The June jobs report: continued slow growth, bought at a high cost
Summary: The news media focuses on the month-to-month changes in the jobs report, which consist mostly of noise. Strong months confirm the optimists; weak months confirm the pessimists. In fact the trend of growth remains the real story, with the US economy near stall speed — supported only (like the other developed nations) by massive multi-year fiscal and monetary stimulus. Slow growth from programs we cannot long continue. Worst we have squandered much of the money borrowed, which could be rebuilding America. Just as Japan has done since 1989.
- The big picture
- About the recovery
- Household survey
- Establishment survey
- Other important metrics
- Other posts in this series
- For more information about US economy
(1) The big picture
Here we examine the June employment report from the Bureau of Labor Statistics. They conduct two surveys: one of households, one of businesses. They are not directly comparable, each giving different perspectives on the US economy. This report paints a picture consistent with the many other streams of information about the economy: slow growth, slightly above the average of the past 12 months.
How well has the recovery run? There is no “best” metric. The most commonly used by economists is the ratio of civilian employment to the population. It paints a grim picture. The red line shows the trend from the pre-crash high, adjusted for demographics (boomers retiring).
(2) About the recovery
To understand the jobs report one must first put it in a larger context: during this period the government’s public debt increased $901 billion — 5.7% of GDP (see debt here and GDP here), one of the higher fiscal deficits in the world. Our shiny recovery results from massive borrowing and spending — plus large and unconventional monetary policy. Organic growth has not yet resumed.
The US economy slowly improves only due to the massive “drugs” of monetary and fiscal stimulus (the former boosted with QE3 as the latter winds down). Drugs administered by experts are good; the US slow growth is better than Europe’s suffering under austerity. But fiscal and monetary policy, like powerful drugs, have severe side-effects which at some unknown point in the future will become problematic or even untenable. And the withdrawal has begun: the sequester, still taking effect, and the future “tapiring” of Fed stimulus.
The worst side effects were unexpected:
- Years of deficit spending left little improvement in our infrastructure. Like Japan, we spent trillions with little to show for it.
- Years of extreme monetary stimulus have distorted the economy, in ways perhaps difficult to unwind.
- The stimulus eliminated pressure for reform. We have had the New Deal stimulus without the New Deal reforms (some of which failed, but the others laid the foundation for the great post-war boom).
(3) The Household survey
The Current Population survey is a simple survey of households. Compared to the survey of businesses it has large error bars but no revisions. It’s worth watching because it’s the basis for the headline unemployment rate, it gives useful data not in the more-accurate business (establishment) survey, and because some research suggests that the household report shows inflection points before the establishment survey.
Here are the numbers, in thousands, not seasonally adjusted. The June gain of 160 thousand more workers employeed is 17% larger than the average gain of the past 12 months — 137 thousand.
|Description||June 2012||June 2013||Change||Change|
(4) The establishment survey
The second survey asks employers to report the number of jobs. Over one or more quarters it usually shows a similar pattern of growth as the household survey, giving us confidence in the results. During the past year it shows slow improvement at the roughly same rate as the household report (as usual). However, the household survey has shown slower growth during the past few months than the establishment survey. Attention conservatives: under the Keynian socialist the number of government employees continues to shrink. Time to update your predictions.
The June gain of 195 thousand jobs is roughly the same as the average of the past 12 months — 187 thousand. The birth-death model produced 31% of the total job gain (132,000 of 422,000, not seasonally adjusted) — the largest percentage boost to the total since June 2012.
These are in thousands, not seasonally adjusted numbers.
|Description||June 2012||June 2013||Change||Change|
(5) Measures of Unemployment
(a) New claims for unemployment insurance are one of the most accurate and useful real-time metrics
Compare the change in the 4-week moving averages (source here) of June 2012 and 2013 (seasonally adjusted). This show a decline in unemployment at roughly the same rate at the household survey.
- June 2012: 345,500
- June 2013: 380,750 (-9.3%)
(b) The unemployment rate – a complex metric that gets far too much attention
The analysts at BLS calculate six measures of unemployment, from narrow to broad definitions. None is more real than the others; none are easily comparable to the rough estimates of unemployment during the 1930s (the first reliable surveys were in the early 1940s). Most people consider U-3, or U-4, or U-5 as the most useful measure. U-6 includes people with part-time jobs who prefer full-time work, and so includes underemployment. These are not seasonally adjusted.
Any way you count it, unemployment has decreased during the past year. The broader the measure, the slower the decline. U-1 down 13.3%; U-6 down 3.3%.
|Metric||June 2012||June 2013|
(6) Another important metric: wages and hours worked
Looking at nonfarm private workers in June 2012 vs. 2013 (seasonally adjusted), from the Establishment Report:
- Average hours worked per week: 34.4 vs. 34.5 (no significant change)
- Average weekly earnings: $808.40 vs. $828.35 (up 2.5% = aprox 1% after inflation)
(6) Other posts looking at the economy today
- The greatest monetary experiment, ever, 20 June 2013
- Status report on the US economy. Recession? Collapse?, 25 June 2013
- Look at the US economy. Do you see the coming boom?, 1 July 2013
- Good news about the US economy!, 2 July 2013
(7) For more information about the US economy
- A certain casualty of the recession: the US Government’s solvency, 25 November 2008
- Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime., 14 August 2009
- The Robot Revolution arrives, and the world changes, 20 April 2012 — about structural unemployment
- America is rich and powerful because we can borrow. Will this debt build a stronger America?, 5 June 2012
- America’s strength is an illusion created by foolish borrowing, 10 October 2012