I’ve done a deep dive into the jobs report and here’s my conclusion: We’re screwed.
Totally and utterly screwed. You wouldn’t know it from Twitter or from much of the analysis on the report Friday morning. One Fed governor even called the report a “good” one. It isn’t.
And it’s not just the fact that employers in America added just 173,000 jobs, which was about 50,000 less than expected, which will likely get revised upward later on. Dig deeper than that, though, and you’ll just how much we’re in for trouble.
Reason we’re screwed No. 1
That’s all, folks. We’ve reached it. The peak. And now we appear to be on the down slope. Early on, there was a question of whether the jobs report showed the economy was getting better or worse. But then we broke out of that, and we had a few years of steadily improving jobs growth. That appears to be over, and possibly for good for a while. This year’s average monthly gain in jobs is nearly 50,000 fewer jobs than a year ago. That means the economy is on pace to add 600,000 fewer jobs than a year ago.
Economies move in cycles. And those cycles don’t last forever. Early on, we could have said, just wait until next year. But it’s been six years since the last recession. The average economic expansion in the U.S. since World War II has lasted 64 months. We are now on month 74 of the current frustratingly slow expansion. Odds are we won’t have another year to get better.
And yes, I know that the unemployment rate has dropped to 5.1%, which is great. But that’s also the level the Fed has called full employment. So, once again, this is as good as it gets. Enjoy.
Reason we’re screwed No. 2
At this point in the recovery, with the unemployment rate as low as it is, people should be landing jobs left and right. But they aren’t. In fact, many people are still exiting the workforce, giving up looking for work. And the rate at which they are leaving the workforce is increasing. It shows a lack of optimism. Many explain the continued dropout rate by referring to the wave of retiring Baby Boomers. Even before the recession, many people predicted that the U.S. labor force would shrink. But it hasn’t shrunk in the right places. Older workers are sticking around longer. The percentage of prime age workers who have jobs has flatlined at 77% this year, still below the 80% it was before the recession.
Reason we’re screwed No. 3
The economy is not nearly as productive as it used to be. The above chart is a little old, but the story is basically the same. Productivity isn’t growing. In fact, it’s probably shrinking. It used to be a rule of thumb that a 1% gain in GDP would produce about 150,000 new jobs a month. Well, economists believe the economy is now growing at nearly 3% a year, and job growth is not 450,000 a month, or even half of that.
Bonus reason we’re screwed
Today's jobs report is awfully close to what any serious forecaster was expecting a month ago. So it's hard to see it moving the Fed much.
— Justin Wolfers (@JustinWolfers) September 4, 2015
Wolfers is a really smart economist. He also pointed out that wage growth, up 0.3% this month, is slowing as well, which is yet another reason the Fed should not raise interest rates.
But the consensus seems to be that Friday’s jobs report was pretty good and if the Fed is thinking of hiking rates, it should just go ahead. As I said, at least one Fed governor seems to agree, meaning the central bank may end up raising interest rates in the next couple of weeks, potentially sucking the last bit of life out of the already slowing hiring market. We’re totally screwed.
