Summary: Today’s job report show one reason we see our world so poorly — we read the news. Journalists and the experts who make headlines give us exciting stories of constant change. But the world usually changes slowly. Sometimes, as in this economic cycle, slow stable boring growth is the story. That generates no clickbait, so we get statistical noise magnified into thrilling news. People of bearish views (temperamentally, or because the “other” political party rules) read the stories of imminent collapse — and vice versa. And vice versa for the bulls. Both become entertained and ignorant.
What’s happening? Slow growth, with small fluctuations around the trend.
Excerpts, slightly paraphrased, from the Employment Situation Report for August tell the tale, as this slow expansion continues — frustrating both the bulls (boom soon!) and bears (recession now!).
- Total nonfarm payroll employment rose by 151,000 in August, compared with an average monthly gain of 232,000 over the prior three months and 204,000 over the prior 12 months.
- “Little movement over the year” in the unemployment rate, and the labor force participation rate, and in the number of unemployed and discouraged workers.
- No change in the past year in the average weekly hours of production and non-supervisory employees in the private sector. Their average weekly earnings were almost unchanged during August, and rose 2.2% YoY.
Summary: Another jobs report, more clickbait headlines about the monthly noise. Here’s a look beneath the glitz to the important news. The US economy continues slow steady growth, with continued signs of slowing. Also, 47% of new jobs went to foreign-born workers during the past year. Important matters. Too bad neither the candidates, journalists, or Americans care about such things. On to the next astounding soundbite!
- The noise: monthly changes in jobs.
- The important news about the trend in number of jobs.
- A clearer trend: total number of hours worked.
- Where were the new jobs?
- What about the info sector jobs machine? Let’s all become programmers!
- A red flag: growth in temp workers has slowed to almost zero.
- It’s not a “Starbucks Economy”. See the slow but steady wage growth.
- Explosive news: 47% of new jobs went to foreign-born workers.
- Conclusions and For More Information
Here are the monthly numbers that generate the exciting headlines!
It’s noise. The trends are almost impossible to clearly see.
Graph of the monthly change in jobs since Jan 2013 (SA).
Here is a more useful graph. Employment is still growing, but slowing.
Do you see why the monthly outpourings of joy or despair during the past 4 years?
The real story is the stability of the slow growth in the US economy.
Graph of the year-over-year percentage growth in jobs (not seasonally adjusted).
Summary: The Economic Cycle Research Institute (ECRI), who correctly predicted the slow recovery, looks at the multi-year slowing in the economies of the developed nations — its causes (the world is becoming Japan) and likely consequences.
ECRI, 20 June 2016.
Reposted with their generous permission.
The risk of a global recession is edging up, as the global slowdown we first noted last fall continues (ICO Essentials, September 2015). This danger is heightened because longer-term trend growth is slowing in every Group of Seven (G7) economy, as dictated by simple math: growth in output per hour, i.e., labor productivity – plus growth in the potential labor force – a proxy for hours worked – adding up to real GDP growth.
As we laid out over a year ago (USCO Essentials, June 2015), this simple combination of productivity and demographic trends reveals that U.S. trend GDP growth is converging toward 1%. This is reminiscent of Japan during its “lost decades,” where average annual real GDP growth registered just ¾%, which is why we have cautioned that the U.S. is “becoming Japan” (USCO Essentials, February 2016) and (ICO, July 2013).
Expanding this analysis to the rest of the G7, we find that every economy is effectively becoming Japan, and the sharpest slowdowns are happening outside North America. Thus, as trend growth falls in the world’s largest advanced economies amid the ongoing global slowdown, the threat of a global recession is growing.
Summary: Let’s look at the four key measures of growth for the US economy. They show the big news about this economic cycle: six years of amazing stable and slow US growth, shrugging off repeated shocks. The latest being the apocalypse of Brexit, so confidently predicted before the UK vote. This has surprised almost everybody, and proven most forecasters wrong. There are important lessons we should learn from this.
Slow growth in real GDP since Q1 2010, with only ½% swings around the average. Each of these swings, up and down, produced almost hysterical commentary. Yet they are small compared to the typical swings seen since WWII. Per capita GDP, a better measure of how well we’re doing, has grown even slower — only 1.8%/year.
Slow and stable job growth in jobs since September 2011, with only ½% swings around the average.
Summary: The jobs report is a monthly gift for journalists and economists. Packed with numbers — mostly noise, with large error bars, subject to big revisions — it generates a flood of clickbait headlines and confident analysis. Lost in this are the important trends we need to know (aka “old news”, because they change slowly). Here are two of the big ones.
The experts will explain that this news is life-changingly significant, every month.
“June’s job growth was big and important!“
No, the June strong headline number is not important. Like May’s horrific slow growth, it’s probably just noise. More important are the 16 months of slowing job growth (i.e., job growth decelerating from the slow grow characteristic of this recovery). In February 2015 YoY growth in non-farm payrolls was 2.3%. In June it was 1.8%. This drop erased the acceleration of Feb 2014 – Feb 2015 that got economists excited about the big Fed rate increases coming really soon. Normal days were coming again! But they’ve been delayed, again.
“Job growth is slow, but it’s still growth!“
The number of jobs is not the best metric in the New America, with its growth in part-time, un-unionizable, no benefits, no training, disposable employees. A better (albeit, like all economic data, imperfect) measure is the total number of hours worked per month. For the full recovery it tells the same story as jobs: slow growth since the crash (jobs are up a total of only 4.4% over nine years, hours are up 5.3%).
But total hours have been flat for the past six months. (total hours for production and non-supervisory workers has been flat for seven months). That’s a red flag. Gaps like this between similar metrics deserve attention, since they signal that something is happening.