Summary: The monthly job numbers tell us much, but the headline number about which the press obsesses tells us almost nothing. This post looks at the trends that shape America as shown in this report, and especially the surprises.
Journalists and economists ask if we are in a recession. The tabloid investment media screams “yes”. Last week Professor James Hamilton provided a clear answer: no. It’s the wrong question. We should be like sailors, scanning the horizon to see the storm before it hits, taking incremental steps to prepare as the odds of a storm grow – eventually battening down the hatches and reefing the sails — before it’s too late to do so.
Macroeconomic data provides our best warnings of economic storms. The monthly payroll report — released today for January — gets massive attention, but we must dig to get the useful insights.
The headline job number is too volatile and too heavily revised for use (also, it is a lagging indicator), but the trend in the percent change year over year NSA tells us much – the rate of growth slows rapidly in the year before a recession, hence months before stocks roll over. Payroll growth peaked in February 2015 at 2.3%, steadily falling to 1.9% in January.
Let’s look below the headline number at some of the weaker sectors. Such as manufacturing, so far the center of the downturn. Manufacturing added 29,000 jobs in January, the second monthly gain and the largest since November 2014. What does this mean? I have no idea. It is an anomaly. Economists and journalists seldom point to anomalies in the data, although that should be a priority. Anomalies point to changes in trends and errors in our beliefs.
Michael Snyder at The End of the American Dream warns that “Retail Apocalypse: 2016 Brings Empty Shelves And Store Closings All Across America” (31 Jan). This was, of course, reposted at Zero Hedge. We see the result in retail jobs…
“Retailers added 58,000 jobs in January. Over the past 12 months, the industry has added 301,000 jobs. Employment gains occurred in most of the component industries, led by general merchandise stores.”
The tabloid financial press has told us about the massive job loses from the depression in mining and oil production. The truth is: since the peak in September 2014, employment has decreased by 114,000 (25%). That’s only 0.08% of all nonfarm jobs. It’s a tiny sector, although big in some regions.
Let’s take a moment to whine about the growth of government under that socialist Obama. Except that there are 400 thousand fewer government workers than on that day seven years ago when Obama took office.
What about the workers shortage?
Corporations tell us that we need mass immigration to fill the jobs. If workers are scarce then wages must be rising. And they are — very slowly. Weekly earnings for production and non-supervisory workers have risen at 2.0%/year (slightly above inflation) during this cycle (since the recession began in Dec 2007).
The gains from increased productivity have gone, as usual in modern America, to the top. Only we can change that. November 2016 is an opportunity to start that process.
The employment leading indicator
New claims for unemployment are a reliable leading indicator. They hit bottom on October 31 at 262 thousand, 20% below the pre-crash trend. Now they are low but rising, another early warning of the coming recession.
Zero Hedge reports this interesting factoid (“native” means born here, not Native Americans): almost all of the net growth in jobs during this cycle (since the start of the recession in Dec 2007) have gone to foreign-born workers: 186 thousand job gains vs. 2, 518 thousand (numbers from the Household report are strictly comparable between years due to adjustments).
This results from the disproportionate loses by native-born workers during the recession vs. their gains during the recovery (in thousands)…
- Native born: 4,485 lost, then 4,671 gained = 93% of all gains since 12/07.
- Foreign-born: 1,1013 lost, then 3.351 gained = 7% of gains.
The employment tells us much about America.
(1) Perhaps most importantly, the very popular mass media grossly mis-informs us about the economy (a sad fact also seen in the comment threads here and elsewhere).
(2) The data shows that the US economy has probably passed the peak growth of this cycle and began the slowing that will take us to the next recession.
(3) The wage numbers show that most of the gains from this expansion have gone to corporate profits and the upper income earners.