in the labor force was understated at only 12,000 (while the U.S. population grew by 171,000).  Each month, as the unemployment rate ticks downward, economists proclaim the economy to be at “full employment.”  And each succeeding month, the economy adds more jobs and the unemployment rate drops more.  How can that be?  Here’s a chart of the “labor force backlog,” the cumulative amount that the government has under-reported growth in the labor force in order to make unemployment look better than it really is:  Labor Backlog.  (It’s the yellow line on the chart.)  Note that the “backlog” remains near its highest level at about 5-1/2 million workers.  Were it not for this “backlog,” an honest reading on unemployment would have the figure at 7.2% – a far cry from “full employment.”  It’s no wonder that, in spite of all of this supposed strength in labor market, there’s been no corresponding upward pressure on wages.

What does it mean when you put all of this together?  It means that the approach taken by President Trump to date – jawboning foreign leaders on trade and CEOs about manufacturing in the U.S., and making idle threats about tearing up trade deals and implementing “border taxes” – has done absolutely nothing to improve the economy.  No surprise.  These are exactly the same results that the same tactics employed by past presidents for decades has produced, which are no results at all.

Trump has seemed to be backing away from his promises on trade.  He’d better not, or he’ll find himself dealing with a recession before his first term is up.  His voters tolerate his less appealing aspects on the hope that he’ll follow through on his promise to “Make America Great Again” by fixing our trade mess.  Failure to do so won’t be tolerated.


Anti-border tax coalition

April 20, 2017

http://www.reuters.com/article/us-usa-tax-lobbying-idUSKBN17C2HQ

I’ve been predisposed for a week or so and it’s now time to get caught up on some things.  There’s been a lot in the news lately regarding Trump administration policies on immigration and trade.  I’m extremely pleased with what’s happening on immigration, less so with what I hear about Trump waffling on the idea of a “border tax” (another name for tariffs).

But I’ll start with the above-linked story that came out last week because this is a perfect example of the divergence of interests that takes place when a nation becomes “economically over-populated” or takes on the characteristics of such an economy through free trade with a badly overpopulated nation.  For the benefit of those unfamiliar with this concept, this divergence of interests is one of the consequences of the inverse relationship between population density and per capita consumption.  As a society becomes more densely populated, the need to crowd together and economize space begins to erode per capita consumption.  As per capita consumption declines, so too does per capita employment.  The result is rising unemployment and poverty.   It’s in individuals’ best interest – in the best interest of the common good – that this situation be avoided.  (To better understand this concept, I encourage you to read Five ShortBlasts.)

However, while per capita consumption may begin to decline as a population density reaches a certain level, total consumption continues to rise with a growing population.  Who benefits from that?  Anyone in the business of selling products.  Not only do they benefit from the increase in sales volume, but they benefit further as the labor force grows faster than demand, putting downward pressure on wages.  Thus, it’s in corporations’ best interest to see population growth continue forever, and to pursue more markets through free trade.

So it’s in the best interest of the common good that we avoid meshing our economy through free trade with nations whose markets are emaciated by overcrowding and who come to the trading table with nothing but bloated labor forces hungry for work.  But it’s in corporations’ best interests to grow the overall customer base through free trade with those same nations.  So it comes as no surprise that a big-business coalition is eager to steer lawmakers away from any tax plan that would include a “border tax” (a tariff) that might shut them out of their foreign markets.

They call themselves “Americans for Affordable Products,” making it sound as though it is individual Americans who make up this coalition and not global corporations.  They want us to believe that products will become less affordable.  While prices for imports may rise, they want you to forget that those increases would be more than offset by rising incomes and falling tax rates.  They don’t care if the border tax benefits you.  All they care about is that it may not necessarily benefit them.

So which of these competing interests will lawmakers heed – their wealthy corporate benefactors or the angry Americans who swept the Trump administration into power on his promise to enact a border tax and bring our manufacturing jobs back home?  Money talks and I fear that groups like this coalition are having an effect.  Trump and Republicans would be wise to ignore them.  Democrats paid the price for ignoring the plight of middle-class Americans when Obama betrayed his promise of “hope and change.”  Those same middle-class Americans will pull the trigger on Trump too if he doesn’t come through.

 


Weak Headline Number Masks Strong March Employment Report

April 8, 2017

The Bureau of Labor Statistics yesterday released its employment report for the month of March.  The headline jobs number was weak.  “Only” 98,000 jobs were added in March – about half of what was expected.  But unemployment dropped by two tenths (a fairly big drop) to 4.5%.  The data underlying the unemployment figure was quite strong.  The “employment level” (the number of people reporting being employed in the household survey portion of the report) rose by 472,000 in March.  (It rose by 447,000 in February.)  And the labor force grew by 145,000 – outpacing the growth in the general population for the fourth month in a row.

Last month, Trump hailed the strong February employment report as “real,” as opposed to the “fake” reports produced by the Obama administration.  (The Obama administration did lean heavily on claims of a shrinking labor force to prop up its unemployment figures.)  Was that claim just bluster or has the reporting methodology actually changed for the better?  It’s two early to tell but, at least for the second month in a row, the BLS claims that the labor force grew (as it actually does, of course) and the numbers seem plausible.  Time will tell.

Per capita employment (the employment level divided by the population) climbed above 47% for the first time since November, 2008.  (Here’s the chart:  Per Capita Employment.)  The “detachment from reality index” – my measure of how much the unemployment figures were distorted by the “mysteriously vanishing labor force” tactic used by the Obama administration – fell to its lowest level since January, 2013.  (Here’s the chart:  Detachment from Reality Index.)

This is great news, but it has more to do with a burst of confidence among consumers (likely driven by a burst of confidence among investors which has driven the stock market higher) in the wake of Trump’s election.  The fundamentals of the economy haven’t changed.  The trade deficit is as bad as ever.  And interest rates are on the rise which will pull the economy down if Trump isn’t able to make headway with tax and trade reforms.  And the jump in stocks that have propelled the economy has already stalled, now waiting to see if expectations of Trump policies actually materialize.

I hope that what appears to be honesty with the factors that make up the employment report (based on a scant two months’ of data) continues.  But without the “border tax” that Trump promised, the good numbers won’t.

By the way, for some time now, the Federal Reserve and others have been proclaiming the economy to be at full employment.  If that were true, then how does the economy continue to add jobs at a faster rate than the growth in the labor force, and how does the unemployment rate continue to fall?  It’s because they were all sucked in by the “detached from reality” employment reports produced by the Obama administration.  The fact is that an honest reading of unemployment (one that grew the labor force in proportion to population growth) has unemployment at 7.3% – nowhere even remotely close to “full employment.”


Employment & Trade Data Sum Up Obama’s Presidency

January 11, 2017

https://www.bls.gov/news.release/empsit.nr0.htm

On Friday, the Bureau of Labor Statistics released the employment/unemployment report for December, while the Bureau of Economic Analysis released the trade data for the month of November.  I usually comment on these two reports separately but, frankly, in these waning days of the Obama administration, these looks backward seem rather irrelevant.  In each case, we knew what we were going to get with the economy locked into a “new normal” status quo by Obama’s trade policy.  Nevertheless, it’s worth taking a look at them since, together, they kind of “sum up” the economic results of Obama’s presidency.

It was yet another so-so month for the employment report.  The job growth number was respectable, but wasn’t corroborated by the “employment level” portion of the household survey, which rose only 26,000.  In fact, the employment level rose by only 43,000 in the last three months.  Not only that, but the civilian labor force actually contracted by 72,000.  As a result, unemployment rose slightly.

Meanwhile, the trade report was bleak.  The deficit in manufactured products rose to $60.5 billion, just $0.5 billion off the record high deficit set five months earlier.  Manufactured exports remained stuck at the same level as in March of 2011.  That’s five and a half years of zero growth.  Remember Obama’s pledge to double exports in five years?

These two reports aren’t the kinds of numbers you’d expect from a healthy economy.  President Obama likes to highlight the number of jobs created and the drop in unemployment as evidence of a healthy labor market.  But it’s more a case of him drinking his own Kool Aid.  Those numbers are gimmicked by workers who mysteriously dropped out of the labor force and by a proliferation of low-paying, part-time jobs.  He may fool himself and try to fool you with these numbers, but other statistics tell a different tale.  Death rates don’t rise and life expectancies don’t fall in a good economy.  Nor are wages stagnant.  And “the country is headed in the wrong direction” isn’t the number one issue on the minds of voters in an election in a healthy economy.

Taken together, these two reports do a good job of summing up the economic results of the Obama presidency – economic stagnation at best or, more realistically, a decline fueled by an ever-worsening trade picture – the very thing he promised to fix during the 2008 campaign.