Summary: Today we examine the very beating heart of the US economy, where all the arteries converge — the jobs report. The picture it shows is clear, although most commentary obscures this beneath analysts’ hopes and fears. Also, the data warns that the US economy has changed in an important but ominous way.
“Unless you expect the unexpected you will never find truth, for it is hard to discover and hard to attain.”
— Heraclitus, the pre-Socratic “Weeping Philosopher” of Ionia
The bottom line
Here’s one version of the bottom line (at the end is a more accurate version) of the numbers in the January employment report: job growth continues at the same rate as during the past ten months. Not slowing, as some feared. No breakout, as some hoped.
The following graphs show the numbers on on a Year-over-Year basis, smoothing the lines but losing resolution of recent change. The numbers are too noisy and too revised to see the pattern otherwise.
Is this rate fast or slow? The monthly numbers don’t say, especially since population growth means that the same number of new jobs represents slower growth over time. Let’s look at job growth as a percent change. We see a slow — very slow — acceleration, perhaps even the start of a break-out: 2.3% YoY (2.1% YoY using the Household survey data, a second survey confirming the results). That’s fast, the fastest since May 2000 — at the peak of the tech bubble.
Here’s good news: the number of jobs is growing faster than the working age population!
Some not so good news
Wage growth is slowing. Profits high and growing plus a tightening labor market should produce rising wages for the average worker. It’s not happening, yet at least — although for several years we’ve been told that it’s going to happen real soon.
This is an important change, perhaps one of the most important structural changes of the past few decades. A strong recovery should bring strong wage growth. Corporations have learned how to break this relationship, what economists thought was a “law”. They’ve broken the unions, developed tacit (or even explicit) agreements to suppress wages, and many other means to shift money from wages to profits. See this example of these methods: firing your American workers, replacing them with cheap young foreign workers imported under H1-B visas. They’ve grown so powerful they no longer need to disguise these illegal actions.
Update: for a brief but powerful analysis showing why wage growth should be higher at this point in the cycle see Benn Zipperer at Equitable Growth: “U.S. wage growth remains sluggish despite employment gains.” Especially note the graph.
Where are the jobs?
The BLS Highlights gives the answer. Perhaps in the information sector (often described as our savior from automation)? Nope, the new jobs have all gone to machines.
What about mining? We hear doomsters talking about unemployment from the oil bust. Not a big deal; it’s a dot on the overall economy, job-wise.
Where is the job growth? Every month it’s the same: business services, retail, education & health, leisure & hospitality. As many have said, most of these are not the sectors we want the fastest growth in.
I’m surprised by the continued growth in retail. The shift to online plus slow growth in wages should (guessing) give this sector at best slow growth. We love to shop, even if we can’t afford to.
How do we make sense of this numbers blizzard?
To help us the Fed produces a Labor Market Conditions Index, using a model fed by 19 indicators. It paints a picture of job conditions consistent with the slow growth of most economic indicators since Summer 2012. Like most indicators it shows no acceleration. No signs of the coming boom predicted by so many during the past 3 years.
It’s a “bottom line” consistent with the simpler version given at the start of this post, so we can have confidence in its accuracy. Data as of December 2014.
For More Information
(a) See all posts about economics. Especially see this: Dreams of a boom fade & attention turns to secular stagnation.
(b) Recent posts about this economic cycle:
- Are we following Japan into an era of slow growth, even stagnation?, 18 November 2013
- Has the Fed blown another housing bubble?, 30 January 2014
- Has America’s economy entered the “coffin corner”?, 10 July 2014
- Economists forecast a boom soon. The numbers show slowing. Who is right?, 21 July 2014
- See the true trend of the US economy, hidden in the daily news, 1 August 2014
- It’s not too soon to worry about the US economy. There are things worse than slow growth., 18 September 2014
- Listen to the slowing US economy, hear echoes of Japan, 24 September 2014
- 3 graphs tell the story about the US economy, hidden amidst the noise of the jobs report, 6 October 2014
- Look at the economy. Fight the illusion of normality. Feel the weirdness., 8 October 2014