Summary: Corporate profits are strong. Spending by the rich is skyrocketing (look at art prices). The Republican’s top objective is extending the tax cuts for the rich and cutting social security and medicare benefits for everybody else. So the economy must be doing fine, with excellent jobs growth. But let’s check the numbers just to be sure.
Contents
- The Recovery!
- The Current Numbers: November 2010
- For more information
(1) The Recovery!
(a) Wall Street and the media obsess over tiny changes in the monthly employment reports, which are often statistically insignificant. Like the November gains. These surveys are not that accurate, and changes of a few thousand mean nothing among 300 million Americans. Instead we should watch the levels and trends. What improvement in jobs has this recovery brought us since it started in June 2009? Here are the results for the past 12 months (November 2009 – November 2010, seasonally adjusted, in thousands):
- Civilian non-institutional population 16 or older: +0.8%
- Civilian labor force: +0.2%
- Employed: +0.4%
- Unemployed: down 1.4% (mostly though people dropping out of the labor force)
- Not in the labor force (neither working nor looking): +2.0%
(b) What about unemployment?
The Census provides six measures of unemployment, depending on definitions of the labor force and unemployed. The four most widely used (U-3 to U-6. None are easily comparable to those of the great depression (the government began measuring unemployment in the 1940′s; earlier numbers are rough estimates). October 2009 are the two
| HOUSEHOLD DATA — Table A-15. Alternative measures of labor underutilization [in Percent] | |||||||
| Measure of Unemployment |
Seasonally adjusted |
||||||
| Oct 2009 | Apr 2010 | Jul 2010 | Aug 2010 | Sept 2010 | Oct 2010 | Nov 2010 | |
| U-3: Total unemployed, as a percent of the civilian labor force. The official unemployment rate. | 10.1 | 9.9 | 9.5 | 9.6 | 9.6 | 9.6 | 9.8 |
| U-4: U-3 plus discouraged workers, as a percent of the civilian labor force | 10.6 | 10.6 | 10.2 | 10.3 | 10.3 | 10.4 | 10.6 |
| U-5: U-4 plus other persons marginally attached to the labor force, as a percent of the civilian labor force | 11.5 | 11.3 | 11.0 | 11.0 | 11.0 | 11.1 | 11.3 |
| U-6: U-5 plus total employed part time for economic reasons, as a percent of the civilian labor force |
17.4 | 17.1 | 16.5 | 16.7 | 17.1 | 17.0 | 17.0 |
| NOTE: Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule. |
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(c) Check your work!
As my teachers said, always check one’s conclusions with different methods. First, look at the Social Security employment taxes in October: down 0.7% year-over-year. This is a reliable measure of American wage income.
Second, look at new claims for unemployment: the 4 week average is 431 thousand new claims per week, down from the average this year of roughly 463 thousand/week. That’s accurate real-time data, and indications of a possible recovery.
(d) Conclusion
Do we have a recovery? Not in jobs. Not in wages. A wide range of economic data still suggests that the recovery stalled in May and June 2010.
(2) The Current Numbers: November 2010
Some aspects of employment are leading indicators, some are lagging indicators. Broadly speaking, employment is one of the major metric’s of the nation’s health, both economic and social.
These are the numbers from the Census’ Household Population survey (tables A and A-1) for October, released 3 December 2010. IMO the household survey gives a more reliable real-time picture than the establishment survey (CES). After the benchmark revisions, 18-plus months later, the CES provides the definitive historical record. Unfortunately, the initial results bear only a slight resemblance to the final results. They’re largely modeled from a few early responders. And the early responses do not include small businesses, the center of the current downturn.
Here’s the story for November. All rounded to the nearest million. It’s almost identical to the numbers for the past few months.
- 239 million – the civilian non-institutional population, adults 16+ years old (17 million are 16-19 years old).
- 154 million of these are in the labor force (6 million are ages 16-19).
- 139 million have jobs (4 million are ages 16-19)
- 27 million of those jobs are part-time jobs; 9 million of those with part-time jobs would prefer full-time jobs.
- 15 million of the labor force are unemployed: 1 million quit, 9 million were fired, 5 million entered or re-entered the labor force.
- 1 million have become discouraged and stopped looking.
The median duration of unemployment is 21.6 weeks; the mean is 34 weeks (table A-12). The mean is large due to the six million workers who have been unemployed for 27 weeks or more. The level of long-term unemployment during this downturn is a post-Depression high .
Much has been made of the declining ratio of workers to population. For example, the fraction of men over 16 who have jobs is a post-Depression low. Get used to it. This ratio can only fall further as the boomers age.
(3) Other posts about employment
- America passes a milestone!, 20 January 2010 — More jobs in government than manufacturing
- Yes, it is a “mancession”, with men losing more jobs than women. Just like all recessions., 5 October 2009
- Update on the “mancession”, 2 December 2009
- A look at the engines of American job creation, 12 January 2010
- An ominous trend: number of Americans working for the government vs. those making things, 5 March 2010 — Update to the Oct 2009 post.
- The coming big increase in structural unemployment, 7 August 2010
- The coming Robotic Nation, 28 August 2010
- The coming of the robots, reshaping our society in ways difficult to foresee, 22 September 2010
- Economists grapple with the first stage of the robot revolution, 23 September 2010
- Arithmetic of decline: America’s lost decade for jobs, 27 November 2010
An important analysis of US employment trends: “The Problem with Men: A Look at Long-term Employment Trends“, Michael Greenstone and Adam Looney, The Brookings Institution, 3 December 2010 — Opening:
“Gimme a ‘V’ – Companies are making profits faster than they are hiring workers“, The Economist, 2 December 2010:
AMERICA’S recession was cruel to capital and labour: both employment and profit margins collapsed. The recovery has been a different matter. Employment has barely grown and unemployment is near its peak, but profits are on a tear. Pre-tax profits were $1.7 trillion, annualised, in the third quarter, just topping their 2006 peak, though as a share of gross domestic income they remain short of a record.
Corporate earnings have benefited from both the return to profitability of the banks and the growing contribution of foreign operations—gross overseas profits now represent a third of the total. Robert Mellman of JPMorgan Chase eliminates the effects of both write-offs and foreign activity by examining only domestic profits as a share of corporate value added. The resulting picture is even starker. After falling to their lowest in over 50 years, profit margins are already back at levels exceeded only well into previous economic expansions (see chart). With the current expansion still young, Mr Mellman reckons profits by this measure are destined to reach their highest level since the 1960s.
The V-shaped recovery cannot be attributed to sales: GDP growth has been tepid. The explanation lies with costs. Lower interest charges, courtesy of the Federal Reserve, and lower depreciation, the consequence of an investment drought, have certainly helped.
But most important is firms’ iron-fisted approach to hiring and pay. Since the end of 2008 business-sector productivity has grown at an impressive annualised rate of 4.2% while hourly compensation has crept ahead by just 2.1%. Unit labour costs have fallen at an annualised 2% rate, the steepest cumulative decline since the 1950s. Profits owe their V-shape in great part to employment’s L-shape.
What are companies doing with all the money they are making? For now, sitting on it. Steve Blitz of ITG, a broker, notes that whereas business investment remains depressed as a share of GDP, net cashflow is near a record high. Firms have also begun to raise dividends after steep cuts during the crisis (mostly by financial companies). Steven Wieting of Citigroup projects that both dividends and share repurchases will rise sharply next year.
But he also thinks some of that money will go into hiring. Businesses are producing same GDP as in 2007 with 7.5m fewer workers. That cannot last: “The employment data look a lot like profits did a year ago.” Private payrolls grew by a fairly robust 159,000 (or 0.1%) in October, and are expected to have been perky in November too. More jobs mean more income and more consumer spending: in October wages rose at an annual rate of 7%. Capital spending may not be too far behind: Mr Blitz reckons that it lags cashflow by about eight quarters.
Even with the apparent acceleration, however, job creation remains woeful. Mr Wieting of Citi reckons that payrolls would have to grow by 800,000 a month to match the performance of profits, based on their historical relationship. Economists increasingly talk of a “new normal” of weak job growth. If small businesses are nervous about overreaching and sensitive about their access to cash, big firms are increasingly focusing their expansion abroad, not at home. General Electric recently said it planned to invest $500m in Brazil and hire 1,000 people there, and that it would invest $2 billion directly and through joint ventures in China.
Foreign investment need not come at the expense of American jobs, but it makes it harder for American workers to bargain for higher wages when the same job can be done for far less abroad. When General Motors went public last month it boasted of making 43% of its cars in regions where labour costs less than $15 per hour, while in North America it can now pay “lower-tiered” wages and benefits for new, part-time and temporary employees. Employment may be rebounding; labour’s share of the economic pie is not.