The hidden truth about job growth, lost amidst the statistical noise & optimists’ hopes

Summary: The key thing to know about the latest job report is the same thing to know about all 2014’s job reports: there has been no change to the trend. No sign of the acceleration so confidently forecast by so many. This confirms the other economic indicators, amidst the slowing world economy. Leave the analysis of the minutia to specialists; the big picture is important and easy to see. Because the expansion grows old, and the next recession approaches (especially with the Fed determined, for good reason, to normalize interests beginning next year).

“Significant monetary stimulus, the end of fiscal austerity, a booming housing market, a cheap dollar, record corporate cash balances — if the US economy does not significantly accelerate in the coming quarters, it never will. We assume it will …”

— Michael Hartnett (Chief Strategist, Bank of America), 12 September 2013 (red emphasis added)

Slow Economic Growth

The core economic statistics for the US are jobs and wages (these are coincident indicators, showing where we were in the last few months). As I (and others) have reported, the predictions of optimists and pessimists alike have been wrong during the past 5 years. The US has grown steadily by most metrics at roughly 2% per year. Slow, especially with the gains going largely to the 1% (hence the GOP wins, bringing them control of most elements of the US Federal and State government machinery).

Here is the monthly nonfarm jobs growth (SA). Do you see a boom in 2014? The second half of 2014 (after an unexpected winter slowed Q1 growth)? This month’s “strong” report resulted from “America’s Sudden Fascination With Hiring Young Women” as waitresses.
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Non-farm jobs, SA.

Let’s smooth out those wiggles. Here is the same data, but the year-over-year changes, NSA, during the past 10 years. Looks like we’re at peak job growth. Is that good or bad?

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Non-farm jobs, NSA

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Let’s compare the past 10 years with the post-war period of real growth. Same data, YoY, NSA. The new century has been pretty weak for American workers, despite years of unprecedented fiscal and monetary stimulus (slowly winding down).

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Non-farm jobs, NSA

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Now for the bad news: wages, a long sad story. No sign of acceleration during the past five years (SA data, YoY).

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Real wages-SA

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But why should we expect growth in real wages? Real wages have been roughly flat since 1970. All the gains from America’s growth have gone to the 1%.

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Real wages-SA

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Conclusion

This is your economy, shaped by our political choices. Don’t complain unless you work to change it. Previous generations overcame greater challenges.

For More Information

(a)  See all posts about economics.

(b)  Recent posts about this economic cycle:

  1. Are we following Japan into an era of slow growth, even stagnation?, 18 November 2013
  2. Has the Fed blown another housing bubble?, 30 January 2014
  3. The dilemma of the US economy: can’t take off & too close to the brink, 9 July 2014
  4. Has America’s economy entered the “coffin corner”?, 10 July 2014
  5. Economists forecast a boom soon. The numbers show slowing. Who is right?, 21 July 2014
  6. See the true trend of the US economy, hidden in the daily news, 1 August 2014
  7. It’s not too soon to worry about the US economy. There are things worse than slow growth., 18 September 2014
  8. Listen to the slowing US economy, hear echoes of Japan, 24 September 2014
  9. 3 graphs tell the story about the US economy, hidden amidst the noise of the jobs report, 6 October 2014
  10. Look at the economy. Fight the illusion of normality. Feel the weirdness., 8 October 2014

(c)  About the greatest monetary experiment, ever:

  1. Important things to know about QE2 (forewarned is forearmed), 21 October 2010
  2. Bernanke leads us down the hole to wonderland! (more about QE2), 5 November 2010
  3. The World of Wonders: Monetary Magic applied to cure America’s economic ills, 20 February 2013
  4. The World of Wonders: Everybody Goes Nuts Together, 21 February 2013
  5. The greatest monetary experiment, ever, 20 June 2013
  6. Different answers to your questions about the momentous Fed decision to delay tapering, 20 Sept 2013
  7. Do you look at our economy and see a world of wonders? If not, look here for a clearer picture…, 21 September 2013
  8. Two warnings about quantitative easing, the taper, and what comes next, 27 September 2013
  9. Dr Hunt explains the great monetary experiment. It will be historic, no matter what the result., 20 October 2013
  10. The great monetary experiment enters a new phase, with America as the stakes, 27 October 2013
  11. The key to understanding the future of QE3, and the future of our economy, 12 November 2013
  12. How to predict the outcome of this great monetary experiment, and how we got into this box, 15 November 2013

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10 thoughts on “The hidden truth about job growth, lost amidst the statistical noise & optimists’ hopes

  1. I was just mulling over this exact data today; my speculative analysis, freshly half-baked, is something like this: productivity gains, largely due to mechanization, automation, computers in the office, etc. have enabled production of more goods and services at lower prices, precisely because of lower staffing requirements.
    Obviously, however, this reduces the purchasing power in total of the the army of people who were and are doing the actual producing, as fewer of them are being paid to do so, for fewer hours in total, so the increased productivity tends to stall as demand fails to rise because average money available for elective spending isn’t rising, even with lower prices.
    This productive overcapacity of course keeps employment from roaring back to previous levels, despite the science fiction utopias of everyone working a 4 hour day to keep themselves supplied with all their needs and wants; the bottleneck is liquidity, I guess, or money supply, or whatever.
    I know this isn’t a novel breakthrough, just a restatement of general concepts widely noted, which seem relatively obvious to me, at least, as a naive innocent bystander.

  2. gzuckier,
    Well stated. You left out three additional issues we’ve seen over the last few years, all on the corporate side
    1. Demand not only fails to rise but, without increased borrowing, it very slowly sinks. This has led to the odd situation of falling revenue and (because of increasing efficiency) rising profits. This is a vicious circle and is rarely addressed. The first companies to be affected are Wal-mart and other organizations that cater to the bottom 40% of customer wealth but the problem will eventually grow.

    2. With a lack of demand comes a lack of innovation. Why should a company invest a lot of money to create a new product when it is increasingly unlikely (because of falling demand) to generate as much profit as the older products. This kind of market also favors extremely large companies that can leverage economies of scale over smaller companies with new and interesting products.

    I find it delightful that the few true entrepreneurs left have had such an impact with their new products. But Steve Jobs is dead, Elon Musk makes a lot more publicity than he does product, and Mark Zuckerberg appears to be out of fresh ideas. Google is still coming up with fresh ideas but I wonder how long they can continue to do so in a world of slowly falling advertising revenue.

    3. A lack of demand will, eventually, lead to stagnant stock prices as increasing efficiency can no longer drive profits up fast enough to keep shareholders from noticing the falling top-line revenue. This has led Wall Street down the increasingly bizarre path of Financial Engineering.

    This includes estimating really low profits and then “discovering” that they are higher than expected and stock-buyback plans (the worst of ideas, in my opinion), finding increasingly odd ways to justify the ever-rising stock prices, and mergers and acquisitions to drive stock prices higher without creating new products or markets. Eventually all of the bread and circuses will fail to keep the average stockholder from noticing how scary things are getting and the bloodletting will commence.

    By the way, I have no clue when that will happen. It could be days from now or years from now.

    The but most important thing about your analysis is that it avoids the whole “confidence” game that is so popular on Wall Street. Falling demand will always overwhelm the confidence of consumers (most of whom are disturbingly clueless) and businessmen alike.

  3. Speaking as an early Boomer, I can say I remember when there was still a sense of a social contract, when greedy behavior resulted in a person being shunned, at least to some extent. Since about 1980 Kartoon Kapitalism has come to the fore, where the only valid objective is Profit Maximization for the gang of fascistic managerial pseudo-owners of America’s big corporations. The ratio of executive pay to average compensation tells the whole story. While there is evidence of some scant “rent sharing” in the very upper upper middle classes, within the top 10% or so of the income distro, you’re screwed otherwise.

    The American people, always suckers for a get rich quick scheme, bought Reagan’s dream of everyone grasping the brass ring.

    And so the People get Bread and Disneyland. But they are not happy. I have come to the view that only Kollapse will stir people to action, and it will probably come within the next decade.

    The question is whether Totalitarian Authoritarianism or Democracy replaces the current late-empire repression of the People.

    cheers,

    benign

    1. Benign,

      As a boomer too, I agree. My guess is that what you describe had economic roots. There was a large and prosperous middle class. Their leisure time (allowing civic and political involvement) and vision of themselves as citizens created, for a brief time, what we think of as America.

      Now that is all washing away. As you said, generations of conservative propaganda plus economic stress resulted in us losing faith in ourselves — in the institutions of collective action that made us powerful.

      Now atomized, weak individuals we are again vulnerable to the fear campaigns that dominated US history. Voting against the others — Blacks, Hispanics, immigrants, brown terrorists domestic and foreign, etc. And horrors like Ebola and swine flu. Threats certain to kill us all unless we surrender our liberties to a strong leader, backed by a strong police and military, who will protect us. As Dad does his children.

      In exchange we get sexual freedoms. Rights to divorce, and screw whoever we like. The 1% do not care, anymore than a farmer cares what the animals do in the barn.

  4. Nobody mentions the disappearance of the Soviet Union. While communism seemed like a viable alternative to c(r)apitalism, CEOs didn’t dare offshore workers or raise their own salaries to 300 times the pay of the average worker, because if they had, the socialists would’ve won the next election and we would’ve gone back to the excess profits taxes of WW II.

    Congresscritters and presidents set the DOJ hounds of antitrust hell off to tear apart brutal corrupt business monopolies like AT&T because if they didn’t, the socialists would’ve won the next election and dismantled the monopolies wholesale.

    After the USSR disappeared, all these pressures went away. So Eric Holder felt no need to prosecute criminal Wall Street and bank fraud and the situation doesn’t change. There have been zero antitrust actions against corrupt giant monopolies like Comcast, Time Warner, MCA Universal, Sony Columbia, Google, Apple, etc.

    1. When looking at statistics and graphs about, say, personal debt levels, wages, unemployment, share of national income fast accruing to the wealthy, etc, it is striking that the trend towards the current situation began at about the time Thatcher and Reagan came to power.

      If the evolution you describe started 12 to 15 years _before_ the fall of the USSR — significantly earlier than the disappearance of the threatening “alternative model” — then a more complex explanation than your reasonable argument is necessary.

    2. Guest,

      Yes! Although the earliest signs of the deep changes in the US economy appeared in the late 1970’s — Carter initiated on a small scale most of the changes attributed to Reagan, as Hoover did for FDR — the powerful inflection points lie in Reagan’s first term.

    1. Tulsa,

      What’s your basis for saying that any of this data is “lies”? It’s a serious accusation.

      In America’s past the people producing these would force you to back your insults with a gun. I’ll bet such things were said less lightly back then.

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