This page has been archived and commenting is disabled.
Guest Post: Employment - The Macro Trends
Submitted by Lance Roberts of Street Talk Live blog,
The May jobs report came in better than expected at 175,000 jobs with the labor force ticking up slightly from the lowest levels since 1979. With the markets deeply oversold on a daily basis the report provide the catalyst necessary for traders to return to the stock market. However, what we need to know from an economic perspective, as well as a long term investment view, is what does 175,000 jobs actually mean? Putting economic data into context gives us a much better picture of where the overall economic trends are and what we should be expecting in the months and quarters ahead.
Population Growth Still Outpacing Employment
As we discussed yesterday in "4 Tools Of Corporate Profitability" the issue of increases in population relate directly to employment growth. As I stated:
"...despite increases in employment in recent months it has been a function of population growth rather than a improved outlooks by businesses. The issue of population growth is ignored by most analysts and economists when discussing employment. However, when businesses are geared for a certain level of demand, increases in population will incrementally increase demand requiring fractional increases in business productivity and output. However, in order to keep costs minimized businesses have resorted to temporary hires rather than full-time employment which incurs additional costs of benefits and health care. The expectation is that temporary workers will eventually become full-time employees, however, with the impending effects of higher health care costs due to the Affordable Care Act - temporary hires may be the new normal. The chart below shows full-time employment relative to the population."
There is little debate that the current labor market is very tight. We know this by looking at the median duration of unemployment, which remains extremely elevated from a historical perspective and the labor force participation rate remains near its lowest levels since 1979.
Within this context we can surmise that businesses are maintaining minimum staffing levels to meet current demand. As stated above increases in population create additional demand which is met with incremental hiring. Unfortunately, many of those jobs are in the low wage paying service based categories which keeps wages and income growth suppressed.
The Real State Of Employment
In order to put perspective on the current employment situation we need to step back and take a look at the long term view of employment in the U.S. The chart below shows the growth in the number of employed persons since 1948 along with a growth trend line.
While growth in the labor force ebbed and flowed over time remained contained within a 5% band above and below the long term trend line. That is until 2008 when the deviation from the previous 60 year trend plunged to over 11%. As of May 2013, despite claims of economic and employment recovery, the deviation of employed persons from the long term growth trend is a negative 11.5%. This is only 0.2% above the historic low of 11.7%.
If we dig a little deeper into the data from 2009 to present we can see the real disparity in hiring trends. The chart below shows the change in full-time versus part-time employment.
While there is no argument that full-time employment has most definitely improved since 2011 it has been part-timers finding a bulk of the jobs. Since 2009 part-time employment is up 1.3 million while full-time is only up 418,000. This goes a long way to explain the surge in food stamp participation rates.
Economic Reports Don't Support Further Gains
One important point to remember is that corporate hiring decisions are grossly affected by the overall strength or weakness of the economy. In the recent post "Economic & Employment Composites Indicate Further Weakness" I specifically addressed the employment issue stating:
"If you strip the employment components out of the EOCI index and weight them into their own composite index we find that the hiring intentions of employers is clearly weakening. The chart below shows the Employment Index smoothed with a 4-month average and compared to the annual rate of change in Total Non-Farm Employees."
"As with the EOCI index above - employment activity clearly peaked in early 2012 and has begun to wane. The recent uptick in the employment index, remember this is a 4-month moving average, is due to the effects from the uptick in economic activity from "Hurricane Sandy." This index will turn down in the next couple of months as the recently monthly data points have declined.
What is clear from the two composite indexes is that the broad economy, and by extension underlying employment, has clearly peaked and has began to weaken. This is well within the context of historical trends and time frames. While the mainstream analysts and economists continue to have optimistic views for a resurgence in economic activity by years end the current data trends, both globally and domestically, suggest otherwise."
Part-Time For Economic Reasons
This problem with part-time employment is that it does not increase economic prosperity. Part-time employment, as discussed in the "Labor Hoarding Effect," has been an aggressively used tool by corporations to suppress wage growth, reduce overhead costs and increase profitability. The problem is that with the Affordable Care Act gearing up to start in 2014 even more businesses will resort to part-time employment to reduce the increased health care tax burden. I stated that:
"The issue of 'labor hoarding' is an important phenomenon that is likely obscuring the real weakness in the underlying economy. Without an increase in the demand part of the equation businesses are likely to continue resorting to further productivity increases to stretch the current labor force farther to protect profitability. However, as we may currently be witnessing, businesses may be reaching the limits of what they can do to continue increasing profits at the bottom line while revenue declines at the top. The implications for the financial markets going forward are clearly negative."
There has been little improvement in the number of people working part-time for economic reasons. However, as I stated, such weak employment leads to dependence of government subsidies which explains the rise in disability claims and food stamp participation as individuals seek to make ends meet.
The problem is that suppressed wage growth leads to weaker consumer demand which keeps businesses on the defensive to protect profitability. This can be seen by the commercial lending versus job trends chart below.
Depsite historically low borrowing rates for businesses the demand for loans appears to have peaked for the current economic cycle. In turn if businesses are cutting back on borrowing for capital investments the need to hire additional employees will likewise be scaled back.
"Muddle Through" Employment
One thing is for certain -- the job market is very tight as layoffs and discharges have reached the lowest levels since the turn of the century. While this is leading to lower initial jobless claims it is not translating into higher levels of full-time employment relative to the population. This is shown in the chart below.
The "good news" is that for those that are currently employed - job safety is high. Businesses are indeed hiring; but prefer to hire from the "currently employed" labor pool rather than the unemployed masses. Furthermore, the weak state of employment is likely to keep the Fed engaged in its current liquidity programs for longer than previously expected. With the debt ceiling debate just around the corner and weak economic reports it is simply too soon to start taking away the "punch bowl."
It is not surprising that with an economy that is mired at a near 2% economic growth rate that employment is "muddling" right along with it. While the economy is indeed creating jobs, as I previously stated, it is a function of population growth rather than a sign that the economy is on the road to recovery.
What is clear is that current detachment between the financial markets and the real economy continues.
»
- 9649 reads
- Printer-friendly version
- Send to friend
- advertisements -
If this market is 'oversold' then I hate to see what overbought would be!
Government will create all the jobs we will ever need. Obama just needs more time (third term).
The Gov and O have bigger problems soon...
And I'm shocked...SHOCKED that it hasn't been presented here recently
We are about 140Bil from 17trillion on the national dept..
I think attention spans are going to get a whole lot longer this fall...and it won't be just the plebs, in fact fuck the plebs, it will be the rest of the world telling us to fuck off...
http://www.usdebtclock.org/
They are going to need a shitload of new hires to go through all of that data they are downloading on all the citizens of the world.
Unfortunately Americans can't be trusted so they will likely contract it out to the same Israeli firms that are currently collecting it... who will no doubt hire at least 1 million Indians to search through it to find the 'pearls'...
No, that's the exact sentiment of the private sector. US CItizens have too much freedom in their eyes.
It's a bit surreal for me reading the articles and digging around for information on the NSA wiretapping scandals. I'm almost to the point of being afraid to use the internet at all. Or leave home at all. I really don't feel that I'm Being paranoid at all by Feeling paranoid. It's just a wierd felling for me.
And I'm a computer scientist. I teach this stuff too (occasionally in my advanced age I'll teach a class...). And I've loved the internet ever since it was ArpaNet.
Strange how things change.
Who fucking wants a job when cheesepopes run the printing presses... If you're working, you're working for THEM because they've conveniently set themselves up to skim your labor...
~~~
Only sychophants don't understand this...
The world is going to shit right now because people innately understand this [& are thus dissuaded from having the motivation to work]... Yet the 'Pavlovian' response which they have been conditioned with prevents them from understanding this on a conscious level...
It's like the 'Good Will Hunting' [NSA] scene... There are a lot of WICKIT SMAHT people out there [like Will Hunting]... But who the hell wants to work for cheesepopes [or, NSA, in the example] once you've figured out what it's all about...
I'd rather grow crops...
Uh, if people can't trust not only the executive branch, uh, but also don't trust congress, uh, and don't trust federal judges to make sure we're, uh, abiding by the constitution, due process and the rule of law then we're going to have some problems here.
Barry Hussein Sotorobamadinga 6/7/2013
If this doesn't make you tear up then maybe you are not a patriotic American?
Since the private sector hasn't been friendly with those seeking employment(by doing everything hostile including temp labor usage), why not work for an employer that offers what the private sector won't? That, and it's not as if you automatically lose your conscience for doing so.
Maybe when the private sector doesnt have an fixation on treating their non-business-owning participants with contempt, you would have a good point. Until then, the public sector is not out of consideration for paying the bills that come throughout life.
I'm small private sector (construction) and having to deal with the incessant fucking whining, personal problems, and mistakes, I'd say you have it backwards, at least from my perspective. but for every ten guys you do find 1 worthy and worth all of the above.
Exactly, and the problem is a large percentage in construction decide not to actually employ anyone. Just call them independent contractors, 1099 them and then you can eliminate most of those headaches. It may be technically illegal to miss-classify them, but the government, at least in my area, seems to care less. I'd have to say that 50% or more of the work is being performed in such a manner and the trade workers trying to play by the rules are suffering immensely.
A lot of it would go away if they weren't treated with general contempt; such removal would have to come from a complete inability for your kind to use the "1099/temp/contractor" benefit dodge.
You are not the Almighty just because you are a business owner, stop thinking that you are(never mind thinking that a small business imparts you any special status).
Then make temporary work cost as much as full-time work. If business wants to play European hardball against workers, there are options to moot reclassification.
The first piece would be to acknowledge temporary/staff/consulting/part-time work hires as (employer-formed) labor unions and subject them to a federal version of the Right-to-Work law. This would take away the incentive to use them as benefit dodging entities as nobody would choose a lesser classification than they desired. Businesses would have to compete against the default full-benefit, high-security classification.
The next part would be to give the unemployed and new entrants protected status. It would be attained at the minimum working age, and only lost after 10 years of continuous direct-hire employment in a full-benefit/full-time/non-temporary capacity with one employer. Such status would reinstate upon losing employment and/or becoming ineligible for unemployment insurance. This piece ensures the failure of any traditional business response to ironclad regulations(which is to not hire).
Finally, blunt the forces of jurisdictional arbitrage by ending all guest worker programs (and anything capable of such) and penalizing offshoring. This would be the hardest piece to enact but the one that is most necessary - as it would remove the pool of less-than-free-but-legal labor used by business.
While none of these are easy, they would go a long way to ensuring that the US can preserve First World levels of protection while preventing a European(or Third World) reaction. The country, the legitimate/law-abiding citizens within, and the way of life that the US has enjoyed are too valuable to be subject to intentional destruction from within.
If you take out the population growth you will find that the level of unemployment correlates to the efficiency of the system. The more efficient the system becomes the less full time workers you will need. Being a % and not an absolute value it is even pointless killing half your population because the same percentage will remain just in case big government contemplates it. This time round the debt after so long, being so big with very little money to spend they resort to CTRL-P to try and hold it all together. THINK THAT ABOUT SUMS UP WHERE WE ARE.
Well the effciency rate is way to high for the current economic system to survive for long and all QE does is just add a % of a number into the system. It DOES NOT REDUCE THE LONG TERM EFFICIENCY RATE making the current economic system sustainable because that would means reversing all technological advances. If anything the current situation is pushing for ever higher efficiencies that in a short time will just make things disasterously worse. Their own worst enemy is themselves ...
Not interested in possible solutions neither because by that last point there is none for the current economic mechanism. So game, set and match, efficiency will eventually destroy the current economic situation what we do to pass through this point is a whole different issue.